Insurance buyers do not understand the difference between an insurance agent and an insurance broker. The basic insured who is not involved in the business of insurance believes--incorrectly--that the person they deal with to acquire insurance is an agent of the insurance company with the authority to bind the insurer to any representation made, whether in the policy wording or not. Insurance brokers often fail to disabuse their clients of such a misunderstanding.
Insurance companies often find that they are sued for actions of an insurance broker about which they had no knowledge or control. Before an insured can succeed in such a suit--relying on the misrepresentations of an agent--the insured must prove that the person who obtained the insurance for the insured transacted the insurance on behalf of the insurer. If the person obtaining the insurance was a "broker"-- that is, was a person who transacted insurance with, but not on behalf of, the insurer--the insured's suit against the insurer will fail. The suit will then be pressed against the broker if the insured can prove that the broker misrepresented a material fact that caused damage to the insured.
In Century Surety Co. v. QSC Painting Inc., No. 2:08-cv-860 (W.D.Pa. 03/08/2010), the insured claimed his "agent" misrepresented coverages that the policy did not provide. The insurer proved that the "agent" was really a "broker" who merely transacted insurance with, but not on behalf of, Century Surety. The court, therefore, granted Century Surety's motion for summary judgment because its insureds were not entitled to indemnity under the terms and conditions of the policy, and no agent or representative of Century Surety misrepresented the coverages to the insured, QSC Painting.
Read Barry Zalma's May column, "No mercy for crooked agent."
Defendant QSC Painting is an industrial painting contractor engaged in the business of painting electrical transformers and related electrical equipment for power utility companies nationwide. Century Surety issued a commercial general liability insurance policy to QSC Painting beginning in March 2002, and continued to do so through March 2008, a period spanning the time relevant to the claims, with QSC Painting having renewed the policy every year. The policy at issue was effective from March 30, 2006 to March 30, 2007. The insured claimed deception by the insurance agents that the losses clearly and unambiguously excluded were covered.
QSC Painting attempted to establish coverage under the reasonable expectations doctrine, which allows coverage if the insured had a reasonable expectation of coverage regardless of the clear wording of the policy. QSC Painting argued that the insurance brokers made indirect misrepresentations in the course of the original purchase of the commercial liability insurance policy. They asked the court to impute to Century Surety the misrepresentations in favor of creating certain reasonable expectations that would require indemnity.
Where a person desiring insurance applies not to any particular company or its known agent but to an insurance broker, permitting the broker to choose which company shall become the insurer, the court noted the broker only to be the agent of the insured. The record before the court failed to demonstrate any evidence of representations on the part of any agent that could be attributable to Century Surety. For its part, QSC Painting provided the deposition testimony of John Pateras, the president of the company, conducted in the course of the breach of contract action initiated by the three Kentucky utility companies. Pateras testified that McGroarty & Bradburn ("Bradburn") was the insurance agent working on behalf of QSC Painting, and that he had, at some point, a "generic conversation" wherein he stated to Bradburn that QSC Painting wanted "full coverage on every scenario on every utility." On QSC Painting's behalf, Bradburn obtained a number of quotes from various insurance companies, to include a quote from USG Insurance Services Inc., the broker working on behalf of Century Surety. There is no evidence that USG Insurance or Century Surety had any contact with QSC Painting. Pateras' testimony establishes his understanding that Bradburn was not bound to any particular insurance company, but rather was charged as his broker to search the insurance marketplace to find the best insurance policy for QSC Painting.
Pateras' conversation regarding his desire to obtain "full coverage on every scenario on every utility" does not trigger the reasonable expectations doctrine. An insured's vague references to its intent to obtain insurance are not sufficient to invoke the reasonable expectations doctrine.
There are no facts of record to show that Bradburn was Century Surety's authorized representative or any evidence of an authorization, or some fact from which a fair inference of an authorization by Century Surety might be deduced. QSC Painting has failed to produce any evidence that either Century Surety or USG Insurance, on behalf of Century Surety, deceived Bradburn. QSC claimed that the policy was different than the proposal and the binder. The Court concluded that it is well settled in Pennsylvania that a binder is a temporary contract that constitutes evidence that insurance coverage has attached at a specific time, and continues in effect until either the policy is issued or the risk is declined and notice thereof is given. Because temporary contracts of insurance affording coverage pending issuance of the formal policy by the insurer are well known in the insurance industry, the differences between the quotation/binder and the actual policy is not evidence of wrongdoing on the part of Century Surety sufficient to warrant the application of the reasonable expectations doctrine.
Both the quotation and binder were each one-page documents, while the commercial general liability policy was more than 50 pages. The court refused to hold that either a single-page quotation or single-page binder be given legal effect in 2006 over the actual language of a lengthy policy, one that was renewed four times without ever being reviewed by the insured, based solely upon a vague and general request from the insured to his own insurance agent made in 2002. To extend the limited reasonable expectation doctrine to an insured who merely assumes that coverage is contrary to the clear and unambiguous language in the policy would allow the insured to invent coverage that is contrary to that expressly provided.
With respect to the second action, Century Surety avers that it owes no defense or indemnification for the breach of contract action initiated by the three Kentucky utility companies. More specifically, Century Surety argued that the breach of contract action is not covered because it is not an "occurrence" that would require a duty to defend and indemnify. It is common knowledge that a CGL cannot provide coverage to defend or indemnify an insured for breach of contract. It is only designed to protect against property damage or bodily injury caused by tortious conduct.
Taken either in parts or as a whole, the court concluded reasonably that there is no basis to justify anything other than awarding summary judgment in favor of the plaintiff, Century Surety.
When acting as an insurance broker, it is incumbent on the broker to make clear to the insured that as a broker he or she only represents the insured and is merely, on the insured's behalf, transacting insurance with but not on behalf of the insured.
To avoid problems like that faced by QSC Painting, a prudent broker will go over the policy wording with the insured regularly--at least on renewal or replacement--to discuss the coverages available and those not provided. The meeting and discussion should be confirmed in writing and a log note placed in the file to explain the information provided to the insured. This annual meeting will not only help avoid misunderstandings as to the coverages provided by the insurer but will open to the insured coverage gaps sufficient to allow the broker to sell the insured additional coverages.
