Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

In Colorado, insurance agents are commonly referred to as insurance producers. Potential (but often unsuccessful) claims against an insurance agent/producer include (1) the agent failed to advise the insured that the insurance coverage obtained was insufficient to provide full coverage in the event of a significant loss, i.e. negligence; (2) the agent made false, misleading, or inaccurate representations concerning the sufficiency of the insurance coverage, i.e. negligent misrepresentation; and (3) the agent breached a fiduciary duty by failing to advise the insured that the insurance coverage procured was not sufficient to cover a loss.

In some cases, insurance agents/producers have no duty to advise policyholders regarding the adequacy of their insurance limits

The majority of courts that have considered this issue have held that, absent a special relationship, an insurance agent does not have a duty to inform or advise an insured regarding the availability or sufficiency of insurance coverage. See Estate of Hill v. Allstate Ins. Co., 354 F.Supp.2d 1192, 1197-98 (D. Colo. 2004)(producer has no duty under Colorado law to advise insured of availability of enhanced insurance limits); Sintros v. Hamon, 810 A.2d 553, 555-56 (N.H. 2002)(sound policy reasons weigh in favor of not imposing a duty to advise regarding limits on the producer); M&E Manufacturing Co. v. Frank H. Reis, Inc., 692 N.Y.S.2d 191, 193 (N.Y. App. Div. 1999)(ordinarily insureds are in a better position to know both their own assets and ability to protect themselves than are insurance producers and brokers and thus insureds are the final decision makers in such risk management determinations).

Absent an express undertaking to do so, neither the insurer nor its agents have any duty to disclose that the limits of insurance are sufficient or insufficient. Aetna Cas. & Surety Co. v. Summar, 545 S.W.2d 730, 733 (Tenn. 1977). A majority of states hold that only “a special relationship” between the insured and the agent could impose upon an insurance agent an affirmative duty to provide advice regarding the availability or sufficiency of insurance coverage. See Harts v. Farmers Ins. Exchange, 461 Mich. 1, 10, 597 N.W.2d 47, 52 (1999); Murphy v. Kuhn, 90 N.Y.2d 266, 269, 660 N.Y.S.2d 371, 682 N.E.2d 972, 974–75 (1997).

In Colorado, it may be difficult to establish that the policyholder justifiably relied on the alleged misrepresentations of the insurance agent

To establish a claim for negligent misrepresentation, a plaintiff must show that the defendant: (1) supplied false information to others in a business transaction, (2) failed to exercise reasonable care or competence in obtaining or communicating that information, and (3) the other parties justifiably relied on the information. Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo. App. 1991). Under Colorado law, a plaintiff cannot justifiably rely on an alleged misrepresentation when that plaintiff has access to information that was equally available to both parties and would have led to the discovery of the true facts. Balkind v. Telluride Mountain Title Company, 8 P.3d 581, 587 (Colo. App. 2000). Many courts have held that once insureds are provided a copy of their policy and/or declarations page, insureds could not have justifiably relied on an agent’s misrepresentations that were contrary to the provisions of the policy. This is especially true in Colorado and other states where an insured has a duty to read his or her policy. See Spaur v. Allstate Insurance Company, 942 P.2d 1261, 1265-66 (Colo. App. 1997) (citing Concialdi v. Pueblo Gas & Fuel Co., 328 P.2d 98, 103 (Colo. 1958).).

In Colorado, an insurance agent/producer has no fiduciary duty to an insured

In order to establish a fiduciary duty, a plaintiff must demonstrate the existence of a particularized and enhanced duty of care. See Martinez v. Badis, 842 P.2d 245, 251-52 (Colo. 1992). Existing Colorado case law indicates that there is no “special relationship” between an insurance producer and an insured, and therefore there is no relationship of the type necessary to support a fiduciary duty claim. See Cary v. United Omaha Life Ins. Co., 68 P.3d 462, 466-67 (Colo. 2003) (insurance producer does not have a special relationship with an insured).

Unfortunately, in Colorado and many other states, public perception does not match the law when it comes to insurance agent services and responsibilities. Insurance television ads (“You’re in good hands with Allstate,”) and many more like State Farm’s “agent jingle” commercial are partly responsible for this misperception. Unless Colorado and other states legislate change or public awareness campaigns are better funded, it is unlikely this misperception will be corrected.

Unfortunately, the continued lawsuit was not as successful for the insureds from that point on. The release they signed stated that the insureds,

RELEASE, ACQUIT, and FOREVER DISCHARGE Travelers from any and all Event Claims including those asserted and those that could have been asserted, whether accrued or unaccrued, whether known or unknown, whether now existing or that may arise hereafter.

It further defined "Travelers" as the insurance company and,

all of its past, present, and future underwriters, officers, directors, stockholders, agents, attorneys, insurers, servants.

Cleverly, the insurance agent jumped on this language and argued to the court that he was an agent for Travelers, so the release encompassed claims against him as well. The insurance agent provided several documents which showed the agreement between it and Travelers which used the term "agent" when referring to the insurance agent, further solidifying his argument.

Ultimately, the court held that,

Upon considering the aforementioned undisputed evidence and the specific terminology of the settlement agreement, we conclude, as a matter of law, that [the insureds] released [the agent] when they released Travelers from all claims, demands, causes of action and the like relating to the loss for which they sued.

For the insureds, the spirit of the settlement was not to include the agent, but the court ruled against them. This illustrates an important lesson. Always read what you sign and be sure you fully understand every detail contained within a contract - especially when related to litigation. If you are unsure of anything, it will never hurt to ask for clarification.

European Woodcraft regularly used Global Insurance Services to obtain its insurance. Citizens appointed Global Insurance Services as its Florida licensed agent, giving Global the authority to submit insurance applications. Citizens supplied Global with the application forms and an agency number. European Woodcraft asked Global to obtain windstorm insurance for its new property. Global secured a quote from Citizens and faxed a letter with an insurance application to European Woodcraft. The letter said that to bind coverage, a premium check was required along with the application. A Global representative incorrectly completed a section of the application, and European Woodcraft’s principal signed the application, despite the incorrect information within it. The application stated the following right above the signature line:

I hereby certify that the information on this application is true and correct to the best of my knowledge. I further understand and agree to the terms as set forth on page 2.

The principal of European Woodcraft did not review page 2 of the application before signing it. On July 18, 2005, Citizens notified Global that the premium check was void for insufficient funds. A Global representative notified European Woodcraft of the problem. European Woodcraft sent a new check to Global, and thought that once the check was sent to Citizens the insurance would be in place. On July 28, 2005, after receiving the application and new check for the premium, Citizens determined a mistake was made on the application. The correct property designation on the application increased the premium amount. Citizens sent a notice of deficiency to Global and to European Woodcraft’s address listed on the application. The notice indicated that a policy would not be issued until the full premium was paid. European Woodcraft’s notice was returned as undeliverable. Global received the notice, but apparently never communicated with European Woodcraft on it. On October 5, 2005, Citizens returned the premium paid after receiving no additional funds, closed its file, and advised that no coverage existed. Hurricane Wilma damaged European Woodcraft’s property shortly thereafter.

European Woodcraft filed a claim with Citizens and was informed there was no coverage. European Woodcraft filed suit against Citizens seeking coverage, and after a bench trial, the trial court entered judgment in favor of European Woodcraft. Citizens appealed. The first issue on appeal was whether Global was Citizens’ general lines agent and had apparent authority to bind Citizens into coverage.

Providing company forms and materials to insurance agents has been held sufficient in Florida to designate a broker as an agent. This is known as apparent authority. An insurer may be liable for the action of those it cloaks with apparent authority. However, an insurer will not be bound by the agent’s actions if the insured knew or was put on “notice of inquiry” of limitations on the agent’s actual authority. The trial court found no evidence that European Woodcraft was ever put on notice of limitations on Global’s authority to bind coverage. The appellate court noted, however, that the application stated the following on page 2:

Effective date of coverage is upon approval of Citizens. No insurance agent has the power to bind coverage or make the policy effective. Receipt by agents of premiums is not receipt by Citizens and does not make the policy effective. Applicants must not rely on representations of any party other than Citizens in its Tallahassee or Jacksonville Offices.

That provision provides actual notice on the limitations of Global to bind Citizens to coverage. Since European Woodcraft never received page 2 of the application, the next issue was whether it was placed on notice of inquiry regarding those limitations. The Court noted that directly above the signature line on page 1 of the application, it stated, “I further understand and agree to the terms as set forth on page 2.” The Court applied the “reasonable person” standard, and held that:

A reasonable person under these circumstances would have actually read page 2 and discovered the agency disclaimer. A person has no right to shut his eyes or ears to avoid information, and then say he has no notice; that it will not suffice the law to remain willfully ignorant of a thing readily ascertainable by whatever party puts him on inquiry, when the means of knowledge is at hand.

The Court reversed the judgment and remanded the case for further proceedings.

Now that we are in the middle of hurricane season, it is important to double check your insurance policies to ensure coverage and that the premiums have been paid. It may even be a good practice to call your agent to have them verify coverage as well. Remember life’s experiences make us stronger, but in this situation, discovering after a loss that you do not have insurance coverage is likely an experience you would rather do without.

When it is time for policyholders to make a claim with their carrier, it’s always under unfortunate circumstances. At that time, having an appropriate policy to rely upon and a cooperative insurance company is crucial to the livelihood of individuals and businesses alike. During these times of need, finding out that the broker did not procure a policy which met the policyholder’s needs, can be devastating.

In California, a broker is held to a reasonable standard of care. Courts have consistently identified that a broker must:

1. Understand a client’s needs when providing a policy;
2. Match the proper policy to the client’s needs;
3. Explain to the client whether the policy meets the coverage needs and disclose coverage possible coverage gaps;
4. Explain to the client any possibilities of coverage disputes.

Actions for lack of appropriate coverage, gap in coverage, or that the coverage is not what was represented by the broker are possible. A broker’s failure to deliver the agreed-upon coverage may constitute actionable negligence and can constitute the proximate cause of an injury. Butcher v. Truck Ins. Exchange, (2000) 77 Cal App. 4th 1442, 1461.

Californian policyholders may rely upon the broker’s representations regarding the appropriate purchase of a policy and the amount of coverage needed. An agent or broker who fails to procure insurance as requested will be liable for any resulting damage. Hydro-Mill Co. v. Hayward, Tilton & Rolapp Ins. Associates, (2004) 115 Cal.App. 4th 1145,1153. Although it is good to know that California Courts consistently recognize that a broker has an affirmative or greater duty to the client, and better still, holds brokers liable for the resulting damages, it ultimately behooves the policyholder to understand his or her own coverage needs. Being diligent in making sure that your broker chooses the right policy for your needs can make the difference between mere unfortunate circumstances and a nightmare.

In Topmiller v. Cai,, 99 N.M 311 (Ct. App.1983), Mr. Topmiller asked his insurance agent for builder’s risk insurance on the house he was about to build. After making assurances, the agent failed to procure the proper policy. The house was destroyed by fire just shy of completion, and Mr. Topmiller sued his agent for negligence. While the duty and breach were clear, there was an issue about damages.

In order to re-construct the house, Mr. Topmiller had to obtain additional interim financing which cost him an extra $5,500. In an effort to avoid paying that additional amount, the agent argued that his liability was that which would have fallen upon the insurance company, had the insurance been effected.

The theory of damages, however, is to make an injured person whole. The court used that theory in reaching the following conclusion:

Normally, causation requirements will limit any recovery to that which the plaintiff would have received through the insurer if coverage had been provided. However, if the plaintiff is able to prove that additional consequential damages resulted from the agent’s failure to obtain coverage, he will then be entitled to recover those consequential damages as well.

It is important to note that additional costs may be recoverable under this principle. Keep in mind, though, that this case applied New Mexico law and the law in other states may vary.

Edward Collins owned property in Louisiana and had homeowners insurance for the property from 1991 until May 30, 2005, when the policy lapsed without his knowledge. His property was damaged during Hurricane Katrina in August 2005 and his claim was denied based on the expiration of the policy. Mr. Collins filed suit against his insurance agent for, amongst other things, negligent misrepresentation claiming that he met with his agent only a week before Hurricane Katrina and was informed that he was fully covered. The agent, in his motion for summary judgment, argued that while he did meet with Mr. Collins, there was no discussion of his homeowners policy and therefore he made no misrepresentation. The court noted:

Under Louisiana law, an insurance agent has a duty to use reasonable diligence in placing the insurance requested and to promptly notify the client if he fails to obtain the requested insurance. However, an insurance agent’s duties can be greater than merely procuring the insurance requested, depending on what service the agent holds himself out as performing and the nature of the specific relationship between the agent and his client.

The court pointed out that:

A plaintiff may recover for negligent misrepresentation if (1) the defendant owes a duty to supply correct information; (2) the defendant breaches that duty; and (3) the plaintiff suffers damages resulting from a justifiable reliance on that misrepresentation. An insurance agent has a duty to provide his client with correct information, thus he may be liable for negligent misrepresentation if he provides incorrect information to the client on which the client relies and is thereby damaged.

Because the agent and Mr. Collins gave conflicting accounts of the meeting one week before Hurricane Katrina, there was an issue as to a material fact and the agent’s motion for summary judgment was denied. Establishing the duty was not enough in this case; Mr. Collins still had to prove to a jury that the agent failed to provide him with correct information.

Keep in mind that this case applied Louisiana law and the law in other states may vary.

Evidenced by the depositions yesterday, insurance agents will likely try to separate themselves from the promises they made to their clients. Advertisements, though, show exactly how an agent or agency held themselves out to clients. Yesterday, Chip asked whether or not the agent gave advice to clients or otherwise aided them in deciding what insurance coverages to purchase. Not wanting to admit to an extra duty, the agent stated that he gives out information, not necessarily advice. Unfortunately for the agent, Chip confronted him with brochures produced by his company that said, “Advice and Answers – Always” and that the agency “earns straight A’s for analyzing, advising, arranging, and administering insurance solutions that cover all bases.”

The agent went on to say that he would only purchase the insurance specifically requested by his client, but another advertisement made the following claim:

It’s our business to know your business so we can customize solutions based on your specific needs.

One of the more surprising developments was how the agent tried to claim the dozens of testimonials distributed by the agency over the years were merely the words of others and not indicative of agency promises. The testimonials had quotes like,

[This agency] provides an important part of the expert advice we rely on.

Or

[They] learned my business so I didn’t have to learn insurance.

Or

They showed me every reasonable option in the marketplace, then made a recommendation.

Over the course of the deposition, it became very clear that this agency promised expert know-how, exceptional service, and integrity. The advertisements showed exactly what the agent was trying to avoid – accountability.

In 2001, the Lewiarz’s house burned down. Their insurance company at the time paid their claim, but refused to insure their house beyond the then-current policy. Left to find new homeowner’s insurance, the Lewiarz’s called a broker who submitted applications and found an insurance company to provide coverage beginning in 2003. That insurance company denied coverage for a second fire loss that occurred in 2006. The insurer based the denial on the application’s failure to disclose that the house had been damaged by fire previously.

The homeowners filed suit alleging the broker was negligent in preparing the application for insurance. The broker filed a motion to dismiss, claiming the action was barred by the statute of limitations. The broker contended that the statute of limitations began to run on the date the insurance policy was issued. The court disagreed, explaining:

The [s]tatute of [l]imitations does not run until there is a legal right to relief. Stated another way, accrual occurs when the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint. Inasmuch as "[d]amages are a necessary element of a negligence claim which must be pleaded and proven," plaintiffs could not have established any harm until their claim was denied by [their insurance company]. Thus, where, as here, a claim against an insurance agent or broker relating to the failure of insurance coverage sounds in tort, the injury occurred and the plaintiffs were damaged when coverage was denied. [citations omitted]

Applying this rule, the court held that the suit was timely and shouldn’t be dismissed on those grounds.

The statute of limitations is a fairly easy concept: It limits the time you have to bring a claim. The tricky part, however, can be determining when the clock starts ticking on the limitations period. Calculating the dates accurately is critical, as an insured will likely be precluded from any recovery if the limitations period ends before an insured files suit.

Keep in mind that this case applied New York law and other states may apply different standards.

In Amling v. State Farm Insurance Co., No. 10-1130, 2011 WL 1584215 (Ct. of App. Iowa Apr. 27, 2011), the Amlings purchased insurance from State Farm for their ranch home in 1998. In 2004, they added a sunroom to their home, but never increased the coverage amount of their insurance policy. In 2006 a fire completely destroyed their home, resulting in damages that exceeded their policy limits. While State Farm paid the full policy limits, the Amlings claimed they relied on their agent to properly assess their insurance needs and they were not adequately insured.

The court applied the rationale used in Langwith v. Am. Nat’l Gen. Ins. Co., 793 N.W. 2d 215 (Iowa 2010), and stated:

The client bears the burden of proving an agreement to render services beyond the general duty to obtain the coverage requested. In the absence of circumstances indicating the insurance agent has assumed a duty beyond the procurement of the coverage requested by the client, the insurance agent has no obligation to advise a client regarding additional coverage or risk management.

The court also stated:

Some of the circumstances that may be considered by the fact finder in determining the undertaking of the insurance agent include the nature and content of the discussions between the agent and the client; the prior dealings of the parties, if any; the knowledge and sophistication of the client; whether the agent holds himself out as an insurance specialist, consultant, or counselor; and whether the agent receives compensation for additional or specialized services.

The Amlings were unable to provide any evidence that their agent held himself out as a specialist, consultant, or counselor. They also failed to show that he received any special compensation for additional or specialized services. The Amlings relied mostly on their long-standing relationship with their agent to establish a greater duty, but the court recognized that they never asked their agent for advice about how much coverage they needed and determined that the long-standing relationship, without more, was insufficient to place a greater duty on the agent. Consequently, their case was dismissed showing, yet again, the importance of establishing duty in agent negligence cases.

Keep in mind, this holding is based on Iowa law. The law in other jurisdictions may vary as to establishing an agent's duty.

Amy Kareem owned a business in Louisiana and asked her broker to procure insurance that would protect her business from, among other things, any loss resulting from criminal activities. Her broker procured an insurance policy and informed Ms. Kareem that criminal activities were covered. Ms. Kareem’s business was later damaged during a burglary, but her insurer denied her claim because the policy didn’t cover burglary or theft. Ms. Kareem brought suit against her insurance company for wrongly denying the claim and against her broker for failing to procure the proper insurance coverage.

The insurance company removed the case to federal court and argued that Ms. Kareem failed to state a claim that would allow for recovery against the broker in state court. The federal judge, though, determined that Ms. Kareem’s assertions were sufficient to keep the case in state court.

It is well established under Louisiana law that a plaintiff may recover for his insurance agent’s failure to procure insurance coverage as requested. According to the Louisiana Supreme Court, an insurance agent who undertakes to procure insurance for another owes an obligation to his client to use reasonable diligence in attempting to place the insurance requested and to notify the client promptly if he has failed to obtain the requested coverage.

Kareem v. Markel Southwest Underwriters, Inc., No. 10-527, 2011 WL 161974 (E.D. La. Jan. 18, 2011) (citations omitted).

The Court went on to recognize that:

A client may recover any losses he sustains in reliance on the agent’s representations that he was properly insured in the amount of the desired coverage…. [T]he three elements that a plaintiff must establish in order to state such a claim [are]: (1) an undertaking or agreement by the insurance agent to procure insurance; (2) failure of the agent to use reasonable diligence in attempting to place the insurance and failure to notify the client promptly if he has failed to obtain the insurance; and (3) actions by the agent warranting the client’s assumption that the client was properly insured.

The Court looked to Ms. Kareem’s assertions that she asked her broker to procure insurance protecting her business from criminal activity and that her broker failed to do so, even though he informed her he had. This was sufficient to state a cause of action against the insurance broker.

The insurance company also argued that the suit was untimely, alleging Ms. Kareem knew or should have known she did not have the proper coverage on the date she signed the insurance application. The Court felt differently, however, and determined that because she did not receive the policy until after this loss occurred, Ms. Kareem did not know about the lack of coverage until the insurance company notified her. The suit was timely.

Keep in mind this case deals only with Louisiana law. Other states may treat the same situation differently.

Peter Biging wrote two articles on this topic over the past week, Courts Shield Agents, Brokers From Added Duties To Procure Coverage, and Special Circumstances May Mean Agents, Brokers Owe Greater Duties. Both should be read and placed into research files if you have an interest in these cases. His checklists are excellent.

Biging wrote that courts are not expanding insurance agent duties to procure coverage without proof of a special circumstance:

It follows then, as a general rule, that absent special circumstances, an insurance agent or broker has no special duty to advise customers what coverage to obtain, or to provide continuing advice or guidance with regard to coverage procured.

An insurance agent or broker’s basic duty of care is simply to obtain the coverage that has been requested. If the agent or broker cannot procure the requested coverage within a reasonable timeframe, then the producer must tell the customer that he or she cannot do so. But that’s it.

The rationale that guides this general principle is that the agent or broker should not be placed in the position of being the guarantor of the sufficiency of the customer’s coverages. (See related textbox, “Becoming Special.”) While insureds are making efforts to get courts to read the basic duty of care more expansively, recent decisions indicate courts are not taking the bait.

While I do not think many unsuccessful agent error and omissions cases presented sufficient evidence of the respective agent’s duties and the training and reasonable expectations that were the impetus for such duties, Biging’s checklist, though from a conservative point of view, is an excellent list of factors policyholder attorneys can use to determine if a case is viable. It provides:

• When the agent or broker has been asked for specific advice or guidance on a coverage issue and provided it.
• When the agent/broker has undertaken special duties in handling the customer’s account.
• When the broker has agreed to accept or has charged special compensation in addition to the standard commission for advice/guidance with regard to coverage.
• When the agent or broker has held himself out as an expert, and knows or has reason to believe that the customer is relying upon his expressed expertise with regard to a coverage issue.
• When the agent/broker and the customer have a relationship of such significance in terms of time, trust and reliance that the agent/broker should know or have reason to know that the customer is relying upon his advice with regard to coverage issues.

From a public policy standpoint, insurance agents should not be viewed as mere order takers. Most agents are licensed and trained and are expected to do something more than simply take orders from a largely ignorant consuming public. Obtaining factual information that establishes an agent’s duty and special circumstances that show a client’s reasonable reliance on that duty is paramount to establishing whether an insurance agent can be held accountable when coverage does not exist.

Most insurance agents claim to provide special service: determining the needs of customers and "making certain" customers are insured for the unexpected. Unless an agent is selling on price alone, it would seem that many agents are promising to provide one type of relationship at the point of sale and avoid accountability for it later. The following ad is typical of what many good, hardworking and accountable agents promise to do -- at a minimum -- for their clients: 
 

Sometimes, agents imply they can do even more and are special agents as indicated in this funny promotion:

Many of my colleagues lose insurance agent error and omission cases because the degree of the duty and service promised by the agent is not proven. Generally, proving duty is the key to establishing accountability in an insurance agent case. Merriam v. Farm Bureau Insurance, 793 N.W.2d 520, 525 (Iowa 2011) is an example of this. The Iowa Supreme Court stated the general standard in most states for proving duty of an insurance agent:

absence of circumstances indicating the insurance agent has assumed a duty beyond the procurement of the coverage requested by the client, the insurance agent has no obligation to advise a client regarding additional coverage or risk management.

The key to a successful case is often centered on showing the special circumstances which establish a duty. Absent such circumstances, many courts will rule that an insurance agent has a duty similar to the person taking an order at a fast food restaurant--give the price for the coverage specifically requested and provide that product if ordered.

In Merriam, the customer asked about home, auto and life insurance. There was no discussion or promise by the agent to analyze workers compensation coverage. Thus, the claim that the agent failed to provide or advise regarding workers compensation insurance failed. Promises, oral or in writing, by the agent are key to establishing a definite duty. Advertisements or claims to be a specialist, expert and advisor regarding insurance perils which are related to risk management duties are very valuable in proving negligence or a breach of contract.

The Iowa Supreme Court listed circumstances relevant to proving an error or omission case:

[I]t is for the fact finder to determine, based on a consideration of all the circumstances, the agreement of the parties with respect to the service to be rendered by the insurance agent....

Some of the circumstances that may be considered by the fact finder in determining the undertaking of the insurance agent include the nature and content of the discussions between the agent and the client; the prior dealings of the parties, if any; the knowledge and sophistication of the client; whether the agent holds himself out as an insurance specialist, consultant, or counselor; and whether the agent receives compensation for additional or specialized services.

...the client bears the burden of proving an agreement to render services beyond the general duty to obtain the coverage requested.

Consider "duty" when determining whether an insurance agent can be held liable for a lack of coverage.

Hanks and Wilson recently switched brokers, and the new broker determined that the insurance premiums charged for policies over the last two years “appeared extraordinarily high for the coverage provided.” The bases for the claims involve the following allegations:

a. Misrepresenting their ability to procure coverage for Plaintiffs by, for example, failing to advise Plaintiffs that they did not have the authority to seek appointments with insurance carriers, thereby precluding them from the ability to directly procure coverage;

b. Illegally issuing certificates of insurance without appointments;

c. Charging Plaintiffs premiums for insurance never procured and/or charging Plaintiffs more than the quoted premium for coverage procured;

d. Binding unnecessarily duplicative insurance coverage; and

e. Covering up their predatory embezzlement scheme through manipulation and deceit.

The amount of damages Hanks and Wilson are requesting has not yet been determined, but the complaint states that they believe the broker’s wrongful conduct and failure to perform his duties, as well his fraud, theft and embezzlement, has cost Hanks and Wilson “hundreds of thousands, if not millions, of dollars.”

An example of life mimicking art:
 

In Morrison v. Allen, --- S.W. 3d ----, 2011 WL 536593, (Tenn. Feb. 16, 2011), Kristen Morrison sued her insurance agents for failing to procure proper life insurance for her deceased husband. Prior to her husband’s death, Mrs. Morrison and her husband met with insurance agents who they knew socially. The purpose of the meeting was, amongst other things, to ensure that the Morrisons had sufficient life insurance. At the time, Mr. Morrison had a $300,000 life insurance policy and Ms. Morrison had none. The agents suggested to the Morrisons that Mr. Morrison take out a $1,000,000 policy and Ms. Morrison take out a $250,000 policy.

The Morrisons agreed to follow their agents’ suggestions and the agents began the paperwork process. The agents asked the Morrisons several questions about their health and history and filled out the application paperwork for them. The paperwork was sent to the Morrisons with a sticker attached indicating where to sign – no other instructions were included. The Morrisons admittedly signed the application but did not read it.

Two months after Mr. Morrison’s insurance policy was issued, he was injured in a car accident and died. After making a claim for the life insurance, Ms. Morrison received a denial letter from the insurance company. The claim was denied because Mr. Morrison’s application was improperly filled out. The agents had failed to ask Mr. Morrison whether his driver’s license had been suspended in the past few years. The agents who completed the application answered “no” when, in fact, Mr. Morrison’s license was suspended for a DWI within the relevant timeframe. The application proved to be sloppy in other areas as well. For example, the application stated that Mr. Morrison did not use tobacco products even though the agents had seen Mr. Morrison smoke cigars on occasion.

Ms. Morrison alleged that the agents negligently failed to properly procure the insurance. The agents countered with the fact that the Morrisons did not read the applications.

The Tennessee Supreme Court looked to case law which established that an insured can recover from his agent loss sustained due to the agent’s failure to properly procure coverage if the agent’s actions warranted an assumption by the insured that the correct insurance was properly obtained. The court then looked to American Jurisprudence 2d for the elements of a cause of action:

(1) an undertaking or agreement by the agent or broker to procure insurance;

(2) the agent’s or broker’s failure to use reasonable diligence in attempting to place the insurance and failure to notify the client promptly of any such failure; and

(3) that the agent’s or broker’s actions warranted the client’s assumption that he or she was properly insured.

The Court held that negligently filling out an insurance application opens an agent to liability. It further ruled that Ms. Morrison provided enough evidence to show that the agents were negligent and that she had met the elements of this claim.

The Court then addressed the agents’ defense that the Morrisons did not read the application. The court made quick work of the defense, stating that “agents employed…for their expertise…may not claim any greater duty on their clients’ part to anticipate and rectify their errors.” In other words, the agents could not shield their own negligence with the fact that their clients didn’t catch their mistakes. The Court ultimately upheld Ms. Morrison’s victory at trial.

I finished last week’s post reminding you to read your policies so that you know what you purchased. The Tennessee court here reiterated that point:

Our preliminary observation is that the best practice is to always read every word of every document before signing. An applicant who embraces the tedious but important task of reviewing the terms of an insurance application is likely to avoid disputes of this nature.

Take the Court’s advice seriously. Not only is it important to read everything you sign so that you make sure you know what you are getting, it’s important to read these documents - even when not necessarily required to do so - in an effort to avoid needless litigation.

The insurance company and agent filed a motion to dismiss which the trial court ultimately granted (after first denying), ending the lawsuit for Mitleider. Mitleider appealed that decision and the appellate Court upheld the ruling. Mitleider signed a form rejecting the uninsured motorist coverage, and the appellate court looked to Florida Statute section 627.727(1), which provides that uninsured motorist coverage shall be applicable to all, unless an insured named in the policy makes a written rejection of the coverage on behalf of all insureds under the policy. More importantly though, the statute provides that if this form is signed by a named insured, applicant, or lessee, it is conclusively presumed that there was an informed, knowing acceptance of such limitations. §627.727(9), Fla. Stat. (2007).

The Court interpreted the statute to mean that by signing the form, creating the conclusive presumption, Mitleider could not later claim that he wasn’t offered the coverage or was not properly informed of the coverage. The Court held the presumption could not be rebutted by Mitleider’s testimony that he did not read the form.

The important point to take from this case is that when buying insurance, make absolutely sure you really know what you are getting and read every form you sign.

Koch alleged that during his dealings with the agent, he specifically requested that the agent procure slip-and-fall coverage for the auto repair business. The agent not only agreed to do so, but he also held himself and his agency out as an expert in garage-keepers insurance. The agent prepared an insurance package that included the garage-keepers insurance from Markel and a separate workers compensation policy from a different insurance company.

Koch later incorporated part of his business, but left the other part as it was. Koch asked the agent to ensure that the insurance policies be changed so that there would be no gap in coverage. The agent prepared a new application, and had Koch sign it without affording Koch a reasonable opportunity to review it. The new policy provisions proved to be insufficient.

An employee at the garage fell and injured himself. After receiving workers’ compensation, the employee sued Koch for negligently maintaining the garage premises. Koch sought a defense from Markel, but was denied because of the policy language. Koch then sued Markel, and also sued the agent for agent negligence because he procured insufficient coverage.

The trial court dismissed the suit, reasoning that insurance agents have no duty to procure a specific type of coverage for an insured. Koch, however, successfully appealed to the California Court of Appeal, which reasoned that insurance agents take on added responsibility when, like the agent in this case, they hold themselves out as experts in a field. The court further held that this responsibility, or duty, is even clearer when the insured specifically requests a particular type of coverage. Because Koch had a viable negligence claim against the agent, the Appellate Court also held that Koch had a potentially viable claim against Markel, which could be held vicariously liable for the actions of its agents.

Importantly, this case illustrates that even though an insurance agent doesn’t represent the insured, in some circumstances, the agent may have a greater duty to ensure that the insured gets what they bargain for. Take this lesson to heart---if your insurance company denies your claim based on a gap in coverage that you believe shouldn’t have existed, remedies may be available. Keep in mind that this case came from California’s Second District Court of Appeal, and the law in other jurisdictions may differ. An insured’s remedies will depend on the particular facts of the case and the specific law of the jurisdiction where the case may be brought.

The case involved an insurance agent who sold insurance to a private school for 16 years before Hurricane Katrina struck in 2005. At issue, was the relatively limited amount of business interruption coverage. The form sold had a limit of $350,000, inclusive of both business income and extra expenses. Apparently, the coverage limit was raised once during the sixteen years from $250,000 to $350,000, based on an explanation by the agent of what the coverage provided. The agent allegedly told the school's business managers at that time that the coverage protected the school against the risk that it would incur extra expenses while it was fixing physical damage.

Following Hurricane Katrina, the school was closed for several months. The school lost significant income as a result of lost tuition. The school sued the agent for error and omissions of failing to advise school personnel that business income/extra expense coverage included tuition loss. Allegedly, the requested limits would have been much higher had the full explanation of coverage benefits been provided.

The matter went to a trial court which found that the insurance agent breached the standard of reasonable care by failing to fully inform the school of the full nature of the coverage and the need to select higher limits in consideration of the school's one source of revenue--tuition. The damages were found to be $3,166,606.

That is not the end of the story or lesson of this case, however. As is often the situation in agent negligence cases, there is usually the issue of comparative negligence. I once tried a case before a jury where both the agent and my client said the agent failed to purchase theft coverage under a commercial policy. While some may wonder why a trial was necessary when the agent admits such a failure, most states place a duty on the policyholder to read the policy. In that case, my client had the policy for two years. Had he read the policy, he would have learned of the mistake. Thus, the jury had to consider the issue of my client’s failure to read the policy in comparison to the agent's blunder.

Similarly, in the Louisiana case, the school's business managers could have done a number of things to obtain the full understanding of coverage--including simply reading the policy. The court found the school 70% comparatively negligent, and reduced the total award by that percentage.

The lessons from the case are clear for agents and policyholders:

1. Policyholder Must Communicate Needs;
2. Agents Should Communicate Coverages Available--Usually Followed up With Written Information so Policyholders Do Not Get the Wrong Impression;
3. Agents Should Investigate Needs of Clients--Use Checklists Which are Copied for Verification to Policyholders.

Insurance agents perform a vital function in the insurance marketplace and especially with businesses. I am not a fan of internet marketing and placement of insurance because agents can provide much better and detailed explanations of various coverages needed by different businesses.

For instance, our law firm carries an extraordinary amount of coverage for valuable papers and data restoration, which might not be important to a butcher shop. Yet, a butcher shop may need a utility services endorsement, spoilage coverage, and equipment breakdown coverage to properly protect its large investment in refrigerated meat. Insurance agents are trained to investigate those needs and make policyholders aware of those coverages which prevent economic calamity.

My advice is for policyholders to listen to insurance agents about the products that are available. Agents need to spend more time with clients and establish a relationship where insurance is looked upon as a necessary hedge against unthinkable consequences.