Booska v. Hubbard Insurance Agency

BOOSKA_V_HUBBARD_INSURANCE_AGENCY.92-067; 160 Vt. 305; 627 A.2d 333


 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 92-067


 Ora J. and Susan J. Booska                   Supreme Court

                                              On Appeal from
      v.                                      Addison Superior Court

 Hubbard Insurance Agency, Inc.,              November Term, 1992
 Deborah Wheeling and
 Northern Security Co.


 Frank G. Mahady, J.

 Kevin E. Brown and Anthony G. Patt of Langrock Sperry & Wool, Middlebury,
    for plaintiffs-appellants

 Michael J. Harris of Paul, Frank & Collins, Inc., Burlington, for
    defendants-appellees Hubbard Insurance Agency and Wheeling

 Marc B. Heath and Christopher D. Roy of Downs Rachlin & Martin, Burlington,
    for defendant-appellee Northern Security Insurance Co.


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.



      JOHNSON, J.   Plaintiffs sued their insurance agency, one of its
 individual agents, and plaintiffs' fire insurance carrier, following a fire
 that severely damaged a house they had purchased and were in the process of
 renovating.  The trial court granted summary judgment in favor of all
 defendants, and plaintiffs appeal.  We affirm.
      Plaintiffs bought a house in Bristol for $47,500 in 1989.  It is
 undisputed that plaintiff Ora Booska met with Deborah Wheeling, an agent of
 defendant Hubbard Insurance Agency, Inc., at or near the date of the
 closing.  At that time, according to Booska's sworn statement, he told
 Wheeling that he
           would be changing [the house] into a one-apartment
           house because I don't need a house divided like that.

                            *     *     *

           . . . I told her there were a few things that I wanted
           to do, you know, to make it into a one-apartment house,
           like open up the doors and stuff like that.  And there
           was a little bit of cosmetic work, I call it, that
           needed to be done.  But I didn't want to fool with the
           plaster because I don't know anything about patching
           plaster.

 Wheeling recommended that Booska insure the home for 80 percent of its
 replacement value, to avoid a coinsurance penalty in the event of a partial
 loss, and Booska agreed.  A policy was issued by Northern Security
 Insurance Co., Inc. with coverage limits of $95,000 for the residence and
 $47,500 for its contents.
      Thereafter, Ora Booska began substantial work on the house, including
 removal of the plaster, lath, carpeting, and window trim from an upstairs
 bedroom; removal of the wood paneling, plaster, lath, linoleum, cabinetry,
 and a sink from a kitchen-dining room; removal of a central floor furnace
 heating system, hot water heater, and a segment of sewer pipe from the
 basement, and the replacement of rotten floor joists and support beams;
 removal of the bathroom adjoining the main kitchen, including walls and
 fixtures; removal of the sheetrock, plaster, lath, linoleum, cabinetry and a
 sink from the main kitchen; and removal of some sheetrock and replacement
 of flooring with plywood in a small living room.  As a result of these
 extensive renovations, plaintiffs remained in their original residence and
 did not move into the new house, though they had begun to move some of their
 personal property into it.
      The house burned in May 1990.  Northern advised plaintiffs that they
 were entitled to receive the replacement cost of the house upon replacement
 of the structure.  Plaintiffs hired a building contractor, who estimated
 that replacement of the house would cost $103,300, but at no point did
 plaintiffs seek to replace the house.  Northern tendered a check for
 $46,812, representing the company's assessment of the actual cash value of
 the building immediately before the fire.  A second check for $2,121 was
 offered shortly thereafter, based on new information provided by Ora Booska
 during the taking of a statement under oath.  Northern also tendered checks
 for $21,958, representing the actual cash value of plaintiffs' personal
 property, and $1,600 for additional living expenses as a result of the fire.
 Plaintiffs accepted all checks tendered, without prejudice to subsequent
 claims.
      Plaintiffs commenced the present action, seeking $95,000, the full face
 amount of the policy.  They also sought consequential damages from defendant
 Northern as insurer and from defendants Hubbard and Wheeling as agents for
 breach of their duty to advise plaintiffs appropriately in securing
 insurance and in explaining relevant details of their policy, in light of
 plaintiffs' proposed renovation plans.  The trial court granted defendants'
 motions for summary judgment, and plaintiffs appealed.
                                     I.
      Plaintiffs' main argument as to defendants Hubbard and Wheeling is
 based on Wheeling's asserted failure to act in accordance with her "special
 relationship" with the plaintiffs.  Plaintiffs assert that the agent had
 served Ora Booska's insurance needs for twelve years and that "[a]s a
 result of this special relationship, Ora Booska relied on Wheeling's advice
 and expertise when he entered her office to obtain insurance for his home."
 With that "special relationship" in mind, plaintiffs contend that Wheeling
 was negligent in failing to explain the effect that a loss before completion
 of remodeling would have, under the policy issued, on their coverage.
 Particularly critical, according to plaintiffs, was Wheeling's failure to
 explain that they would not receive the full policy face amount of $95,000
 if fire occurred while the house was being remodeled and while the actual
 cash value of the house fell below $95,000 as a result of the first stages
 of renovation.
      Defendants Hubbard and Wheeling correctly state that the record before
 the trial court, when it considered the summary judgment motion, did not
 clearly show that Mr. Booska had informed Ms. Wheeling that extensive
 remodeling would occur.  Based on Mr. Booska's own sworn statement, the
 changes would be modest and "cosmetic."  It is not the function of the
 trial court, however, to find facts on a motion for summary judgment, even
 if the record appears to lean strongly in one direction.  "Summary judgment
 is not a substitute for a determination on the merits as long as evidence
 has been presented which creates an issue of material fact, no matter what
 view the court may take of the relative weight of that evidence."  See
 Vermont Envtl. Bd. v. Chickering, 155 Vt. 308, 319, 583 A.2d 607, 613-14
 (1990).  At the time the court ruled on the summary judgment motions, a
 genuine issue of fact remained as to how detailed Mr. Booska was in his
 description of the proposed renovations.
      The grant of summary judgment in favor of Hubbard and Wheeling was not
 error because neither the agency nor its employee had a duty to inquire
 about special circumstances within the insurance purchaser's control that
 might affect the quality or degree of protection available under a policy.
 Plaintiffs' argument makes clear that they expected defendant Wheeling to
 have foreseen the extent of the renovations, to have determined that the
 manner in which the renovations were conducted would at least temporarily
 reduce the amount recoverable under the policy, and to have foreseen that
 the result (actual-value coverage of the house during renovation) was one
 which, though not contrary to law or public policy, was such an unreasonable
 risk that it necessitated a special warning. (FN1)
      Such far-reaching expectations would have imposed on Wheeling, not the
 duty of a reasonable insurance agent, but that of a soothsayer.  The trial
 court correctly ruled that the duty of Hubbard and Wheeling was rather "to
 use reasonable care and diligence to procure insurance that will meet the
 needs and wishes of the prospective insured, as stated by the insured."
 Rocque v. Co-Operative Fire Ins. Ass'n., 140 Vt. 321, 326, 438 A.2d 383, 386
 (1981).  Once a policy is procured as requested and is consistent with the
 applicable standard of care, no further duty is owed to the insured by the
 agent with respect to this insurance.  Id. at 326-27, 438 A.2d  at 386.
      Put another way, if we take all of plaintiffs' factual assertions about
 the length of time they were served by Hubbard and Wheeling as true, these
 circumstances do not support the legal theory of a "higher duty," in effect
 a fiduciary duty, between the agent and the purchaser.  The agent's task is
 to be generally fair and truthful in explaining the nature of a policy, not
 to warn the insured about the impact of necessarily complex contract
 language on every eventuality.  As long as the agent does the job without
 negligence, as between the agent and the purchaser, the task of reading and
 understanding the policy text is that of the purchasers.  As we said in Hill
 v. Grandey:
          An agent may point out to [an insured] the advantages of
          additional coverage and may ferret out additional facts
          from the insured applicable to such coverage, but he is
          under no obligation to do so; nor is the insured under
          an obligation to respond.

 132 Vt. 460, 468-69, 321 A.2d 28, 34 (1974).  In the present case,
 plaintiffs could have understood from the text of the policy the likely
 result of a fire occurring in the midst of renovation, when the value of the
 house was likely to have been reduced, albeit temporarily, by what was
 essentially partial demolition.
      In sum, plaintiffs have not demonstrated a genuine issue of material
 fact as to any special relationship between agent Wheeling and themselves,
 and the court properly granted summary judgment in favor of Wheeling and
 Hubbard.  V.R.C.P. 56(c).
                                     II.
      Plaintiffs next argue that the trial court erred in concluding that
 Northern's policy was unambiguous regarding its limitation of liability to
 the actual cash value of their house at the time of the fire.  The provision
 of the policy relating to covered property losses is paragraph 3, which
 states in relevant part:
           3. Loss Settlement. Covered property losses are settled
           as follows:

                           *     *     *

           b. Buildings under Coverage A or B at replacement cost
           without deduction for depreciation, subject to the
           following:

           (1) If, at the time of loss, the amount of insurance in
           this policy on the damaged building is 80% or more
           of the full replacement cost of the building
           immediately before the loss, we will pay the cost to
           repair or replace, after application of deductible
           and without deduction for depreciation, but not more
           than the least of the following amounts:

               (a) the limit of liability under this policy that
               applies to the building;

               (b) the replacement cost of that part of the
               building damaged for like construction and use on
               the same premises; or

               (c) the necessary amount actually spent to repair or
               replace the damaged building.


 Plaintiffs contend that the quoted provision is ambiguous as to the date
 when the amount of loss should be determined, arguing that the phrase "at
 the time of loss" in the first sentence of paragraph 3.b.(1) relates only to
 the focal date for application of the threshold 80% coverage provision, and
 not to the date on which the amount of loss should be measured.  But the
 phrase "full replacement cost of the building immediately before the loss"
 later in the same sentence leaves no question that the factual determination
 of loss should be made "immediately before the loss" and not at some
 indeterminate time.
      And since, as we held earlier in this opinion, agent Wheeling was not
 negligent in her dealing with plaintiffs, there is no merit in their further
 argument that Northern is estopped to deny replacement-cost coverage on the
 basis of Wheeling's representations, even assuming arguendo that Northern
 would have been bound by her statements.
                                    III.
      Plaintiffs argue next that the trial court erred in granting defendant
 Northern summary judgment as to plaintiffs' tort claim that the company
 acted in bad faith by failing to pay the benefits due under its policy.  We
 have not yet been required to decide whether to recognize a cause of action
 for bad faith failure to pay first-party claims.  See Martell v. Universal
 Underwriters Life Ins. Co., 151 Vt. 547, 554, 564 A.2d 584, 589 (1989).  We
 noted in Martell, however, that those courts that have recognized the action
 have required more than negligence on the part of the insurer, often
 requiring reckless conduct.  Id. (citing Washington v. Group
 Hospitalization, Inc., 585 F. Supp. 517, 520 (D.D.C. 1984); Trimper v.
 Nationwide Ins. Co., 540 F. Supp. 1188, 1194 (D.S.C. 1982); Noble v.
 National Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981); Anderson v.
 Continental Ins. Co., 271 N.W.2d 368, 376 (Wis. 1978)).
      In Anderson, the court held that:
           To show a claim for bad faith, a plaintiff must show the
           absence of a reasonable basis for denying benefits of
           the policy and the defendant's knowledge or reckless
           disregard of the lack of a reasonable basis for denying
           the claim.
                                   *   *   *

           [A]n insurance company, however, may challenge claims
           which are fairly debatable and will be found liable only
           where it has intentionally denied (or failed to process
           or pay) a claim without a reasonable basis.

 271 N.W.2d  at 376-77.

      Plaintiffs fall far short of the mark.  If they were simply arguing
 that Northern's appraisal value of their house immediately before the fire
 was wrong, the question of the correct appraisal would be one of fact, and
 that issue of fact would not be suitable for determination by summary
 judgment, since a summary judgment presumes the absence of genuine issues of
 material fact. (FN2) V.R.C.P. 56(c).  
      The essence of their argument on bad faith
 is that Northern took the "unconscionable position that it would pay only
 for the shell of the new house," that is, would pay only for the value of
 the house immediately prior to the fire, rather than paying out the face
 value of the policy, $95,000.  In other words, there may be a factual debate
 about the extent of Ora Booska's renovation efforts on the date of the fire,
 but the basis for plaintiffs' claim of bad faith is not that area of
 difference, but rather Northern's position that if plaintiffs did not repair
 or replace the building, the limit of its liability would be the cash value
 of the building "immediately before the loss."  In light of our holding that
 Northern's reading of its agreement was sound, reliance on that position did
 not represent bad faith on its part, since there was no genuine issue of
 material fact that the company had a reasonable basis on which to limit its
 offer to the actual value of the house immediately before the fire.  The
 summary judgment was properly granted.
      In like manner, Northern could not have intentionally inflicted
 emotional distress on plaintiffs by relying on a proper and correct legal
 reading of its insurance contract.
      Affirmed.

                                    FOR THE COURT:



                                    _______________________________
                                    Associate Justice




FN1.     Plaintiffs argue alternatively that agent Wheeling improperly
 overcharged them for the coverage they obtained, since the replacement value
 assumptions Wheeling made in setting a premium were erroneous.  The theory
 underlying this argument is essentially the same as their basis for claiming
 that Wheeling negligently failed to explain the policy terms and that she
 negligently created the impression that they were entitled to full
 replacement value even if they suffered a loss while the house was in the
 midst of renovation and gutted.  The argument is without merit.

FN2.    In their brief, plaintiffs misstate the issue when they argue that
 the work Mr. Booska performed was minimal and could not have reduced the
 replacement cost of the house by more than half.  There is no argument over
 the replacement cost of the house as it was prior to the start of
 renovations, which, by all accounts was greater than the policy limit of
 $95,000.  Plaintiffs' argument is that Northern should have paid the policy
 limit, whether or not they repaired or rebuilt the house, while Northern
 contends that the policy language limits its liability to actual value,
 prior to repair or replacement.