Over the last few weeks I have made it a point to blog about an insured’s responsibility for obtaining insurance policies and the right coverage. We all know that having the sole allegation that a broker or agent didn’t provide the right coverage amount when an insured didn’t read the policy is often a losing argument for liability upon the broker or agent in California. After all, we can read the policy declarations and figure out what our policy limits are in most cases. Pleading ignorance is the weakest argument possible for not having the proper insurance coverage.
A California ruling from August 2013 shows that hope still springs for the underinsured who truly should have been informed of underinsurance and coverage issues by their agent. When an agent has a duty to an insured for underinsurance, the court found liability. In Allen Earley 1998 Family Trust, et al v. Chubb Custom Insurance Company,1 a historic hotel was destroyed by fire in March of 2007. The existing Chubb insurance policy of $3.1M didn’t cover the damages and the cost of rebuild. In the insured’s lawsuit for the underinsurance, the insured was able to show that before the last renewal of insurance that Chubb sent out a representative to inspect the property. That inspection resulted in recommendations by the insurer for additional coverage because the insured was heavily underinsured. Chubb offered to increase the policy limits to an amount much closer to what the inspection showed would cost to reconstruct the building in the event of a loss, which was over $6.2M. Chubb’s inspection also resulted in an email of these recommendations and the findings of the inspection to insurer’s agent.
In this instance, the agent failed to convey the inspection findings and the insurer’s recommendations to the insured hotel. Instead the agent, without notifying the insured, notified the insurer not to increase the policy limits and even changed the policy from that of replacement cost value policy to an actual cash value policy. The agent argued that he was unaware of that a replacement cost value policy was available to the insured and that when he learned of its availability, he issued a change of the policy to revert the policy back to what the agent thought the policy should be. Unfortunately, the agent’s change of policy was to an even worse policy for the insured.
Here, the insured should have been notified of the insurer’s recommendations that resulted from the inspection and the agent’s independent actions. The agent owes a duty to the insured to convey the insurer’s inspection results which would have at least afforded the insured the notice it was underinsured. Regardless of whether an insured has an inspection report by the insurer or not, it is highly advisable that every year an insured goes over their policy, their limits and their coverage with their broker or agent. At least the opportunity to ask questions to make sure your important assets such as your home, personal property or business and to note these dialogues in writing can afford some protection to the insured about what the possibilities of coverage are so they know what to expect in the unfortunate event of a loss.