United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 10-1943
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GeoVera Specialty Insurance *
Company, formerly known as *
USF&G Specialty Insurance *
Company, *
* Appeal from the United States
Appellant, * District Court for the
* Eastern District of Arkansas.
v. *
*
Graham Rogers, Inc., *
*
Appellee. *
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Submitted: January 13, 2011
Filed: April 13, 2011
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Before COLLOTON, GRUENDER, and SHEPHERD, Circuit Judges.
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GRUENDER, Circuit Judge.
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
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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.1 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
1
GeoVera also brought claims for breach of fiduciary duty, negligent hiring,
negligent supervision, and negligent training. The district court granted Graham’s
motion to dismiss these claims, and GeoVera does not appeal that order.
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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 only applications that satisfied the
underwriting guidelines. Thus, our inquiry is well-defined: does the Agreement place
a duty on Graham to apply GeoVera’s underwriting guidelines to applications for
insurance submitted by the retailers?
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In this diversity case, the parties agree that interpretation of the Agreement is
governed by Arkansas law. See Murray v. Greenwich Ins. Co., 533 F.3d 644, 648 (8th
Cir. 2008). “When a contract is unambiguous, its construction is a question of law.”
Artman v. Hoy, 257 S.W.3d 864, 869 (Ark. 2007). The object of our inquiry “is to
ascertain the intention of the parties.” RAD-Razorback Ltd. P’ship v. B.G. Coney Co.,
713 S.W.2d 462, 465 (Ark. 1986). “Under Arkansas law, the language contained in
the contract is the best evidence of the parties’ intention.” Connect Commc’ns Corp.
v. Sw. Bell Tel., L.P., 467 F.3d 703, 714 (8th Cir. 2006) (citing First Nat’l Bank v.
Griffin, 832 S.W.2d 816, 818-19 (Ark. 1992)). We interpret the language contained
in a contract using the “plain and ordinary meaning” of its words. See Moore v.
Columbia Mut. Cas. Ins. Co., 821 S.W.2d 59, 60 (Ark. Ct. App. 1991).
Applying these principles, we agree with GeoVera that the Agreement places
a duty on Graham to apply GeoVera’s underwriting guidelines to all applications for
insurance submitted under the terms of the Agreement, including those submitted by
retailers appointed by Graham.
Under Article II, Section (B)(2) of the Agreement, Graham had the
responsibility “[t]o apply written underwriting and rating guidelines prepared by
[GeoVera] which have been provided to [Graham], and as may be revised by
[GeoVera] from time to time, and to deliver policies, provided the risk falls within the
acceptable underwriting criteria” (emphasis added). This provision unequivocally
places a duty on Graham to apply GeoVera’s underwriting guidelines to all
applications for insurance submitted under the terms of the Agreement. While
Graham argues that Section (B)(2) applies to applications submitted by Graham
directly to GeoVera but does not apply to applications submitted by the retailers
appointed by Graham, we find no language in the Agreement that limits Graham’s
duty to apply GeoVera’s underwriting guidelines solely to applications submitted
directly by Graham. In the absence of such language, we conclude that the most
natural reading of this section requires that Graham apply GeoVera’s underwriting
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guidelines to all applications for insurance submitted under the terms of the
Agreement, including those applications submitted by Graham’s network of retailers,
and deliver policies only when the risk falls within the acceptable underwriting
criteria.
Furthermore, while Graham had the responsibility “[t]o appoint retail producers
to market and solicit policies and to perform fieldwork,” Article II, Section (B)(1) of
the Agreement only authorized the retailers to “aid in the underwriting of the
business” (emphasis added). We find the Agreement’s use of the term “aid” to be
significant. Looking to the plain and ordinary meaning, the dictionary definition of
“aid” is “to help,” “to provide with what is useful or necessary in achieving an end,”
and “to give assistance.” Merriam Webster’s Collegiate Dictionary 26 (11th ed.
2005). Section (B)(1)’s use of the term “aid” makes it clear that, while the retailers
may help or assist Graham in applying the underwriting guidelines, Graham retained
the ultimate duty to apply GeoVera’s underwriting guidelines so that the risk to be
insured fell “within the acceptable underwriting criteria.”
Graham argues that the Agreement must be read as a whole and that, because
the Agreement allowed the retailers to conduct business directly with GeoVera
through the System, Graham had no duty to apply GeoVera’s underwriting guidelines
to applications for insurance submitted by the retailers. Graham cites Article III of the
Agreement, which states 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.” In effect, Graham argues that Article III’s provision of
System access to the retailers is inconsistent with any duty established by Article II
requiring Graham to apply GeoVera’s underwriting guidelines to applications
submitted by the retailers.
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Arkansas law requires that, “[i]n considering the different clauses of a contract,
[courts] must read the whole document together and determine whether all parts are
in harmony.” Travelers Indem. Co. v. Olive’s Sporting Goods, Inc., 764 S.W.2d 596,
599 (Ark. 1989). “[A] construction which neutralizes any provision of a contract
should never be adopted if the contract can be construed to give effect to all
provisions.” North v. Philliber, 602 S.W.2d 643, 645 (Ark. 1980); see also Travelers
Indem. Co., 764 S.W.2d at 599 (“It is error to give effect to one clause over
another . . . if the two clauses are reconcilable.”).
Reading the Agreement as a whole, then, we agree with GeoVera that Article
II and Article III can be construed to give effect to both provisions. There simply is
no facial inconsistency between requiring Graham to apply GeoVera’s underwriting
guidelines and allowing the retailers direct access to GeoVera’s System. Contrary to
Graham’s argument, granting System access to the retailers, in and of itself, does not
mean that Graham could not have applied GeoVera’s underwriting guidelines to
applications submitted under the terms of the Agreement. Initially, Graham could
have insisted that its retailers send an application for insurance to it for review and
approval before submitting the application to GeoVera. Moreover, the Agreement
makes clear that, after a retailer completes an insurance application, the System would
provide a quote response to Graham and the retailer. This, in addition to the daily
reports produced by the System and sent directly to Graham, would have put Graham
on notice that one of its retailers was in the process of submitting an application.
Graham then could have worked with its retailer to verify that the risk to be insured
fell within GeoVera’s underwriting criteria before the policy was issued. Therefore,
we conclude that the Agreement placed a duty on Graham to apply GeoVera’s
underwriting guidelines to all applications for insurance submitted under the terms of
the Agreement, including those applications submitted by the retailers appointed by
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Graham. Accordingly, we reverse the district court’s grant of summary judgment to
Graham on GeoVera’s breach of contract claim.2
B. Negligence
The district court also granted summary judgment to Graham on GeoVera’s
negligence claim because “GeoVera is unable to show that conduct on the part of
Graham Rogers was the proximate cause of GeoVera’s losses” and because no
“agency relationship existed between Graham Rogers and ECA or Reeves.” On
appeal, GeoVera argues that “[a]ny contract includes a duty to exercise reasonable
care in the performance of the contract,” and that Graham “fail[ed] to use reasonable
care in submitting the [Balentines’] insurance application.” Therefore, according to
GeoVera, “the contract obligated Graham Rogers to perform with reasonable care and
failure of that performance gives rise to a negligence claim.”
We recognize that, under Arkansas law, “although a plaintiff may not recover
for the same act in both contract and tort and must ultimately choose among remedies
sought, it is not wrong for concurrent allegations to be pursued.” Albright v. S. Farm
Bureau Life Ins. Co., 940 S.W.2d 488, 490 (Ark. 1997). However, we find GeoVera’s
limited arguments in support of its negligence claim unpersuasive. First, GeoVera
cites no Arkansas law, and we have found none, that recognizes an implied duty of
reasonable care in the performance of a contract that gives rise to a negligence action.
Second, GeoVera’s claim that Graham was negligent in failing to apply GeoVera’s
2
Graham also argues, inaccurately, that “GeoVera is seeking to impose liability
upon Graham Rogers solely because of the conduct of ECA and Mr. Reeves”
(emphasis added). Therefore, Graham claims that GeoVera’s breach of contract claim
and negligence claim against Graham must fail because GeoVera’s settlement and
release of liability with ECA and Reeves amounts to a release of Graham. Graham did
not raise this argument before the district court, so we do not address it. See Pub.
Water Supply Dist. No. 3 of Laclede Cnty., Mo. v. City of Lebanon, 605 F.3d 511, 524
(8th Cir. 2010).
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underwriting guidelines is one of nonfeasance, “which means not doing the thing at
all, as distinguished from misfeasance, which means doing it improperly.” See
Findley v. Time Ins. Co., 573 S.W.2d 908, 911 (Ark. 1978). Allegations of contractual
nonfeasance do not give rise to claims for negligence in tort under Arkansas law. See
id.; see also Red Lobster Inns of Am., Inc. v. Lawyers Title Ins. Corp., 656 F.2d 381,
385 (8th Cir. 1981) (applying Arkansas law) (“[M]isfeasance . . . may support a cause
of action in tort [while] nonfeasance or inaction . . . does not give rise to a cause of
action in tort.”); Farm Bureau Ins. Co. of Ark., Inc. v. Running M Farms, Inc., 237
S.W.3d 32, 40 (Ark. 2006) (“Arkansas has never recognized the tort of failure to act
(nonfeasance) apart from the tort of bad faith.”).
Therefore, we conclude that GeoVera’s negligence claim fails as a matter of
law, and that the district court properly granted summary judgment to Graham on this
claim. See Pucket v. Hot Springs Sch. Dist. No. 23-2, 526 F.3d 1151, 1156 (8th Cir.
2008) (noting that an appellate court may affirm on any basis supported by the
record).
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s grant of summary
judgment to Graham on GeoVera’s negligence claim. However, we reverse the
district court’s grant of summary judgment to Graham on GeoVera’s breach of
contract claim and remand for further proceedings not inconsistent with this opinion.
SHEPHERD, Circuit Judge, concurring in part and dissenting in part.
I concur with the majority’s holding that GeoVera’s negligence claim fails as
a matter of law. With respect to the majority’s holding as to GeoVera’s breach of
contract claim, however, I respectfully dissent. In my view, the contract is at least
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ambiguous, and as such, Arkansas law requires that we construe it against the drafter.
Byme, Inc. v. Ivy, 241 S.W.3d 229, 236 (Ark. 2006).
I believe the contract is “fairly susceptible to more than one equally reasonable
interpretation.” Roberts Contracting Co. v. Valentine-Wooten Rd. Pub. Facility Bd.,
320 S.W.3d 1, 9 (Ark. App. 2009). As the majority observes, Article II, Section
(B)(2) does not expressly limit Graham’s responsibility to apply GeoVera’s
underwriting requirements to applications delivered by Graham. However, it also
does not expressly require Graham to oversee the delivery of policies by appointed
retail producers. In addition, Article III of the Agreement contemplates a direct
relationship between the retail producers and GeoVera by permitting retail producers
to deliver electronic applications directly to GeoVera. The absence of express
language requiring supervision by Graham, coupled with the ability of retail producers
to deliver policies directly, makes it reasonable to interpret the conditional clause in
Article II, Section (B)(2) as applicable only when Graham is the party engaging in the
delivery of policy applications.
Although I disagree with the majority’s interpretation, its analysis is equally
reasonable. Nonetheless, I believe our differing interpretations make the Agreement
at least ambiguous as to whether Graham was required to supervise the delivery of
policy applications by retail producers. Arkansas law thus dictates that we construe
the Agreement against the drafter, GeoVera. Byme, Inc., 241 S.W.3d at 236.
Accordingly, I would affirm the district court’s grant of summary judgment in favor
of Graham.
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