Recently, I wrote about insurance agent’s duties in various states. This week, I will stay with the same topic, but move to another jurisdiction – Louisiana.
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.
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.