The agent who makes a promise must fulfill it. In Petersonv. Big Bend Insurance Agency Inc. (202 P.3d 372[Wash.App.Div.3 03/05/2009]), the Washington Appellate Divisionexplained why insurance agents or brokers who make promises to aninsured must fulfill that promise or be severely punished. Thecourt concluded that a promise made by an insurance agent orbroker, in order to calculate the full replacement cost of aclient's dwelling, imposed an obligation to fulfill the promise andfound that the failure allowed the insured to receive damages fornegligence and for violation of Washington's Consumer ProtectionAct (CPA). When calculating replacement cost using a cost guide, itis prudent to explain the limitations of calculators and that theyare neither a guarantee of accuracy, but merely a means ofestimating replacement cost. Cost guides include the Boeckh costguide–what Big Bend used–and other replacement cost guides such asthose published by Marshall & Swift or the National RepairReplacement Guide. By explaining the limitations, an agent mayconvince the insured to buy a policy with an enhanced or guaranteedreplacement cost language where the insurer agrees to pay fullreplacement cost up to a certain percentage over the policy limit.Nothing is certain in construction, and fire reconstruction isusually more expensive than new construction. To avoid Big Bend'sadverse result, a detailed and truthful explanation would haveprotected the insured and the insurance agency. Casebackground
The problems started in September 2004,when Roger and Larae Peterson obtained a home insurance policy fromthe Grange Insurance Assn. Prior to obtaining the policy, thePetersons spoke with Jack McCalmant of Big Bend Insurance AgencyInc. and explained their desire to have their home insured for thefull replacement value. On Nov. 27, 2004, the Petersons' home wasdestroyed by fire. Grange paid the Petersons $193,000, which wasthe replacement value limit under their policy. The fullreplacement value of their home was $328,843. The trial court foundthat McCalmant agreed to provide an estimate of the replacementvalue using the Boeckh cost guide formula, which would haveresulted in an estimated replacement value of $240,000 and anincrease in personal contents coverage of $23,500. The courtdismissed the bad faith and CPA claims against Big Bend and theGrange, and denied the Petersons' request for attorney fees. ThePetersons appealed. The Court of Appeal affirmed the decision ofthe trial court except as it related to the agent, Big Bend, andsent the case back to the trial court to calculate the damages theagency must pay the insureds. Jack McCalmant, an insurance agentand part owner of Big Bend Insurance Agency, discussed homeinsurance with the Petersons. He explained that they hadreplacement value coverage with a limit of coverage of $179,800.The Petersons explained that they wanted the house insured so thatit could be replaced if it was destroyed. The Petersons indicatedthat they did not know what the cost of this coverage would be orhow such a figure would be determined. McCalmant told the Petersonsthat his agency would use a formula that involved plugging incertain items, such as the square footage, the type of constructionand certain upgrades. McCalmant told the Petersons that he wouldhandle this task for them. The formula used by McCalmant fordetermining replacement value was a computer software programdesigned by the E. H. Boeckh Co. that is known as the Boeckh costguide. Use of this software, or a similar program, is a standard inthe insurance industry for determining the replacement value ofhomes. It was Big Bend's policy to use the Boeckh cost guide toestimate the cost to replace a home in the event of a total loss.The cost guide was not usually provided to the client, but BigBend's agents would usually go over the report with the client whenthey discussed policies and renewals. Later, Jody Piper, a customerservice representative for Big Bend, ran the cost guide formula onthe Petersons' home, using the information that McCalmant obtainedfrom his inspection. Piper did not have the information from thestandard Boeckh questionnaire and she did not have informationabout the home's numerous upgraded features which would haveincreased the replacement value. Had she used the appropriateinformation, the Boeckh cost guide would have resulted in anestimated replacement value of $240,000 and an increase in personalcontents coverage of $23,500. Instead, the policy issued had alimit of liability of only $193,000. In late January, after theirhouse burned, the Petersons obtained a bid from a generalcontractor totaling $310,030.57. Grange continued to reject thePetersons' claim for replacement costs in excess of $193,000.

An agent assumes only the duties of an agency relationshipunless assuming additional duties by contract or by holding himselfout as having an extraordinary skill. The duty of care an agentowes the client excludes the obligation to procure a policyaffording complete liability protection. Big Bend breached itsduties to the Petersons by:

1 Not using the standard cost guide questionnaire to obtainaccurate, detailed information from the Petersons

2 Not entering complete information about the home into the costguide software 3 Not using the formula to calculate replacementvalue limits on the home 4 Not informing the Petersons that thecost guide formula was not used to estimate the home's replacementvalue for the policy. The trial court's findings that McCalmantagreed to run the Petersons' numbers through the cost guide formulawas supported by substantial evidence. The court's findingssupported that the Petersons' damages should be based on the$240,000 figure obtained through the application of the cost guideformula. The court concluded the Petersons proved their claim byshowing that Big Bend provided a replacement value figure that wasnot based on the cost guide formula. The Petersons established thatBig Bend engaged in an unfair or deceptive practice by violatingRCW 48.30.090, which states, in part, that no person shall “make,issue or circulate, or cause to be made, issued or circulated anymisrepresentation of the terms of any policy.” The lesson is thatalthough cost guide software is often accurate and reliable, it isnot perfect. Never promise to calculate replacement value usingsuch a method unless you use the software properly to calculate thetrue replacement cost. Agencies should also establish that theiragents are trained to use the software and advise the insured theycannot guarantee the accuracy of the estimate created by theguide.