(Michelle Claverol will be back next week with her regular post on Business Interruption Claims. She is currently volunteering on a medical mission to Peru, and is not blogging).
Last week I wrote about an agent negligence case that highlighted the importance of carefully reading everything you sign. Continuing with that theme, is a Tennessee case dealing with a “failure to procure” claim.
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.