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No. 67, September Term, 1997 Charles S. Jones et ux. v. Hyatt Insurance Agency, Inc., et al.

[Involves An Action By Tort Claimants Against An Insurance Agency Based Upon The Agency's Negligent Failure To Procure Motor Vehicle Liability Insurance For Its Client]

IN THE COURT OF APPEALS OF MARYLAND

No. 67 September Term, 1997 ___________________________________________

CHARLES S. JONES et ux. v. HYATT INSURANCE AGENCY, INC., et al.

__________________________________________ Bell, C.J., Eldridge Rodowsky *Chasanow Raker Wilner Cathell, JJ. ___________________________________________ Opinion by Eldridge, J. __________________________________________

*Chasanow, J., now retired, participated in the hearing and conference of this case while an active member of this Court but did not participate in the decision and adoption of this opinion
Filed: December 8, 1999

This is an action by tort claimants against an insurance agency based upon the agency's negligent failure to procure motor vehicle liability insurance for its client. The action arose from an underlying tort suit filed by the claimants against the agency's client, whose employee was involved in a motor vehicle accident during the period in which the client had been uninsured because of the insurance agency's negligence. After judgment was entered against the client in the tort suit, the tort claimants sued the insurance agency in contract as third-party beneficiaries of the contract to procure liability insurance and in tort for negligent failure to procure the insurance. The primary issue before us is whether the statute of limitations for the claimants' cause of action in contract runs from the time when the claimants and/or the client discovered or should have discovered the agency's negligent breach of contract, or from the time when the claimants obtained a tort judgment against the agency's client. We shall hold that the limitations period for the contract action began to run from the discovery of the agency's breach of contract. In addition, we shall hold that the tort claimants had no viable direct cause of action in tort against the insurance agency because the agency owed them no duty independent of the contract. I. The petitioners in this case are the tort claimants Charles S. Jones and his wife, Eleanor Jones. The respondents are the Hyatt Insurance Agency, Inc., and John Swem, an employee of Hyatt.

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On July 25, 1985, a motor vehicle driven by Mr. Jones was struck by a motor vehicle driven by Robert Smith, an employee of K&D Auto, Inc. K&D, an automobile parts store located in Anne Arundel County, Maryland, leased the vehicle which Smith was driving. Mr. Jones's vehicle sustained only minor damage, but Mr. Jones claimed that he suffered various personal injuries, including progressively deteriorating neurological damage. Twenty days before the accident, K&D had arranged with Hyatt to obtain liability insurance to meet its various business needs. The negotiations with Hyatt had been conducted over the telephone by Wayne Silfies at the request of K&D's principal officers. Silfies was a life insurance agent who did business with both Hyatt and K&D's principal officers. Silfies referred K&D to Hyatt for a fee paid by the latter. Based on Silfies' conversations with Hyatt's employee Swem, K&D believed that Hyatt had secured motor vehicle liability insurance effective in early July 1985. Soon after notifying Hyatt of Mr. Jones's claim, however, K&D discovered that motor vehicle liability insurance had not been obtained, with the result that K&D's motor vehicle was not insured until mid-August 1985, three weeks after the accident. In a letter dated August 12, 1985, Hyatt informed Mr. Jones that "we do not and have not ever carried insurance on commercial vehicles" for K&D and that Hyatt was therefore returning Mr. Jones's estimates of property damage. Allstate Insurance Company, with which Mr. Jones had collision and uninsured motorist coverage, notified K&D in a letter dated August 27, 1985, that because K&D had no insurance at the time of the accident, Allstate would seek reimbursement for Mr. Jones's pending property damage and personal

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injury claims directly from K&D. In a letter dated March 6, 1986, Allstate informed K&D that it had paid Mr. Jones for property damage and that it was still awaiting reimbursement from K&D as Hyatt "has given us a definite no in regard to your insurance coverage." At first K&D refused to pay Mr. Jones's claim for property damage, taking the position that Hyatt should pay the claim. Eventually, K&D settled the property damage claim with Allstate for approximately $650. On February 8, 1988, Mr. and Mrs. Jones filed in the Circuit Court for Baltimore City a personal injury action against K&D and Robert Smith. Hyatt was not made a party to the action. The Joneses obtained a default judgment against Smith, and K&D stipulated to its liability for Smith's accident on the ground of respondeat superior. On June 21, 1989, after a nonjury trial on damages, a judgment in the amount of $450,000 was entered in favor of Mr. Jones. An additional award of $450,000 was entered in favor of Mr. and Mrs. Jones for loss of consortium. On the same day judgment was entered, K&D assigned to the Joneses its claim against Hyatt for failing to procure motor vehicle liability insurance in the insurance package which K&D had requested from the agency. Thereafter, Allstate paid Mr. Jones $20,000 under his uninsured motorist coverage. On October 6, 1989, about four months after the judgment and assignment, and more than four years after the accident, K&D and the Joneses as assignees filed suit in the Circuit Court for Anne Arundel County against Hyatt. The complaint alleged that Hyatt was liable for breach of contract and for negligence in failing to procure the insurance which K&D had requested. Allstate intervened as plaintiff, seeking to recover from Hyatt the $20,000

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uninsured motorist damages which it had paid to the Joneses. Hyatt filed a third-party complaint against Silfies, alleging that Silfies negligently induced K&D to believe falsely that Hyatt had procured motor vehicle liability insurance. Hyatt moved for summary judgment on the ground that the suit was barred by the three-year statute of limitations governing civil actions set forth in Maryland Code (1974, 1998 Repl. Vol.),

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