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Ins. Co. of N. America v. J.l. Hubbard Co.

OCTOBER 24, 1974.




APPEAL from the Circuit Court of Macon County; the Hon. ALBERT G. WEBBER, III, Judge, presiding.


Plaintiff, Insurance Company of North America, issued a homeowners' policy, effective March 15, 1967, to Frank and Margaret Hubbard (hereinafter the insured) through its Decatur agent, the defendant, J.L. Hubbard Company, who has no relationship to the insured. In addition to other coverage, the policy included a valuable personal articles endorsement on fine arts owned by the insured. The policy was to expire by its own terms on March 15, 1970. The insured suffered a loss by burglary in March, 1971.

Prior to expiration, communication concerning renewal between plaintiff and the defendant indicated that plaintiff desired two policies, one covering the dwelling and the other the valuable personal articles then covered by endorsements; and plaintiff also requested updating and a revised schedule of articles to be insured. The defendant discussed this with the insured in January, 1970, and after March 15, 1970; however, the information was not obtained.

On March 12, 1970, the defendant's manager, Mr. Hughes, notified the insured that coverage was bound and that a new policy would be issued as soon as Karl Peterson, an employee and officer of the defendant, had completed the review of the schedule and had updated it in accordance with the insured's wishes. On the same date, the manager wrote to plaintiff noting coverage of the old policy would expire March 15, 1970, and that the defendant wanted to be sure there was binder coverage on the policy pending the submission by the defendant of the updated renewal information.

On April 10, 1970, the defendant again wrote the insured that the coverage was bound under the policy and that a new policy would be issued as soon as a review of the schedule had been made and updated. A copy of this letter was forwarded to plaintiff requesting that the homeowners' policy be issued without the valuable personal articles endorsement stating that the defendant had been unable to meet with the insured to audit all of the valuable items to be covered, and noting that a separate policy was to be issued. The postscript asked whether or not the homeowners' policy could be released without the valuable personal articles endorsement. A copy of this letter and that postscript was sent back to the defendant by plaintiff stating: "Since it has been 2 years since coverage was increased, please advise if it is acceptable to increase the renewal to $90,000." The $90,000 referred to insurance on the dwelling which had been $65,000 in the original policy and was to cover increased construction costs in event of necessary replacement. The evidence of plaintiff indicated that settling claims for less than replacement costs caused real problems in balancing out claim.

The defendant then responded to plaintiff by letter dated May 1, 1970, stating:

"I think that $90,000 is a little rich. Go ahead and renew it at $80,000, and I'll discuss the increase with the insured."

Plaintiff replied by memo dated May 7, 1970, as follows:

"We have your note requesting that we renew this policy for $80,000. We had a riplacement (sic) cost inspection made of this dwelling by our company engineers in 1968. At that time the replacement cost was computed at $93,700 and we agreed to increase the coverage to $80,000.

"However, since that time construction costs have increased a bare minimum of 10%, which would put replacement cost at about $103,000.

"Normally, we require 100% of replacement cost on all of these high valued homes. We are making an exception in this instance but do not feel we can write the coverage for less than $90,000. Your cooperation in giving us the go ahead at this figure will be appreciated." (Emphasis supplied).

This memo was signed by Jim Daily. The Peoria office of plaintiff received no reply concerning this memo. Therefore, on June 22, 1970, Daily sent a memo to the defendant, attention Karl Peterson, which stated:

"As per previous correspondence, please advise if we are to proceed with renewal for $90,000. If we do not hear from you by 7/2/70 we will assume coverage is being placed elsewhere and the binder will terminate."

Daily selected July 2, 1970, as the termination date because this was in accordance with standard company practice to allow 10 days notice of termination of a binder on a policy. Daily testified he meant the memo of June 22, 1970, to apply to all coverage under the old policy.

The defendant's manager, Hughes, testified that the words "Karl" and "Linda" written at the top of the memo from Daily dated June 22, 1970, were in Hughes' own handwriting. Hughes was routing that memo to his secretary and the account executive for the insured. Hughes testified that he could not say what happened to that memo after he initialed it and passed it on. He first found the memo in the defendant's commercial file after the loss in March, 1971. While testifying as witness for plaintiff, Hughes stated: "I did not follow the underwriter's instructions to terminate this policy or binder. To my knowledge no one in the agency followed the underwriter's instructions to terminate this binder."

Nothing more was done concerning this policy after the filing of the memo in the commercial folder. No schedules were completed by either the defendant or the insured as had been contemplated and no ...

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