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Electric Insurance Co. v. Great Southern Financial Corp.

United States District Court, D. Massachusetts

April 13, 2016

ELECTRIC INSURANCE COMPANY, Plaintiff,
v.
GREAT SOUTHERN FINANCIAL CORP., d/b/a GREAT SOUTHERN AGENCY, Defendant.

MEMORANDUM AND ORDER ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

F. Dennis Saylor IV United States District Judge

This is a civil action arising out of a contract dispute between an insurance company and an insurance agent that sold the company’s products. In 2010, pursuant to an agency agreement with plaintiff Electric Insurance Company, defendant Great Southern Agency (“GSA”) sold a homeowner’s insurance policy to an individual named Jerry Bull in Missouri. Two years earlier, Bull’s previous house had been destroyed by a fire, and he received a significant insurance payout from a different insurance company. Bull then applied for a new policy from Electric through GSA. In obtaining an individualized price quote for the policy from Electric’s web portal, a GSA employee falsely represented that Bull had not suffered a fire loss in the previous three years. The GSA employee also failed to collect and retain Bull’s insurance application, a requirement under the agency agreement. Electric nonetheless issued the policy.

In 2012, Bull’s new house suffered substantial fire damage. Without an insurance application on file to determine whether Bull had made misrepresentations sufficient to void the policy, Electric was obligated to pay more than $500, 000 to cover Bull’s damages.

After conducting an investigation and paying out the policy, Electric brought suit against GSA for breach of contract, contractual indemnity, negligent misrepresentation, and violation of Mass. Gen. Laws ch. 93A.

Electric has moved for summary judgment on all four claims. Viewing the record in the light most favorable to GSA and drawing all reasonable inferences in its favor, a jury could reasonably conclude that Electric would have issued the insurance policy to Bull and suffered a loss even if GSA had not misrepresented Bull’s prior fire loss, and even if GSA had not failed to retain Bull’s application. In other words, the summary judgment record does not establish as a matter of law that GSA’s actions or inactions caused Electric to issue the policy and suffer damages as a result. Accordingly, plaintiff’s motion for summary judgment will be denied.

I. Background

A. Factual Background

Except where otherwise noted, the following facts are either undisputed or taken in the light most favorable to the non-moving party GSA.

1. The Parties

Plaintiff Electric Insurance Company is a Massachusetts-based underwriter of home and auto insurance. (Compl. ¶ 1). Missouri-based Great Southern Agency is owned by Great Southern Financial Corp.--itself a subsidiary of Great Southern Bank Corp.--and sells insurance-related products. (Id. at ¶ 2; Pl. SMF ¶ 24).[1] Great Southern Bank, also a subsidiary of Great Southern Bank Corp., offers banking products, including mortgage loans. (Pl. SMF ¶ 24).

2. The Agency Agreement

From May 6, 2009, through January 15, 2013, GSA was an insurance agent for Electric in Missouri pursuant to an agency agreement. (Id. at ¶ 1). GSA sold, among other products, homeowner’s insurance policies that were underwritten by Electric. (Id.). The parties do not dispute that the agency agreement was a valid contract governed by the laws of Massachusetts.[2]

Under the “Authority to Sell and Obligations of Agency” section of the agreement, GSA was

[a]uthorized to sell insurance to qualified applicants that meet [Electric’s] pre-determined underwriting and marketing criteria as provided in the program guidelines within the territory upon receipt of the deposit premium. All insurance sold by [GSA] shall be sold in accordance with this agreement and the program guidelines.

(Compl. Ex. A, Agency Agreement ¶ 2.1). Under the agreement, not only did GSA agree to sell insurance policies in accordance with Electric’s program--or underwriting--guidelines, but it was also obligated to obtain policy quotes from Electric in accordance with those guidelines. (Id. at ¶ 2.2). The agreement defined Electric’s “Program Guidelines” as “written or machine readable rules, regulations, underwriting guidelines, rates, forms and instructions that have been or will be provided by [Electric] to [GSA] and that relate to the solicitation, sale, pricing, and/or servicing of insurance.” (Id. at ¶ 1.10).

Under section 2.3 of the agreement, GSA could sell Electric’s insurance policies only if it “procured completed and executed Application Materials and the appropriate premium down- payment from an applicant.” (Pl. SMF ¶ 6; Agency Agreement ¶¶ 2.3, 2.15, 22). The agreement defined application materials to include an insured’s “insurance policy application.” (Agency Agreement ¶ 1.1). The agreement also required GSA to “maintain policyholder documents in its possession on file in accordance with the program guidelines”; those “policyholder documents” included not only application materials, but also “all written correspondence received from the insured, or written notes [GSA agents] derived from conversations with the insured.” (Id. at ¶ 22).

The agreement authorized GSA to use producers, or “licensed insurance agents, ” to sell Electric’s insurance products. (Id. at ¶ 1.9). GSA agreed to ensure that “producers . . . compl[ied] with all applicable terms, conditions, and limitations of th[e] agreement and the program guidelines pertaining to the exercise of such authorities and rights or the discharge of such duties and obligations as if such terms, conditions, and limitations were binding on producers.” (Id. at ¶ 3.1).

Specifically, the agreement required GSA to “ensure that producers (i) sell insurance in compliance with th[e] agreement (Section 2.1) . . . [and] (ii) obtain application materials and appropriate premium down payments (Section 2.3) . . . .” (Id.). GSA further agreed that it “shall be fully and solely responsible for ensuring that each producer used by [GSA] complies with all applicable terms, conditions and limitations of this agreement as if such terms, conditions and limitations were binding on such producer.” (Id. at ¶ 3.2).

It also assumed responsibility “to take all steps necessary to ensure that each of the producers ha[s] received appropriate training with respect to the sale and servicing of insurance.” (Id. at ¶ 15).

The agreement contained an indemnification clause, under which GSA agreed to

indemnify, defend, and hold harmless [Electric] . . . from and against any and all losses, obligations, costs, liabilities, damages, actions, suits, causes of action, claims, demands, settlements, judgments, or any other expenses, including but not limited to attorneys’ fees and expenses, which are asserted against, imposed upon or incurred or suffered by [Electric] and which arise out of or result from:
(i) The failure of [GSA] or any of its respective . . . employees or agents to properly discharge any of their duties or obligations under or to observe or comply with all terms, conditions and limitations contained in this agreement pertaining to their authority or rights hereunder;
(ii) The breach or failure to observe any covenant, conditions, warranty, representation, or limitation contained in this agreement by agency or any of its respective . . . employees or agents;
(iii) The violation of any law, rule, regulation, order, or other legal authority in connection with this agreement by [GSA] or any of its . . . employees or agents;
(iv) The negligence, gross negligence, or willful or wanton behavior in connection with this agreement by [GSA] or any of its ...

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