Products in the custody of a finishing plant for processing were destroyed by fire while in the bailee's premises. The owner of the lost property was paid by its insurer, which then brought legal action against the processor under its subrogation rights. The claim was settled with the processor, which brought a lawsuit against the insurance agency that handled its account and the insurance company in which the risk was placed, alleging negligence in omitting requested protection that would have covered loss of the property. The trial court dismissed the insurer, leaving the agency as the sole defendant.

The insurance agency and insured processor were found equally liable by the trial court. Accordingly, the former was assessed half of the amount owed to the latter. The insured had argued that the insurance agency had negligently failed to arrange requested coverage for customers' goods in the plant that burned; that it did provide such coverage in another plant where it was neither needed nor requested. The insurance agency asserted that the insured was negligent for not having read the policy and noted its provisions. Both parties appealed the judgment.

The appeal court reversed the trial court on its findings of negligence on the part of the insurance agency, thereby "precluding the necessity" of addressing the question of contributory negligence on the part of the insured. The court found it an error to reform the policy to provide coverage for the destroyed property with no clear evidence of "fraud, mutual mistake or unfair dealing." It also concluded that there was insufficient evidence of a request by the insured for bailed goods coverage to sustain a negligence award.

The Kentucky Supreme Court, on review, reversed the appeal court on the issue of the insurance agency's negligence. It concluded, from the circumstances and testimony, that the insured had requested coverage for the bailed property and that the insurance agency had negligently failed to provide it. It quoted, as follows, from 43 Am. Jur. 2d Sec. 141: "Where an insurance agent or broker has failed to procure a policy which, in terms and coverage is of the type specified by the insured, and the insured consequently suffers an uninsured loss, the agent or broker cannot successfully contend that he is relieved of liability by reason of any contributory negligence on the part of the insured in not having read and familiarized himself with the contents of the policy."

The Kentucky Supreme Court found the insurance agency liable for the loss because of its "negligent failure to provide requested coverage" and that the insured was not contributorially negligent because of its "failure to read and understand the fire insurance." The matter was remanded to the trial court with directions for entry of judgment accordingly.

(GRIGSBY ET AL., Appellants v. MOUNTAIN VALLEY INSURANCE AGENCY, INC., Appellee. Kentucky Supreme Court. No. 89-SC-562-DG. June 28, 1990. CCH 1990 Fire and Casualty Cases, Paragraph 2613.)