Opinion ID: 538925
Heading Depth: 2
Heading Rank: 2

Heading: Suppression of Facts

Text: 43 In addition to sending First Alabama a misleading letter, First State also failed to disclose to the bank that it was its decision, not London's, not to offer the prior acts coverage. In his deposition, Frank Vincent testified that [w]e made a final determination at Cameron & Colby as unwriter [sic] for First State Insurance Co., ... that we were unwilling to provide prior acts.... Vincent Deposition at 221. In light of the fact that First State had previously indicated to First Alabama that whether it could get prior acts coverage was up to London, First State committed fraud by not disclosing that it, rather than London, had made the decision not to offer the coverage. Since First State failed to disclose that it made the decision not to offer the coverage, First Alabama was lulled into not discussing the matter with First State or seeking coverage elsewhere, as it would have done had all the facts been disclosed. District Court's Memorandum Opinion (Feb. 20, 1987), Rec. 188 at 37. 44 Under the particular circumstances of the instant case, we believe that First State had an obligation to disclose that it had made the decision not to offer the coverage, rather than London. The parties were not dealing at arms length because First State, a leading insurer of bank trust department E & O insurance, had better knowledge about the availability of this coverage than did its client, First Alabama. See Mann, 556 F.2d at 297; Ellis, 409 F.Supp. at 1157-58. When First Alabama inquired about obtaining prior acts coverage from First State, the company told the bank that the decision would be up to London. Once First State knew that London had agreed to provide the coverage, it concealed this fact from the bank and told it that prior acts coverage was unavailable. Thus, under the facts of the instant case, we believe that the district court was justified, as a matter of law, in concluding that First State was under a duty to disclose the facts to First Alabama. See Jim Walter Homes, 448 So.2d at 306 (holding that the seller had a duty to disclose to the buyer that there was a pending lawsuit on the property for sale). See also State Farm Mut. Auto Ins. v. Ling, 348 So.2d 472, 475 (Ala.1977) (stating that an agent's engendering of trust and confidence imposes a duty to disclose material facts). Finally, even if First State was not under a duty to disclose, once it chose to speak and told the bank that the decision would be up to London, it was required to make a full and fair disclosure. Ellis, 409 F.Supp. at 1158. 45 First State argues that the bank's reliance on its misrepresentations was unreasonable. We disagree. At trial, Bohannon testified that Pat Green of Johnson & Higgins had told him that there was only one company that was writing [prior acts] coverage, that being First State. Tr. at 91. When First Alabama presented its request for retroactive coverage to First State, it was told that the decision would be left up to London.... Id. at 102. Given the nature of the facts that First State concealed from the bank, we agree with the district court that First Alabama was lulled into not discussing the matter with First State or seeking coverage elsewhere ..., District Court's Memorandum Opinion (Feb. 20, 1987), Rec. 188 at 37, because it believed its efforts would have been futile, see Tr. at 104-05, 201. Although the bank desperately wanted E & O insurance with prior acts coverage, it accepted the policy without the coverage because it believed that First State was unable to write prior acts and that there were no other markets for this type of coverage. 46 First State next argues that its representation was not the proximate cause of plaintiff's injury because the representation was made in 1976, while the bank's claim for indemnity because of its loss in Martin-Gerson occurred during the 1978 policy year. We do not find this argument persuasive. The testimony presented at trial indicates that First Alabama made its desire for prior acts coverage known to First State in 1976 as well as in subsequent years. Bohannon and Mosley both testified that they discussed the bank's need for retroactive coverage at a 1977 meeting and possibly at a 1978 meeting. Id. at 109, 428. Furthermore, the evidence indicates that if First Alabama had obtained prior acts coverage as it requested in 1976, it would have continued to have this coverage in its 1977 and 1978 policies. See id. at 329-330. The record indicates that in over ninety percent of the cases when First State wrote a bank trust E & O policy with prior acts coverage, it continued to offer this coverage when the policies were renewed. See Plaintiff's Exhibits Nos. 86-88. In fact, policies with prior acts coverage were renewed in later years even when the banks had poor claims histories. See id. 47 As part of its proximate cause argument, First State also argues that First Alabama would not have qualified for prior acts coverage in 1978 because of its poor claims history and because of misrepresentations it made in its applications for coverage. The district court thoroughly examined these contentions and dismissed them saying there is no evidence that the Martin-Gerson claim or any circumstances which might give rise to that claim were known to First Alabama Bank at the time the applications were submitted. District Court's Memorandum Opinion (Feb. 20, 1987), Rec. 188, at 39. The court further added that First Alabama Bank made known to First State all matters which were alleged to have been concealed in the renewal applications from 1976 through 1980. Id. at 40. After a careful review of the record, we agree with the court's findings on this issue. Since the district court adequately addressed these arguments and because we find that the record supports the court's findings on this issue, we decline to address these same issues again. 8 C. Punitive Damages 9 48 In addition to challenging the trial court's finding of fraud, First State also contends that the court abused its discretion by awarding the plaintiff punitive damages. In American Honda Motor Co. v. Boyd, 475 So.2d 835 (Ala.1985), the Alabama Supreme Court announced its new standard for awarding punitive damages in intentional fraud cases. In that case, the court held that punitive damages are recoverable when the evidence establishes an intent to deceive or defraud.... Id. at 839. The Alabama Supreme Court clarified its earlier decisions by explaining that the intent to deceive is sufficient to trigger the possibility of the imposition of punitive damages, without the additional requirement of a showing of maliciousness, oppressiveness, or grossness. Id. at 838. Furthermore, the imposition of punitive damages is always discretionary with the trier of fact. See Ford Motor Credit Co. v. Washington, 420 So.2d 14, 17 (Ala.1982) (citing Neil Huffman Volkswagen Corp. v. Ridolphi, 378 So.2d 700 (Ala.1979)). 49 In the instant case, the district court found that First State intended to mislead and did successfully mislead plaintiff. District Court's Memorandum Opinion (Feb. 20, 1987), Rec. 188, at 37. Judge Guin further found that the representations made and the failure to disclose material facts by First State were an attempt to gain a negotiating advantage by concealment of a very material fact--egregious fraud--the kind deserving of punishment by the imposition of punitive damages. Id. at 45. After carefully reviewing the record, we do not believe that the court abused its discretion by awarding punitive damages under the facts of this case. First State misrepresented to First Alabama that prior acts coverage was not available even though it knew that contract 548 and all, but one member of contract 549, had approved this coverage. Second, after telling the bank that the decision on whether to offer the coverage was London's, it failed to disclose the fact that it, not London, had made the decision not to offer the coverage. First State intended to deceive First Alabama by inducing it to rely on its representations that prior acts coverage was not available and by inducing it to accept an E & O policy without the coverage it desired, which was relatively risk-free for First State, see Griffin Deposition at 77. First Alabama, subsequently, was damaged when First State refused to indemnify it for the loss it sustained in the Martin-Gerson case.