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Geovera Specialty Insurance Company, Formerly Known As Usf&G Specialty Insurance Company v. Graham Rogers

April 13, 2011

GEOVERA SPECIALTY INSURANCE COMPANY, FORMERLY KNOWN AS USF&G SPECIALTY INSURANCE COMPANY, APPELLANT,
v.
GRAHAM ROGERS, INC., APPELLEE.



Appeal from the United States District Court for the Eastern District of Arkansas.

The opinion of the court was delivered by: Gruender, Circuit Judge.

Submitted: January 13, 2011

Before COLLOTON, GRUENDER, and SHEPHERD, Circuit Judges.

GeoVera Specialty Insurance Co. ("GeoVera") appeals the district court's grant of summary judgment to Graham Rogers, Inc. ("Graham") on GeoVera's claims for breach of contract and negligence. We affirm the grant of summary judgment to Graham on GeoVera's negligence claim, but because we find that the agreement between GeoVera and Graham placed a duty on Graham to apply GeoVera's underwriting guidelines to all applications for insurance submitted by its retailers under the terms of the contract, we reverse and remand for further proceedings on GeoVera's breach of contract claim.

I. BACKGROUND

GeoVera, an insurance company, and Graham, a wholesale insurance broker, entered into a Surplus Lines Broker Agreement ("Agreement") that went into effect on June 1, 2003. "Subject to the underwriting rules and regulations" of GeoVera, the Agreement authorized Graham "to market, present proposals of residential property insurance to [GeoVera] for its acceptance, and issue and deliver residential property insurance policies." By entering into the Agreement, GeoVera sought to tap into Graham's network of retail insurance agents. The Agreement obligated Graham to appoint retail agents ("retailers") to market GeoVera insurance policies. According to Graham Vice President Jerry Lesch, Graham was to receive payment equal to three percent of all premiums paid on policies produced by Graham's network of retailers.

GeoVera also maintained an electronic Residential Homeowner Quoting and Homeowner Insurance Processing System ("System"). The Agreement contemplated that the retailers appointed by Graham could submit applications to GeoVera by means of the System. Article III of the Agreement provided that "[GeoVera] will give [Graham], and retail producers appointed by [Graham] under this Agreement, access to the System for purposes of sending quote requests, receiving quotes, and printing and delivering quotes, applications, and binders." The Agreement also provided that, after "[Graham] and/or retail producers" complete an insurance application, "[t]he System will then provide a quote response to [Graham] and retail producer" (emphasis added). The System also would send "daily pre-formatted reports" to Graham.

On September 24, 2003, Graham entered into a retail producer agreement with insurance agent Jerry Reeves of East Central Arkansas Insurance ("ECA"). In 2004, Reeves submitted a homeowner's insurance policy application for the home of Gary and Sherry Balentine. GeoVera accepted this application and issued the policy. In 2006, GeoVera cancelled the Balentines' policy because they failed to make a premium payment. Subsequently, the Balentines reapplied for insurance through Reeves, and GeoVera issued a new policy.

Soon after, the Balentines filed a claim with GeoVera for residential fire damage. During GeoVera's investigation of the claim, it discovered that the Balentines would not have qualified for coverage under GeoVera's underwriting guidelines. First, the insured residence was on six acres of land, while the application stated that it was on five acres or fewer. Insured lots may not exceed five acres under the GeoVera underwriting guidelines. Second,the Balentines had filed for bankruptcy in 2005, while the application stated that the Balentines had not filed for bankruptcy within the previous five years. An application listing a bankruptcy filing within the previous five years would have been denied automatically by the System, pursuant to GeoVera's underwriting guidelines. Moreover, the application was not signed by the Balentines. All applications must be signed under the GeoVera underwriting guidelines. After determining that the application's deficiencies could not be attributed to the Balentines, GeoVera paid the Balentines in excess of $780,000 on their claim.

GeoVera then brought claims against ECA and Reeves for negligence, breach of fiduciary duty, and constructive fraud. The parties settled these claims, and GeoVera released ECA and Reeves of liability. GeoVera also brought claims against Graham asserting, among others, breach of contract and negligence.*fn1 Both GeoVera and Graham moved for summary judgment. The district court denied GeoVera's motion and granted summary judgment to Graham on GeoVera's claims for breach of contract and negligence. GeoVera then filed a motion for reconsideration, which the district court denied. This appeal followed.

II. DISCUSSION

We review the district court's grant of summary judgment de novo. Taylor v. St. Louis Cnty. Bd. of Election Comm'rs, 625 F.3d 1025, 1026 (8th Cir. 2010) (per curiam). Summary judgment is appropriate where, viewing the record in the light most favorable to the nonmoving party, there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Id. at 1026-27.

A. Breach of Contract

The district court concluded that there were "no issues for trial on GeoVera's claim that Graham Rogers 'directly' breached a duty under the [Agreement] to apply GeoVera's underwriting and rating guidelines" because "[t]he undisputed evidence shows that Graham Rogers had no part in completing the Balentines' application or submitting the application to GeoVera."GeoVera and Graham agree that Graham "had no part" in submitting the Balentines' application. GeoVera asserts, however, that the Agreement placed on Graham a duty "to make certain that only applications that complied with GeoVera's underwriting guidelines were submitted to GeoVera," including applications submitted by the retailers appointed by Graham. Graham responds by arguing that the Agreement does not create any obligation for Graham to apply the underwriting guidelines to applications submitted by the retailers or to supervise the retailers to ensure that they submitted ...


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