Title: Cincinnati Ins. Co. v. FRED S. POST, JR.
Citation: 747 S.W.2d 777
Docket Number: N/A
State: Tennessee
Issuer: Tennessee Supreme Court
Date: March 28, 1988

747 S.W.2d 777 (1988) CINCINNATI INSURANCE COMPANY, Appellant, v. FRED S. POST, JR., CO.; Post &amp; Company, Inc.; Post Leasing &amp; Sales Co.; Post Realty Company, and Fred S. Post, Jr., Appellees, v. Alex A. SHAFER, Jr., and Shafer Insurance Agency, Inc., Appellees. Supreme Court of Tennessee, at Knoxville. February 16, 1988. Opinion on Petition to Rehear March 28, 1988. Linda J. Hamilton Mowles, Morton, Lewis, King &amp; Krieg, Knoxville, for appellant. Thomas N. McAdams, Charles D. Susano, Jr., Bernstein, Susano &amp; Stair, Knoxville, for appellees Fred S. Post, Jr., Co., et al. James C. Wright, Butler, Vines, Babb &amp; Threadgill, Knoxville, for appellees, Alex A. Shafer, Jr. and Shafer Ins. Agency, Inc. COOPER, Justice. Cincinnati Insurance Company (CIC) filed this action seeking to reform a policy of insurance it had issued to Post and Company (Post). CIC contended that reformation was necessary to correct a typographical error which omitted contents coverage on a building the parties agree was meant to be insured and provided contents coverage on another building that was not to be covered and which was destroyed by fire. Post answered denying that CIC was entitled to reformation of the insurance contract and, in the event the court ordered a reformation, filed a third party action against Shafer Insurance Agency, Inc. and its president, alleging that Shafer either breached its agreement to provide insurance coverage to Post or in the alternative negligently failed to secure coverage on the contents in the warehouse destroyed by fire. After trial, the chancellor dismissed the third-party action against Shafer, and reformed the insurance policy. The Court of Appeals reversed and held that CIC had not proved its right to reformation by clear and convincing evidence. From our review of the evidence, we are convinced that CIC carried its burden and that the chancellor properly decreed a reformation of the policy of insurance issued by CIC to Post. We are also of the opinion that the chancellor properly dismissed the third-party action brought by Post against Shafer. Consequently, we reverse the judgment of the Court of Appeals and affirm *778 the judgment entered by the chancellor. The Court of Appeals adopted the facts as found by the chancellor in his memorandum opinion. A reading of the record confirms that the chancellor's account is a "succinct" and accurate summary of the testimony and it is reproduced here as a concurrent finding of fact by the two courts. The chancellor and the Court of Appeals reached different conclusions from these findings. The chancellor found as follows: On the other hand, the Court of Appeals found: After reviewing the record, we agree with the chancellor's conclusions. Under Tennessee law a contract of insurance may be reformed only upon clear and cogent evidence of fraud or of a mistake in the drafting of the policy which renders the terms of the policy different from those agreed upon by the parties. African Trading International, Inc. v. Fireman's Fund Insurance Co., 583 S.W.2d 607, 610 (Tenn. App. 1979); E.K. Hardison Seed Co. v. Continental Casualty Co., 56 Tenn. App. 644, 410 S.W.2d 729, 732 (1966). There is, of course, clear and cogent evidence of a mistake in the typing (drafting) of the policy by CIC. As the chancellor noted, the Shafer proposal and binder left with Post clearly showed there was no contents coverage offered on the Ailor Avenue warehouse. All documents forwarded to CIC by Shafer clearly reflected there was no coverage on the contents of the Ailor Avenue building. Only the carelessness of a typist at CIC and the failure of any other person to catch this mistake permitted such an obviously erroneous provision to be included in the policy. It seems, however, that where the Court of Appeals differs with the chancellor is the question of whether there is "clear and cogent proof" that the mistake in drafting the policy rendered the terms of the policy different from those agreed upon by the parties. Here again we agree with the chancellor. In the 1981 negotiations with Shafer, Post had rejected coverage of the building and contents at 2411 Ailor Avenue because of high premiums. In 1982, Robert Sims, the agent of Fireman's Fund, thought that he could achieve the equivalent of contents coverage at a 95% reduction in premiums for the Ailor Avenue warehouse through Dealer's Physical Damage Coverage. This is regularly a blanket insurance covering all owned vehicles held for sale by a dealer and the equivalent of regular automobile insurance for collision, comprehensive coverage, etc. The premiums would vary as the inventory changed. Sims attempted to expand the coverage to include the materials stored at the warehouse used to construct truck and van bodies by changing the meaning of "owned autos" in the policy to include "truck bodies" and by specifically referring to the Ailor Avenue location in the policy section concerning this coverage.[2] It can be inferred from the proof that Sims led Post to believe that by this procedure he had effected the equivalent of contents coverage under the fire insurance policy for personal property stored at the Ailor Avenue warehouse. However, anyone looking at the Fireman's Fund policy with no knowledge of Sims' intent to provide for contents coverage under Dealer's Physical Damage Coverage would not have interpreted it in this manner, and as both courts have found the provisions of the policy did not provide contents coverage. When Shafer, CIC's agent, bid on the insurance in 1983, he was told by Post to duplicate the coverage afforded by the *782 Fireman's Fund policy. Post, of course, had the mistaken belief, uncommunicated to Shafer, that Sims had obtained contents coverage under the Fireman's Fund policy; however, the chancellor found, and we agree, that the antecedent agreement of the parties was for CIC to provide Post the same coverage as was provided in the Fireman's Fund policy. There was no antecedent agreement concerning contents coverage on the Ailor Avenue warehouse policy as the Fireman's Fund policy did not per se provide coverage. Coverage under that policy, if any, would have been by estoppel predicated upon representations of Fireman's Fund's agent. Without knowing of Mr. Sims' representations to Post and intent to provide coverage of contents of the Ailor Avenue property in an unconventional manner there was no way CIC would have ever understood from Post's instructions that it was requesting coverage of the contents of the Ailor warehouse against fire loss.[3] The binder issued by Shafer to Post and the application to CIC provided the same coverages as the Fireman's Fund policy. They did not include coverage of the contents of the Ailor Avenue warehouse against fire loss. There is clear, cogent and convincing proof that a typing error was made by a CIC employee in drafting the policy so that the policy as issued differed from the antecedent agreement of the parties in that it omitted from coverage the contents of the building on 24th Street, which the parties agree was meant to be insured, and included the contents of the Ailor Avenue warehouse. Reformation would result in correcting the typographical error in the policy so that it would then correspond to the antecedent agreement between Post and CIC's agent Shafer and provide the same coverages as the Fireman's Fund policy. Post also advances the argument that Shafer was negligent in fulfilling his obligation to Post and breached his contract to duplicate the existing coverage. We find no merit in this argument. Shafer did exactly what Post told him to do, that is, duplicate the coverage previously written by Fireman's Fund. Although Post may have subjectively believed he had coverage on the contents of the Ailor warehouse, he did not pass this belief on to Shafer, but told him only to duplicate the coverages in the existing policy. Accordingly, the judgment of the Court of Appeals is reversed. The judgment of the trial court ordering a reformation of the policy of insurance issued Post by CIC, and dismissing the cross-action against Shafer is affirmed. Costs are adjudged against Post and its sureties. HARBISON, C.J., and FONES, DROWOTA, and O'BRIEN, JJ., concur. A petition for rehearing has been filed by appellees, Fred S. Post, Jr., Company; Post &amp; Company, Inc., Post Leasing and Sales Company, Post Realty Company, and Fred S. Post, Jr. After consideration of the petition, the Court is of the opinion it is without merit. Accordingly, the petition is overuled at the cost of appellees. [1] The agent for Fireman's Fund testified that the endorsements were intended and did in fact provide contents coverage as to the Ailor Avenue property in accordance with his representation to Post. (Footnote from quoted material.) [2] According to the majority of experts, dealer's physical damage coverage applies irrespective of location. [3] Interestingly, however, when Post originally claimed contents coverage after the fire they referred CIC's representatives to the property damage portion of the general liability policy shown on Shafer's initial proposal. This covered damage to property belonging to persons other than Post.