In Johnson & Higgins of Pennsylvania, Inc. v. Hale Shipping Corporation, 121 Md. App. 426 (1998), the Maryland Court of Special Appeals held that Hale Shipping Corporation ("Hale Shipping") relied on Johnson & Higgins, a marine insurance broker, and therefore, its failure to read the insurance policies did not make Hale Shipping contributory negligent or bar its breach of contract claim.
Edwin F. Hale, Sr. ("Hale"), a banking and trucking executive, decided to expand his business to include marine transport. Realizing that he had no experience in the area, he sought out "a competent group of people" to advise him in all phases of the marine business--from buying barges to acquiring the proper insurance. His extensive search led him to Johnson & Higgins. According to Hale, representatives from Johnson & Higgins told him that their company was the best insurance broker in the country. Hale testified that he had no expertise in marine insurance and that he came to rely on Johnson & Higgins.
On one occasion, Hale Shipping transported a shipment of herring roe. When the shipment arrived spoiled, the owner of the cargo sued Hale Shipping for the value of the damaged herring roe. The insurance company denied coverage for the claim on the grounds that certain refrigeration surveys required by the policy pertaining to the adequacy of the refrigeration had not been conducted.
Previously that clause had been deleted when Hale Shipping used a charter vessel to transport cargo. When Hale Shipping notified Johnson & Higgins that it would be going off charter and using a tug and barge to transport cargo, Hale Shipping believed that its insurance coverage would remain the same. However, the original refrigeration clause again was included in the policy.
Hale Shipping argued that Johnson & Higgins should have amended its insurance policy by deleting the refrigeration clause thereby requiring the insurance company to cover the loss to the herring roe shipment. Johnson & Higgins countered that it should not be held responsible for any losses suffered by Hale Shipping because executives at Hale Shipping failed to read the insurance policy. Ultimately, the trial court entered judgment in favor of Hale Shipping. Johnson & Higgins appealed the judgment to the Court of Special Appeals.
Relying on Twelve Knotts Ltd. Partnership v. Fireman's Fund Ins. Co., 87 Md. App. 88 (1991), Johnson & Higgins asserted that Hale Shipping's failure to read the insurance policy precluded any liability for losses on the part of Johnson & Higgins. In Twelve Knotts, the Court of Special Appeals ruled that Twelve Knotts' failure to read the insurance policy precluded its claim of negligence and breach of contract.
The Court was not persuaded by Johnson & Higgins' argument, distinguishing Twelve Knotts from the instant case. In Twelve Knotts, "the limited partnership solicited proposals and chose the insurance policy by merely accepting the lowest bid." Here, however, Hale Shipping "conducted an active search for a reputable and knowledgeable maritime insurance broker on whose expertise it could rely to protect its interest as the corporation was entering a new field. Johnson & Higgins held itself out to possess such knowledge and expertise." According to the Court, "Hale Shipping placed a much greater degree of justifiable reliance upon Johnson & Higgins" than Twelve Knotts placed upon its insurer. Hale Shipping had not, as matter of law, been contributorily negligent. The Court concluded that it was Johnson & Higgins' "failure to adequately advise and protect Hale Shipping's interest, duties for which it was engaged, that were the proximate cause of Hale's loss."
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