Sports, Inc. d/b/a Imperial Lanes of Sports, Inc. v. Michigan Mutual Insurance

Breach of Contract and Bad Faith - Insruance - Beginning in the 1970's, Imperial Lanes, Inc. owned a bowling
alley in Terre Haute. One of the long-time shareholders was Pierre
Miller. Miller had been a chartered property casualty
underwriter (CPCU) since 1955 and had operated his own Terre
Haute insurance agency since 1964. In the late 1980's, he was
president of Imperial Lanes, Inc., held 20% of the shares, and
acted as the conduit for communication between the shareholders
and staff operating the lanes. In 1989, Imperial Lanes, Inc.,
with aging shareholders and facing an oncoming tripling of the
bowling alley's land lease expense, began seeking a buyer.

Miller's agency, as part of its approximately 60% commercial
property insurance business, obtained insurance for the bowling
alley from Michigan Mutual Insurance Company in 1987. After
Miller ceased being an agent for Michigan Mutual in 1989, he
coordinated continued coverage for the bowling alley from
Michigan Mutual through his colleague Boyd Hopper at Hopper's
insurance agency. The last such coverage was for the period of
November 1, 1990, to November 1, 1991.

Ray Goddard had owned and operated a golf course in Terre Haute
for several years. Goddard's sister was married to Pierre Miller,
and Goddard became interested in the bowling alley as a business
whose winter season would complement the timing of his golf
business. Goddard's long time manager at the golf course, Denise
Wooden, and her brother Rick Purcell, joined with Goddard to form
Sports, Inc., d/b/a Imperial Lanes of Sports, Inc., which
purchased the bowling alley building and assets effective May 1,
1991. All the new owners had business management experience and
were financially secure. After the sale, Mrs. Wooden's husband,
Kenneth, began managing the bowling alley, and Mrs. Wooden was
there every day assisting with various matters. All personnel of
the bowling alley under the previous owners continued to be
employed by the new owners, and Pierre Miller acted as a
consultant to the new owners.

Goddard had obtained personal and business insurance coverage
from Miller's agency for over twenty years; Mrs. Wooden, her
personal insurance from the agency for ten years. Before the
sale, both discussed with Miller's agency the desire for coverage
like that in place on the bowling alley. They asked Miller to
procure coverage for the bowling alley. Miller prepared and
signed a computer generated binder, dated April 29, 1991, which
indicated the existing Michigan Mutual policy (# MGCPP0212939),
with identical limits, was extended to cover the bowling alley at
the Terre Haute address for Imperial Lanes of Sports, Inc. during
the period of May 1 to June 1, 1991. The day of closing on the
sale, Goddard and Mrs. Wooden specifically queried the Miller
agency as to whether the alley was "properly covered" and were so
assured. That same day Miller sent the bowling alley its copy of
the binder.

On May 10, 1991, Miller called Hopper's agency and, because
Hopper was out of town, talked with Donna King there.
Miller advised King that the bowling alley had been sold, he had
issued a binder, there was "a new owner," and the Hopper agency
should take necessary steps "to keep the coverage in full force."
She agreed to so inform Mr. Hopper and indicated
she saw "no problem." Miller also asked that worker's
compensation coverage be procured for the bowling alley. When
Hopper returned, Miller talked with him about these same matters,
and Hopper expressed no concerns about being able to continue the
coverage. Miller sent a note verifying this conversation, along
with the binder, to Hopper. Upon receipt of the binder, the
Hopper agency forwarded it to Michigan Mutual.

On May 31, 1991, King prepared, signed, and mailed to Michigan
Mutual a "request for policy change" asking that the "insured's
name" on policy # MGCPP0212939 be changed to Imperial Lanes of
Sports, Inc. Also on May 31st, Miller prepared a
second binder for coverage from June 1st to July 1st, and sent it
to Hopper.

The next evening, Saturday, June 1, 1991, a fire damaged the
bowling alley.

On June 3rd, King learned about the bowling alley fire and
faxed a notice of loss to Michigan Mutual. On June 4th,
she received the second binder, signed it, and mailed it to
Michigan Mutual. That same day, an underwriting assistant from
Michigan Mutual called King to ask for information on the new
owners. The assistant informed King that the company had not
received the binders, and asked that she send copies -
which King did. Also on June 4th, Richard Watson, an
adjuster for IRM, the reinsurer for Michigan Mutual on policy #
MGCPP0212939, arrived in Terre Haute to begin determining the
scope of the loss at the bowling alley on behalf of Michigan
Mutual. Watson returned to Terre Haute on June 7th. Before
departing that day, he had most of the information necessary to
adjust the claim. However, he also informed Mrs. Wooden on June
7th that Sports, Inc. might not be covered by the Michigan Mutual
policy.

On June 19th, Warren Williams, Michigan Mutual's senior
commercial underwriter, sent Hopper's agency a letter indicating
the company was declining coverage because (1) it had exceeded
its binding authority; and (2) written consent for
assignment or transfer of the policy was not obtained prior to
issuance of the binder, and "from a financial or other
standpoint" Michigan Mutual was unable to underwrite "this new
risk." The next day, adjuster Watson, pursuant to
instruction by IRM's counsel and with a copy of Williams' letter
as guidance, wrote to Sports, Inc., stating that "no policy was
ever written to cover [its] interest" in the bowling alley, and its claim for loss was denied.

Repairs to the bowling alley were initially stalled by these
events. Then, as contractors proceeded with the work, liens were
placed against the property. The shareholders took some loans to
bridge the 2 1/2 months the business was shut down. Sports, Inc.
hired an attorney to press a claim for more than $389,000 against
the insurance carrier for Forsythe Brothers, the electrical
contractor responsible for the damaged extension cord which
caused the fire. At the end of 1991, Sports, Inc. received
$300,000, the limits of the contractor's policy, from the
insurance carrier. By that time, damages totaled $409,675.95.

Sports, Inc. brought an action against Michigan Mutual claiming
the insurance company had breached its obligation of good faith
and fair dealing and further seeking punitive damages for having
done so.

The jury returned a verdict for Imperial Lanes of Sports, Inc. and against Michigan Mutual, and awarded compensatory damages of $78,047.81 and punitive damages of $1,000,000.

Michael Barranco, insurance and Boyd Hopper, insurance

Unknown

Affirmed with direction from the Supreme Court of Indiana. See 706 N.E.2nd 555 (Ind. 1999). Note: The above date reflects that of the appellate court and not that of the original trial. Reported by jjb.