Opinion ID: 538925
Heading Depth: 2
Heading Rank: 1

Heading: Liability in Tort v. Contract

Text: 75 In Alabama, when an insurance broker fails in the duties he assumes, one can sue him either for breach of contract or in tort. Highlands Underwriters Ins. Co. v. Elegante Inns, Inc., 361 So.2d 1060, 1065 (Ala.1978) (per curiam); Waldon v. Commercial Bank, 50 Ala.App. 567, 281 So.2d 279, 282 (1973). While many cases involving insurance brokers discuss breach of a contract to procure insurance, see, e.g., Langley, 512 So.2d at 752; Timmerman Ins. Agency, Inc. v. Miller, 285 Ala. 82, 229 So.2d 475 (1969), Johnson & Higgins breached not only a contract to procure insurance, but also a contract to provide the knowledge and skill necessary to meet FAB's insurance needs. District Court's Memorandum Opinion (May 26, 1988), Rec. 207, at 44. Alabama law holds that when one contracts with another and expressly promises to use due care or to do an act, he is liable in both tort and contract when his negligence injures the other party. See Blumberg v. Touche Ross & Co., 514 So.2d 922, 927 (Ala.1987); Eidson v. Johns-Ridout's Chapels, Inc., 508 So.2d 697, 702 (Ala.1987). He is liable in contract for breaching an express promise to use care, and the injured party can choose which cause of action to pursue. Blumberg, 514 So.2d at 927. Alabama has held that one can sue an accounting firm in contract for breach of its express agreement, see id. at 925, and one can sue a funeral home in contract for breach of its express promises, see Eidson, 508 So.2d at 703. Thus, because Johnson & Higgins made express promises on how it would meet First Alabama's insurance needs in both its oral presentation and written proposal, upon which the bank relied, we believe the court's holding that plaintiff's action sounds in contract is correct under Alabama law. 76 To determine whether the court was correct in holding that Johnson & Higgins had breached its contract with First Alabama, we must also discuss the obligations of an insurance broker to its principal.  'An insurance broker is the agent of the insured in negotiating for a policy, and owes a duty to his principal to exercise reasonable skill, care, and diligence in effecting insurance.'  Timmerman, 229 So.2d at 477 (quoting 16A J. APPLEMAN, INSURANCE LAW & PRACTICE Sec. 8841 (rev. ed. 1981)). An insurance broker is expected  'to possess reasonable knowledge of the types of policies, their different terms, and the coverage available in the area in which his principal seeks to be protected.'  Bates v. Gambino, 72 N.J. 219, 370 A.2d 10, 13 (1977) (per curiam) (quoting 16A J. APPLEMAN, INSURANCE LAW & PRACTICE Sec. 8845 (rev. ed. 1981)); See also Stein, Hinkle, 313 N.W.2d at 304 (allowing plaintiffs to reform their insurance policy because their agent did not inform them about the availability of prior acts coverage). Proper diligence requires an insurance broker to canvass the market and to be informed about different companies and terms available. Zeff Distrib. Co. v. Aetna Casualty & Surety Co., 389 S.W.2d 789, 795 (Mo.1965). 77 Furthermore, an insurance broker can assume additional duties by an express agreement. See Hardt v. Brink, 192 F.Supp. 879, 881 (W.D.Wash.1961). Whether a broker assumes additional responsibilities depends on the relationship between the parties. See id. In this case, First Alabama made its desire for trust department E & O insurance with prior acts coverage known to Johnson & Higgins in 1976 and in subsequent years. Tr. at 102, 105, 377. Johnson & Higgins represented to the bank that it would shop the market and present alternative insurance policies to it. Furthermore, as First Alabama's exclusive broker, see Green Deposition at 25; Plaintiff's Exhibit No. 14, Johnson & Higgins promised that it would make its client aware of various alternatives. Jenniges Deposition at 66. Jenniges testified that if a client wanted a particular type of coverage, the company would look at all available sources. If one source wouldn't provide the need, they would go to other sources. Id. at 125-26. 78 Johnson & Higgins, however, breached its contract by failing to comply with its express promises. Although Pat Green conceded that First Alabama needed the broadest coverage available, Tr. at 918, he did not canvass the market on behalf of his client. Green testified that he could not recall whether he had contacted other carriers, besides First State, for E & O insurance with prior acts coverage for First Alabama. Id. at 889; see Green Deposition at 127. In fact, after having reviewed the files, John Wall, an expert witness, testified that Johnson and Higgins did not approach any markets other than First State for the coverage. Tr. at 510, 650. 79 While Johnson & Higgins informed the bank that First State was the only source for prior acts coverage, id. at 91, 202, 377, the bank presented overwhelming evidence that other companies were offering E & O insurance with prior acts coverage in 1976. Id. at 518, 533, 554; Johnson & Higgins' Answers to Plaintiff's Interrogatories, Rec. 119, at 2; Plaintiff's Exhibit No. 49 at 3. Although Johnson & Higgins approached only First State on behalf of First Alabama, Johnson & Higgins contacted these other companies for their other clients. See Plaintiff's Exhibit No. 46. 80 While Johnson & Higgins admits that other companies were offering prior acts coverage, it argues that First State was the leader in trust department E & O insurance, see Tr. at 876, 954, and that other carriers were not suitable for the bank's needs, see, e.g., id. at 959, 962-64, 970. These arguments miss the point. Although coverage from other carriers might not have been appropriate for the bank's needs, Johnson & Higgins nevertheless had an obligation to inform the bank about the available options. Once Johnson & Higgins had informed the bank about the possible options, then the bank could have made an informed decision on whether to request coverage from these other companies. For example, although Johnson & Higgins' expert, Donahue, testified that MGIC Indemnity Corporation would offer E & O insurance with prior acts coverage only if First Alabama also bought its directors and officers insurance from this company, see id. at 962, Johnson & Higgins should have presented this information to the bank and let it decide whether it wanted to switch its directors and officers insurance to another carrier. As the district court said, By failing to advise and inform First Alabama Bank of the other markets for prior acts coverage, Johnson & Higgins effectively precluded the opportunity of considering such options, and Johnson & Higgins' negligence prevented any opportunity for plaintiff to pursue and obtain other options. District Court's Memorandum Opinion (Feb. 20, 1987), Rec. 188, at 25. 81 Johnson & Higgins also contends that the company adhered to its instructions from First Alabama because Kurt Grinstead specifically told Charles Slusne of Johnson & Higgins not to conduct a survey of markets for prior acts coverage in 1978, the year when the Martin-Gerson claim arose. Johnson & Higgins presented this argument to the district court, and the court rejected it. So do we. If Johnson & Higgins had properly canvassed the market and obtained prior acts coverage for the bank in 1976, First Alabama would most likely have had this coverage in 1978. See Tr. at 329-330; Plaintiff's Exhibits Nos. 86-88. Second, although First Alabama might not have reiterated its desire for prior acts coverage at its 1978 meeting with Johnson & Higgins, the evidence indicates that the broker knew of the bank's continuing desire for this coverage. Since First Alabama never indicated that its interest in prior acts coverage had changed, even without a specific request Johnson & Higgins' duty as a broker, given the relationship of the parties, would require it to know and advise First Alabama Bank of the availability of such coverage and the potential repercussions of staying with First State without the benefit of prior acts coverage. District Court's Memorandum Opinion (Feb. 20, 1987), Rec. 188, at 14-15. Moreover, because Johnson & Higgins told First Alabama that it had contacted other carriers and that First State was the only company writing prior acts coverage, Tr. at 91, 202, Grinstead may have reasonably believed that it would have been futile to seek the coverage elsewhere. Therefore, we conclude that the district court correctly held that plaintiff's action against Johnson & Higgins sounds in contract and that the broker breached its contract with the bank by failing to comply with the representations it made in its oral presentation and written proposal.