A Texas insurance broker admitted he was negligent in failing toprocure insurance for his client and still avoided liabilitybecause the damages incurred by the putative insured would not havebeen covered even if the policy was acquired as ordered.

The Texas Supreme Court held that a plaintiff, suing aninsurance agent or broker for failing to acquire insurance, has theburden of proving that had the ordered policy been acquired, theinsurer would have provided the defense and indemnity sought by theputative insured. Even though the following decision is based inpart on Texas statutes, it is important that agents and brokers,and their counsels, understand that insurance is not available toprotect against every conceivable risk. Some risks are simplyuninsurable. Failure to obtain insurance for a risk that isuninsurable is not actionable because the failure causes no harm tothe plaintiff.

In Metro Allied Insurance Agency Inc. v. Lin, No.07-1032 (Tex. 12/11/2009), the Texas Supreme Court held that thecausation standard for a claimed failure to procure insurance undera negligence theory and under the Texas Deceptive Trade PracticesAct (DTPA)–both of which were alleged by the putativeinsured–requires proof of the availability of some insurance thatwould have covered the plaintiff's damages.

To prove a cause of action against an insurance agent or aninsurance broker, the plaintiff must prove that the acts complainedof were a substantial factor in bringing about the injury andwithout which the harm would not have occurred.

The U.S. government awarded Shihche Lin (Lin), an electricalengineer, a contract to perform work on a hydroelectric plant inMichigan. The contract required Lin to provide a performance bondand to procure commercial general liability (CGL) insurance. Linpurchased the bond from a surety company and obtained quotes forCGL insurance from two insurance agencies–Metro Allied Insurancethrough its agent Michael McGlothlin (collectively, Metro), andElbert Insurance. Lin testified that he obtained the Elbert quotebecause he did not feel comfortable with the original quote fromMcGlothlin as it lacked detail. Lin forwarded the Elbert quote toMcGlothlin as an example of the type of coverage he sought.

The federal government terminated Lin's contract and requiredLin's surety company to complete the contract under the performancebond. To recoup the money it spent to complete the contract, thesurety company sued Lin in November 2000. Lin asked Metro toprovide him with an attorney. McGlothlin repeatedly assured himthat a CGL policy was in place and that a lawyer would be providedto Lin to assist in his defense under Lin's CGL policy. In 2002,McGlothlin discovered that no policy existed and reported thesituation to Metro's errors and omissions insurer. Metro's errorsand omissions insurance company refused to defend Lin, and Metrodid not provide a defense for Lin in the suit filed by Lin's suretycompany. Lin settled the lawsuit for $175,000, which was less thanthe surety company had paid to the federal government after itterminated Lin's contract.

Metro acknowledged the failure to procure a CGL policy for Linand that this failure was negligent. However, Metro disputed thatthe negligence caused Lin any damages.

The jury awarded damages against “Metro and/or McGlothlin” of$175,000 for negligence, actual damages of $200,000 under the DTPAand additional damages of $300,000 for knowingly violating theDTPA.

The Texas Supreme Court noted that the harm would have occurredonly if the CGL insurance that Metro agreed to procure would haveactually covered the injury suffered by Lin. Otherwise, Lin wouldhave obtained an insurance policy that did not provide coverage forhis surety's claims against him and the injury would have been thesame regardless of whether Metro procured the insurance or not.

Because a more stringent causation standard of the current DTPAstatute requires proof that the coverage sought was actuallyavailable in a CGL policy as sought by Lin, he was required toprove that the broker could have obtained the coverage he needed orthat had the coverage he requested been obtained coverage wouldhave been provided to Lin.

Because both producing cause and proximate cause require proofthat a CGL insurance policy would have covered the damages, weconsider whether Lin submitted legally sufficient evidence to carryhis burden. Lin, at trial, produced no CGL insurance contract thatprovided coverage of his breach of contract damages that would havebeen, or normally was, sold by Metro. In fact, no CGL insuranceagreement available in the market that would have provided coveragefor the claims against him existed at the time of the applicationfor insurance.

Lin argued only to his testimony that McGlothlin told Lin thatthe CGL policy McGlothlin believed was issued would cover theclaims. McGlothlin testified that he never made any specificassurances as to what the putative policy covered, but that itwould include “standard CGL coverages.” Even accepting Lin'scharacterization of McGlothlin's assurances as true, Lin isrequired to present legally sufficient evidence that the coveragehe sought is obtainable to surmount the causation hurdle. The lawis clear that misrepresentations about insurance coverage cannot,under the doctrine of estoppel, expand coverage provided in aninsurance policy. An insurance agent's independent representationsmay affect his responsibilities to his client, but they cannot addto or alter the coverages of any insurance contract or provision.Therefore, Lin's testimony regarding McGlothlin's statements aboutcoverage is no evidence that a contract, had one existed, wouldactually have covered his damages. There must be proof of aninsurance policy that would cover the alleged injury.

In 1979, the Legislature amended the provision in the DTPA tochange the causation standard from “adversely affected” to thecurrent “producing cause” standard (Tex. Bus. & Com Code ?17.50). The “producing cause” standard requires proof that the actwas a substantial factor in bringing about the injury, withoutwhich the injury would not have occurred.

In this case, the Texas Supreme Court clarified the proofrequired under the amendment to the DTPA's 1979 causation standard.The material change in the statutory language indicates alegislative intent to create a different standard. TheLegislature's amendment of the causation standard in the DTPA to“producing cause” establishes a higher standard for proof ofcausation in cases brought under the DTPA, including failure toprocure insurance cases.

At trial, McGlothlin testified correctly that CGL policies maycover contractual liability for damages, but not performance ornonperformance of work. McGlothlin never opines that anycontractual endorsement would have covered, or that he could haveprocured a policy that covered, Lin's nonperformance on theconstruction contract from any of the insurers contracting withMetro. Neither Elbert's agents nor any expert in insurance providedany testimony explaining what the Elbert quote covered. In fact,McGlothlin was the only witness presented by either side who hadsome knowledge of insurance and he both disclaims being an experton insurance coverage and expressed his understanding thatcontractual coverage under a CGL policy does not cover performanceunder a contract. Concluding that the only evidence from the trialregarding the insurance coverage Metro was to provide wasMcGlothlin's testimony that contractual liability coverage is“rare,” that “violat[ing] a legal provision of a contract” iscovered, but “performance on a contract” is not, and that providingCGL insurance that would have satisfied the Elbert quote likelyprovide some type of contractual coverage.

Because Lin brought forth no evidence of cause in fact asrequired to prevail under both his negligence and DTPA claims, theTexas Supreme Court reversed the court of appeals and remanded thecase to the trial court to reinstate the judgment notwithstandingthe verdict.