Legal Update

LEGAL UPDATE By: Campbell D. Cox

Appalachian Underwriters, Inc. & Affiliated Entities

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THE TENNESSEE COURT OF APPEALS FINDS AN INSURED’S RELIANCE ON INSURANCE AGENT’S STATEMENT NOT REASONABLE OR JUSTIFIABLE

In Hope King v. Stephen Bradley, a March 2022 decision, the Tennessee Court of Appeals addressed a claim of negligent misrepresentation in the context of an insured/insurance agent relationship alongside an analysis of common principles of the law of agency.1

In 2015, Rutledge Pike Electric (“Rutledge Pike”), a commercial electric contractor owned by the Appellant’s husband, was attempting to secure work on a large project located in Jacksonville, Florida.2 As a condition of the project, Rutledge Pike needed to obtain performance and payment bonds.3 In order to finalize the bond, the Appellant and her husband were required to sign a General Agreement of Indemnity (“GAI”) which secured Rutledge Pike’s bond with their personal assets.4 Ultimately, Rutledge Pike was unable to complete the Jacksonville project and the company which wrote the bond, SureTec Insurance Company, began seizing on Appellant and her husband’s properties.5

According to the Appellant, at the time that the bond documents were signed, the following occurred: (1) Appellant’s husband met with their insurance agent, Stephen Bradley to execute the bond documents, however Appellant herself was not present to sign,6 (2) Appellant’s husband called her to obtain permission to sign on her behalf,7 (3) on that call, Appellant stated “Garry I don’t care what you sign as long as we’re not putting up our personal stuff, I don’t care,”8 (4) Appellant’s husband then asked Mr. Bradley, “Are you sure we’re not putting up our stuff?” to which Mr. Bradley responded “Nope,”9 (5) Appellant’s husband, without reading the bond documents, signed it on behalf of himself, Appellant, and Rutledge Pike.10

Appellant initially filed a suit in January 2017 against both Mr. Bradley and the notary who executed the documents.11 After a history of voluntary dismissals, transfers, and case consolidations, Mr. Bradley filed a motion for summary judgment in August 2020.12 Knox County Chancellor Michael W. Moyers granted the motion at the hearing via an oral ruling (which the Court of Appeals cites in full).13 In sum, Chancellor Moyers held that Appellant had made her husband her agent and therefore was also charged with the knowledge that was available to him (mainly, the ability to read the GAI itself), which made reliance on Mr. Bradley’s statement unreasonable.14

Although issues of timeliness (and even a parol evidence argument by Mr. Bradley15)were raised on appeal, the heart of the issue centered around if a genuine issue of material fact remained as to the fifth essential element of a negligent misrepresentation claim, justifiable reliance.16

Stating that although justifiable reliance is “generally a question of fact inappropriate for summary judgment,” the Court of Appeals noted that it had granted summary judgment on the issues in multiple prior cases.17 Considering the eight factors previously laid out by the Court of Appeals to use in determining if reliance on a misrepresentation was reasonable, the Court of Appeals placed “heightened significance” on the third and sixth factors in this case, being: (3) the availability of relevant information, and (6) the opportunity to discover the fraud.18 In this case, there was no evidence that the Appellant or her husband were discouraged or prevented from reading the GAI, and they were not hindered from speaking with an attorney for clarification.19 The unrefuted testimony at the trial court level was that the husband simply did not read the GAI.20 The Court of Appeals agreed with the trial court’s holding that the specifics of the agency relationship between the Appellant and her husband had no effect on the justifiable reliance argument, as Appellant had given him express authority to execute the contract on her behalf––therefore his reliance is imputed to her.21 The Court of Appeals then briefly addressed the first factor of justifiable reliance, business experience and sophistication of the party, noting that Appellant had been a real estate agent for over ten years, and had signed a similarly worded GAI in 2012.22

Upholding the trial court’s ruling, the Court of Appeals held that Appellant and her husband had acted with “blind faith” on Mr. Bradley’s statements regarding their personal assets, “despite the fact that the means of informing themselves of the truth were at hand.”23 Appellant’s husband as her agent had the “motivation and means” to obtain the information needed to discover the discrepancy between Mr. Bradley’s statement and the terms of the GAI and therefore his reliance was not reasonable or justifiable.24

Finally, the Court of Appeals disposed of Appellant’s additional argument that the trial court erred in dismissing the entire action on summary judgment as it ignored her claim of “agent and/or broker negligence” in acquiring and supplying the 2015 GAI and “misrepresenting its terms.”25 In support of this additional argument, Appellant submitted the affidavit of another Knoxville insurance agent, Joshua Witt.26 The Court of Appeals noted that Appellant had, in part, essentially restated her negligent misrepresentation claim, but also noted that there is no specific Tennessee law preventing an insurance agent from procuring a policy that their customer requests.27 The Court of Appeals held that Appellant had not articulated her claim of “agent and/ or broker negligence” in a manner sufficient enough to enable to court to assess it apart from her claim of negligent misrepresentation, and therefore dismissed Appellant’s remaining argument.28

1 King v. Bradley, No. E2021-00261-COA-R3-CV, LEXIS 87 (Tenn. Ct. App. Mar. 2022). 2 Id. at *2 3 Id. 4 Id. 5 Id. at *4 6 Id. at *3 7 Id. 8 Id. at *4 9 Id. 10 Id. 11 Id. at *4-5 12 Id. at *6 13 See id. at *7-8 14 Id. 15 See id. at n.3 (citing Brungard v. Caprice Records, Inc., 609 S.W.2d 585 (Tenn. Ct. App 1980) (holding that that the Court of Appeals had previously held that the parol evidence rule has no application to a case involving a fraudulent misrepresentation which induces the contract), and Stamp v. Honest Abe Log Homes, Inc., 804 S.W.2d 455 (Tenn. Ct. App. 1990) (holding that a claim for misrepresentation “sounded in tort” rather than contract, and therefore the parol evidence rule should have no application).