Insurance Claims, Settlements and Releases
Kimberly Balamotis v. H. Dexter Hyland, II d/b/a State Farm Agent
(March 10, 2010)

Facts: The plaintiff's home sustained extensive damage in a fire on July 27, 2005. She made a claim under her homeowner's policy with State Farm, filing an initial proof of loss in the amount of $675,000. The policy's limits of liability included coverage on the dwelling of up to $343,000 with a "dwelling extension" of up to $34,340.

The plaintiff sued State Farm for failing to pay the loss under the policy, however, the parties settled the claim and the plaintiff filed a second proof of loss in January of 2007 stating that the actual cash value and replacement cost of the building was $357,839.20, for a total of $447,340.90 (including a claim for contents and loss of use).  The release signed by the plaintiff named only State Farm and “its heirs, administrators, executors, successors and assigns.” 

In July of 2008, the plaintiff brought a breach of contract and tort action against the defendant, State Farm’s exclusive agent.  She claimed that when she purchased insurance for her newly constructed residence she specifically questioned the defendant about the adequacy of insurance coverage and was assured that her coverage was adequate, and that the defendant would review the coverage and make adjustments so that she would be fully insured.

The defendant filed a motion for summary judgment arguing that: 1) as an exclusive agent of State Farm he was covered under the release or proof of loss; and 2) the plaintiff’s submission of a proof of loss for an amount less than the available coverage barred her from recovering any additional amounts.  The trial court granted the defendant’s motion for summary judgment and the plaintiff appealed arguing that the release did not bar her claims because: 1) her tort action against the defendant was a separate and distinct action from the contract claim against State Farm; and 2) the agent was not named in the release.

Held:   

Reversed and remanded.

The Court ruled that the plaintiff’s claims against the agent for failure to procure adequate insurance coverage were separate and distinct from her claims against State Farm for failure to pay under its policy.  While State Farm’s liability extended only to the policy limits, the agent’s potential liability extended to those damages which exceeded the insurance coverage.  Therefore, State Farm and the agent were not joint tortfeasors.

In addition, the Court rejected the defendant’s argument that the release covered him, as an exclusive agent of State Farm.  Generally, a party is not released unless named in the release, and the release of one tortfeasor does not “in and of itself” bar claims against other tortfeasors even when the release purports to encompass all claims arising from a particular incident.  Since the agent was not specifically named in the release, the release did not bar the claims against him even though the claims arose out of the same fire loss.

The Court held that the release given by the plaintiff to State Farm did not operate as a matter of law to bar her claims against the agent because State Farm and the agent were not joint tortfeasors and because the plaintiff claimed that she was not fully compensated for her loss.  Furthermore, the release did not state that it was in full satisfaction of the damages sustained as a result of the fire, but only indicated that it reflected full settlement of the claims under the policy.  Since the claims against the agent were for damages that exceeded the policy’s coverage, they did not as a matter of law fall within the scope of the release and the trial court erred in granting summary judgment to the agent.  The Court did note, however, that the agent was entitled to introduce evidence at trial to establish that the release was intended to discharge him or that the plaintiff had received full compensation for her claims.

The Court also rejected the agent's argument that the proof of loss in which the plaintiff represented that the actual cash value and replacement cost of the building was an amount less than the policy limits established that she was fully compensated for the fire loss. The Court found that the proof of loss was not a binding admission and was open to explanation. The proof of loss was between the plaintiff and State Farm only, and did not inure to the benefit of the agent.  

Regards,

Stephen J. Schulthess

603-634-4300
mailto: sschulthess@gss-lawyers.com