Saratoga Invest. v. Westchester Surplus Lines Ins. ( 2022 )


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  •                                  785
    This is a nonprecedential memorandum opinion
    pursuant to ORAP 10.30 and may not be cited
    except as provided in ORAP 10.30(1).
    Argued and submitted March 30, 2021, affirmed July 13, 2022
    SARATOGA INVESTMENTS, LLC,
    a Wyoming limited liability company,
    dba Saratoga Forest Management, LLC,
    Plaintiff,
    v.
    WESTCHESTER SURPLUS LINES
    INSURANCE COMPANY,
    a foreign corporation,
    dba Ace Westchester; and
    Ward Insurance Agency, Inc.,
    an Oregon corporation,
    dba Ward Insurance,
    Defendants.
    WARD INSURANCE AGENCY, INC.,
    an Oregon corporation,
    dba Ward Insurance,
    Third-Party Plaintiff-Appellant,
    v.
    CONTINENTAL UNDERWRITERS, INC.,
    Third-Party Defendant-Respondent.
    Multnomah County Circuit Court
    17CV42561; A171322
    Thomas M. Ryan, Judge.
    Syed S. Ahmad, Washington, D. C., argued the cause
    for appellant. On the opening brief were Cody Hoesly and
    Larkins Vacura Kayser LLP. Also on the reply brief were
    Cody Hoesly, Larkins Vacura Kayser LLP, and Geoffrey B.
    Fehling, and Hunton Andrews Kurth LLP, Washington,
    D. C.
    James M. Callahan argued the cause for respondent.
    Also on the brief was Callahan & Shears, P.C.
    786    Saratoga Invest. v. Westchester Surplus Lines Ins.
    Before Ortega, Presiding Judge, and Shorr, Judge, and
    Powers, Judge.
    SHORR, J.
    Affirmed.
    Nonprecedential Memo Op: 
    320 Or App 785
     (2022)               787
    SHORR, J.
    This appeal concerns the application of a contractual
    indemnity provision under Virginia law. Plaintiff Saratoga
    Investments, LLC (Saratoga), which owned a sawmill, sued
    its insurance agent, defendant Ward Insurance Agency, Inc.
    (Ward), for negligence and breach of contract after Saratoga
    was unable to fully recover its losses following a fire at its
    sawmill. Saratoga contended that those losses were caused
    by Ward’s failure to obtain appropriate insurance cover-
    age. Ward, as third-party plaintiff, then sued third-party
    defendant Continental Underwriters, Inc. (Continental), the
    wholesale insurance broker through which Ward obtained
    insurance coverage for Saratoga, for indemnification. Ward
    alleged that Continental was required to indemnify Ward
    for any claims brought by Saratoga because Continental
    had been negligent and had breached its standard of care
    as an insurance broker in failing to secure the appropriate
    insurance policy.
    A jury ultimately awarded Saratoga over $2.2 mil-
    lion in damages on its claims against Ward. The jury then
    found that Ward did not prove its indemnification claim
    against Continental.
    Ward now appeals, contending that the trial court
    erred in not granting it a directed verdict against Continental
    on Ward’s indemnification claim.1 Ward contends that the
    trial court had to direct a verdict because, considering the
    evidence, a factfinder had to find that Ward was entitled to
    judgment as a matter of law. Because we conclude that there
    were issues of fact for the jury to decide on the causation ele-
    ment of Ward’s indemnification claim, we conclude that the
    trial court did not err. As a result, we affirm.
    A full recitation of the facts would be of little benefit
    to the bench, bar, or public. Consistently with our standard
    of review, we summarize below some of the material facts
    that are necessary to understand the underlying indemnity
    dispute. We consider the evidence, and the reasonable infer-
    ences from that evidence, in the light most favorable to the
    1
    Plaintiff Saratoga is not involved in this appeal.
    788      Saratoga Invest. v. Westchester Surplus Lines Ins.
    party that obtained a favorable verdict—here, Continental.
    Willms v. AmeriTitle, Inc., 
    314 Or App 687
    , 695, 499 P3d
    79 (2021). We then determine whether Ward, as the mov-
    ing party, was entitled to a verdict as a matter of law. Roop
    v. Parker Northwest Paving Co., 
    194 Or App 219
    , 245, 94
    P3d 885 (2004), rev den, 
    338 Or 374
     (2005). To prevail on its
    appeal from the trial court’s denial of its motion for directed
    verdict, Ward must show that “there [was] no jury ques-
    tion concerning any essential element of [its] claim, that is,
    that [Ward was] entitled to judgment as a matter of law.”
    Id. at 247. A directed verdict is appropriate “when there
    is no conflict in the evidence and it is susceptible of only
    one construction.” Malensky v. Mobay Chemical Corp., 
    104 Or App 165
    , 170, 
    799 P2d 683
     (1990), rev den, 
    311 Or 187
    (1991).
    I. SUMMARY OF THE FACTUAL BACKGROUND
    As noted, Saratoga owned a sawmill. Saratoga pro-
    cured insurance through Ward, a retail insurance agency,
    for its insurance needs. In 2015, Saratoga sought to renew
    some of its property insurance, which included a request
    for business-interruption coverage. Generally speaking,
    business-interruption or business-income coverage is a type
    of insurance coverage that covers the loss of income when
    a business’s premises are damaged by a covered cause of
    loss and the business suffers a resulting “slowdown or sus-
    pension of its operations.” International Risk Management
    Institute, Inc., Business Income Coverage, https://www.irmi.
    com/term/insurance-definitions/business-income-coverage
    (accessed June 29, 2022).
    Ward advised Saratoga regarding its insurance
    coverage. A Ward agent advised Saratoga that it should
    exclude the costs of Saratoga’s “ordinary payroll,” largely
    hourly wages paid to its mill workers, from covered insur-
    ance costs. The agent’s belief was that, if there was busi-
    ness interruption due to a fire at the sawmill, the mill
    would lay off its hourly workers because there was no avail-
    able work; Saratoga would not require coverage for those
    costs of doing business because it would not have those
    costs.
    Nonprecedential Memo Op: 
    320 Or App 785
     (2022)            789
    Ward then approached Continental, a wholesale
    insurance broker, seeking help with renewing Saratoga’s
    property insurance. Ward sent Satatoga’s application mate-
    rials to Continental to put into the insurance market. When
    Continental sent Ward a proposal for coverage from an insur-
    ance company known as Ace Westchester (Westchester), the
    proposal did not include an appropriate endorsement neces-
    sary to exclude ordinary payroll from coverage. When Ward
    received the proposal, a Ward agent assumed that ordinary
    payroll had been excluded, consistent with its application.
    Ward then failed to confirm that the proposed Westchester
    policy had the appropriate endorsement excluding ordinary
    payroll. Ward, nevertheless, directed Continental to bind
    its client Saratoga to the Westchester policy. That failure
    to exclude Saratoga’s ordinary payroll had a significant
    effect on the policy’s coverage, although it is not neces-
    sary to spell out the detailed specifics of that effect in this
    opinion. Suffice it to say that, under the Westchester pol-
    icy, which lacked the appropriate endorsement excluding
    ordinary payroll, Saratoga was significantly underinsured
    for its potential losses. For that reason, it was at risk for
    a significant coinsurance penalty in the event of a large
    loss.
    That, however, was not the only mistake made in
    Saratoga’s insurance application process. Ward had asked
    Continental to obtain a “1/6 monthly limit of indemnity
    option” for Saratoga’s business-interruption coverage. Again,
    we do not intend to go into detail regarding this techni-
    cal aspect of insurance coverage. The upshot is that, had
    Saratoga obtained coverage with a one-sixth monthly limit
    of indemnity, Saratoga may have had another way to avoid
    a coinsurance penalty. When Continental forwarded the
    application to Westchester, the file that included the request
    for a one-sixth monthly limit appeared to be in a corrupted
    format. Westchester emailed Continental that it had a prob-
    lem opening that file. Continental did not follow up, but
    also assumed that Westchester had resolved this problem,
    because, just a few business days later, Westchester sent a
    quote for a policy renewal. Ward, for its part, again failed to
    check the proposed Westchester policy against the original
    application seeking the one-sixth monthly limit. Westchester
    790      Saratoga Invest. v. Westchester Surplus Lines Ins.
    later issued a policy to Saratoga in September 2015 without
    the one-sixth monthly limit.
    In 2016, one of Saratoga’s sawmills sustained fire
    damage. Saratoga made a claim for insurance coverage with
    Westchester, but Westchester denied coverage for the full
    amount due to the policy’s coinsurance penalty. In dealing
    with Westchester following its client’s loss, Ward recog-
    nized that the way to solve the coverage issue was either “to
    have the [o]rdinary payroll exclusion endorsement or 1/6th
    monthly limit BI option added at inception.” Accordingly,
    Ward asked Westchester to add, retroactively, the ordinary
    payroll exclusion endorsement to the policy. Westchester
    did not do so. Ward also asked Westchester to reform the
    policy to include the one-sixth monthly limit. Westchester
    refused that request because it had not received that part of
    the insurance application. Westchester stated that it would
    reform a policy if it had made a mistake or issued an incor-
    rect policy but contended that it had issued the requested
    policy and made no mistake.
    Ultimately, Saratoga was only able to recover
    approximately 53 percent of its losses through its Westchester
    insurance policy. Had the correct form been submitted and
    ordinary payroll excluded, Saratoga would have recovered
    an additional $967,001 in insurance. As a result, Saratoga
    sued Ward for breach of contract and negligence. Saratoga
    sought up to $3,000,000, which included the unpaid losses
    and consequential damages. Saratoga’s complaint alleged
    that Ward was negligent because it failed to procure
    business-interruption coverage that would exclude ordinary
    wages or payroll expenses. It also alleged that Westchester
    failed to fully pay Saratoga’s claim because “the policy it
    issued did not exclude ordinary payroll expenses” from
    Saratoga’s business-interruption coverage. Importantly,
    Saratoga’s complaint did not allege that its damages were
    caused by Ward’s failure to obtain the one-sixth monthly
    limit of indemnity option. As noted above, Ward, as a third-
    party plaintiff, then sued third-party defendant Continental
    for indemnification.
    Ward based its indemnification claim on a provision
    of an insurance brokerage agreement that existed between
    Nonprecedential Memo Op: 
    320 Or App 785
     (2022)                             791
    Ward and Continental.2 That agreement provides that
    it shall be governed by and construed in accordance with
    Virginia law. Both parties agree that Virginia law applies.
    The indemnification provision in the brokerage agreement
    provides, in relevant part, that:
    “[Continental] agrees to defend and indemnify [Ward]
    against and in respect of any and all claims * * *, demands,
    actions, proceedings, liability, losses, damages (except con-
    sequential damages), judgments, costs and expenses * * *
    suffered, made or instituted against or incurred by [Ward],
    and which, directly or indirectly, arise out of or relate to
    (i) negligence of [Continental] in discharging its obliga-
    tions to [Ward] or to policyholders; or (ii) any failure by
    [Continental] to perform its obligations under or relating
    to this Agreement.”
    (Emphasis added.) Continental denied that it had any duty
    to indemnify Ward, and counterclaimed, contending that
    Ward had a duty to indemnify Continental.3
    Saratoga pursued its contract and negligence claims
    against Ward to trial. Ward and Continental, in turn, pur-
    sued their indemnification claims against each other to
    trial. During the trial, Ward moved for a directed verdict on
    its contractual indemnification claim against Continental.
    Continental opposed, arguing, among other things, that
    the jury did not have to find that Saratoga’s claims against
    Ward were caused by Continental’s negligence or breach of
    its duties. Continental pointed out that Ward had not pre-
    sented any evidence that Westchester would have quoted a
    one-sixth monthly option or that Saratoga would have pur-
    chased that policy.
    The trial court denied Ward’s motion for directed
    verdict. As noted above, the jury later found for Saratoga on
    2
    Ward’s third-party complaint asserted that its indemnification claim was
    supported by both common law and contractual theories. However, Ward’s legal
    arguments at trial relied entirely on the brokerage agreement. Although the jury
    verdict only refers to an indemnification claim generally, Ward asserts that “the
    common law theory is not at issue” on appeal.
    3
    The brokerage agreement had a nearly identical provision in which Ward
    agreed to indemnify Continental under similar conditions. Although the parties
    make arguments about the effect of the mutual indemnity provisions on their
    dispute, we need not reach them in light of our resolution below.
    792      Saratoga Invest. v. Westchester Surplus Lines Ins.
    its breach of contract and negligence claims against Ward.
    The jury also found for Continental on Ward’s indemnifica-
    tion claim against Continental.
    II. ANALYSIS
    Under Virginia law, “[a]n indemnification provision
    in an agreement is nothing more than a contract between
    parties to pre-determine the allocation of a potential risk of
    loss.” Farmers Ins. Exch. v. Enter. Leasing Co., 281 Va 612,
    619, 
    708 SE2d 852
    , 856 (2011). Accordingly, a party to an
    indemnification agreement “is entitled to enforce the agree-
    ment according to its agreed terms.” 
    Id.
     Like any contract
    claim, an indemnity claim requires proof that a legally
    enforceable obligation existed between the parties, that the
    obligation was breached by one party, and that the breach
    “proximately caused” the other party’s damages. Doctors
    Co. v. Women’s Healthcare Assocs., Inc., 285 Va 566, 575, 
    740 SE2d 523
    , 527 (2013).
    We return to the relevant language of the indem-
    nification provision. Ward contends that the relevant
    indemnification language is quite broad and requires that
    Continental indemnify Ward as to any claims or dam-
    ages “which, directly or indirectly, arise out of or relate
    to” (1) Continental’s negligence “in discharging its obliga-
    tions” to Ward or to policyholders, or (2) “any failure” by
    Continental “to perform its obligations under or relating to
    this Agreement.” We agree with Ward that the indemnifica-
    tion language is broad. However, that does not resolve our
    inquiry. This case reaches us on Ward’s appeal from the trial
    court’s denial of Ward’s motion for a directed verdict on its
    contractual indemnification claim against Continental. The
    issue, therefore, is whether there is no jury question con-
    cerning any essential element of Ward’s claim or, in other
    words, whether “there is no conflict in the evidence and it is
    susceptible of only one construction.” Malensky, 
    104 Or App at 170
     (emphasis added).
    Having reviewed the record, including, but not lim-
    ited to, some of the evidence summarized above, we conclude
    that the evidence is not susceptible of only one construction
    in Ward’s favor. Of course, a jury could find—although it
    Nonprecedential Memo Op: 
    320 Or App 785
     (2022)            793
    ultimately did not here—that Saratoga’s claims and dam-
    ages arose either directly or indirectly out of Continental’s
    negligence and breach of its contractual obligations, namely
    its failure to submit a readable form to Westchester seeking
    a one-sixth monthly limit of indemnity policy. However, the
    jury did not have to do so. Based on our review of the record,
    the jury could also have found that Saratoga’s claims for
    damages against Ward arose entirely out of issues wholly
    unrelated to Continental’s error, such as Ward’s own neg-
    ligence in, among other things, failing to exclude ordinary
    payroll from the insurance application.
    Ward nevertheless contends that Continental’s neg-
    ligence and breach of contractual duties were the “sole rea-
    sons Westchester refused to reform the policy” and, therefore,
    that Ward is entitled to indemnification. However, Saratoga
    did not seek claims or damages based on Westchester’s
    refusal to reform the insurance policy to include a one-sixth
    monthly limit. As Continental points out, Saratoga’s opera-
    tive complaint at trial focused on Ward’s failure to exclude
    ordinary payroll from the business-interruption coverage
    and never even mentioned the issue of the one-sixth monthly
    limit. The jury certainly did not have to find that the sole
    reason for Saratoga’s claims for damages against Ward
    arose directly or indirectly out of Continental’s negligence in
    failing to forward the request for a one-sixth monthly limit
    of indemnity to Westchester in an uncorrupted document.
    In sum, we conclude that a jury did not have to find
    for Ward on its indemnification claim. As a result, we affirm
    the trial court’s denial of Ward’s motion for directed verdict.
    Affirmed.
    

Document Info

Docket Number: A171322

Judges: Shorr

Filed Date: 7/13/2022

Precedential Status: Non-Precedential

Modified Date: 10/10/2024