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Metropolitan Property & Casualty Insurance Co. v. Agency One Insurance, Inc.

United States District Court, N.D. Iowa, Western Division

March 25, 2014

METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY, Plaintiff,
v.
AGENCY ONE INSURANCE, INC. and PAMELA A. SIROKY, Defendants

Page 907

For Metropolitan Property and Casualty Insurance Company, Plaintiff: John C Gray, LEAD ATTORNEY, Heidman Law Firm, LLP, Sioux City, IA; Peter J Leo, Koley Jessen, PC, LLO, Omaha, NE.

For Agency One Insurance, Inc, Pamela A Siroky, Defendants: Douglas L Phillips, Klass Law Firm, L.L.P., Sioux City, IA.

OPINION

Page 908

LEONARD T. STRAND, UNITED STATES MAGISTRATE JUDGE.

MEMORANDUM OPINION AND ORDER ON PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

I. INTRODUCTION

II. PROCEDURAL HISTORY

III. RELEVANT FACTS

IV. ANALYSIS

A. Summary Judgment Standards

B. Discussion

1. Negligence

2. Negligent Supervision

3. Breach of Fiduciary Duty and Breach of Contract

V. CONCLUSION

I. INTRODUCTION

This case is before me on plaintiff's motion (Doc. No. 29) for partial summary judgment. Defendants have filed a resistance (Doc. No. 35). Plaintiff did not file a reply.[1] I conducted a hearing on March 19, 2014. Plaintiff was represented by attorney John Gray and defendants were represented by attorney Douglas Phillips. The motion is fully submitted.

II. PROCEDURAL HISTORY

Plaintiff Metropolitan Property and Casualty Insurance Company (Met P& C) commenced this diversity action on May 17, 2012. It alleges that it appointed defendants Pamela Siroky (Siroky) and Agency One Insurance, Inc. (Agency One) to accept applications for insurance and to bind Met P& C to insurance contracts in accordance with Met P& C's underwriting guidelines. On or about December 7, 2010, Agency One applied for coverage with Met P& C on behalf of Patricia Potter for a property described as a one-story, 1500 square foot, single-family residential dwelling built in 1958. This description complied with Met P& C's underwriting guidelines and Met P& C issued a policy to Potter. Potter's property was later destroyed by fire. When she submitted her claim, Met P& C learned for the first time that the property was actually a two-story, 4320

Page 909

square foot commercial, six-unit, fully-occupied apartment building constructed in 1925. This is a commercial risk that Met P& C does not cover.

Met P& C alleges the Potter property was erroneously insured and Met P& C was erroneously bound due to Agency One's misrepresentation of the property. It asserts claims for breach of contract, negligence, negligent supervision, breach of fiduciary duty and vicarious liability. Agency One and Siroky filed an answer (Doc. No. 8) on June 28, 2012, in which they deny liability and raise various affirmative defenses. Doc. No. 8 at 3.

On August 29, 2013, with the parties' consent, United States District Judge Mark W. Bennett transferred the case to me. See Doc. No. 20. Trial is scheduled to begin May 27, 2014.

III. RELEVANT FACTS

Except as otherwise noted, the following facts are undisputed for purposes of Met P& C's motion for partial summary judgment:

The Parties. Met P& C is a personal lines insurance company incorporated in, and with its principal place of business in, Rhode Island. Agency One is a Nebraska insurance agency corporation which, at all relevant times, did business in Sioux City, Iowa. Siroky is a Nebraska resident. She is the owner and President of Agency One and an agent of Agency One.

The Agreement Between Agency One and Met P& C. On March 3, 2008, Met P& C and Agency One entered into an Independent Agency Agreement. Under this agreement, Agency One could accept applications for insurance and bind Met P& C to insurance policies. The agreement required Agency One to only bind Met P& C to policies that met its underwriting guidelines. Met P& C paid commissions to Agency One for the policies it secured.

The Agreement Between Agency One and Douglas Inlay. Douglas Inlay (Inlay) worked as an insurance agent in Sioux City. Siroky was introduced to Inlay in spring 2010 through a group of professionals. After their introduction, they continued to meet to discuss establishing a professional relationship. Siroky spoke with Kelly Hanson, a Regional Sales Manager of Met P& C, about doing business with Inlay and Hanson thought it was a good idea based on the type of business Inlay had previously done and a review of his five-year production history and loss ratio. Hanson interviewed Inlay at his Sioux City office and thought he was a " reputable individual."

Before Inlay signed his Independent Agent Agreement with Agency One, Hanson gave Inlay permission to use the access code of another Agency One employee to start entering policies into Met P& C's online system. Inlay produced several policies with Met P& C and Hanson described his production as " truly amazing." Indeed, Hanson won a trip to Las Vegas because of all the new business Inlay was generating.

On May 1, 2010, Agency One and Inlay entered into an Independent Agent Agreement. This agreement allowed Inlay to bind insurance carriers (such as Met P& C) to policies through Agency One. Agency One and Inlay would then split the commissions Inlay generated. Inlay's office was in Sioux City and Agency One's was in David City, Nebraska. Inlay employed Candice Hunter and Joe Sauce at his Sioux City office.

In August 2010, Met P& C conducted a background check of Inlay and notified Siroky of a " questionable item." Siroky forwarded the information to Inlay, who stated he would handle it directly with Met P& C. Inlay provided an explanation to

Page 910

Met P& C and it did not request further information.

Inlay's Employment with Agency One. Met P& C issued Inlay his own access code in October 2010. However, he continued to use other Agency One employees' codes to bind Met P& C policies and his own code was later deactivated.

Around November 1, 2010, Siroky learned from Inlay that his insurance license had either been suspended or revoked. Inlay explained he was the victim of misconduct by other agents in his prior position and had hired an attorney to appeal. Siroky and Inlay met with Siroky's attorney to discuss what Inlay could do as a producer without a license. They were advised that Inlay could become an employee of Agency One and continue to service existing customers and policies, but could not sell, solicit or otherwise participate in any part of the sale of an insurance policy, including submitting an application.

On December 1, 2010, Agency One hired Inlay as an employee and paid him a base salary to oversee the Sioux City office. According to his employment agreement, he was not allowed to participate in any part of the sales process of an insurance policy. Siroky informed Hanson of the new arrangement. Met P& C policies continued to be placed through the Sioux City office. Siroky presumed this was done through Sauce, who held an insurance license in December 2010, and later Hunter who also ultimately obtained a license. Inlay was responsible for paying Sauce and Hunter the commissions for these policies from the checks he received from Agency One.

Around March 2011, Inlay and Sauce were involved in a physical altercation at the Sioux City office. Shortly thereafter, Sauce quit and Inlay stopped coming into the office on a regular basis. In May 2011, Inlay could no longer pay Hunter, who was essentially running the office, and Agency One began paying her salary. Siroky visited the Sioux City office a couple times between December 2010 and May 2011, but began visiting more often after May to train Hunter.

Inlay was officially terminated in August 2011. After his termination, Siroky learned that Inlay had continued to sell policies while his license was revoked or suspended.

The Fall Out. After Inlay was terminated, Siroky reviewed Inlay's files and learned that he had misrepresented information on several policies. One of the problem policies she did not discover was submitted by Inlay on or about December 7, 2010, on behalf of Patricia Potter and Sam Dedios. In that application, Inlay described the property to be insured as a one-story, 1500 square foot single family, residential dwelling built in 1958. This description was consistent with Met P& C's underwriting guidelines and Met P& C was bound to the policy. The policy was renewed on December 10, 2011, and Agency One did not review it for accuracy at that time.

A fire destroyed the Potter property on or about January 12, 2012, and Potter submitted a claim to Met P& C shortly thereafter. Only then did Met P& C learn that the property was not as Inlay had described, but instead was a two-story, 4320 square foot, six-unit apartment building constructed in 1925. If the property had been accurately described, Met P& C would not have issued a ...


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