Doors front man Jim Morrison was quoted as saying, “Some of theworst mistakes in my life have been haircuts.” Sure—we have allbeen there, but that kind of mistake usually does not causeproblems in an insurance contract. However, blunders made byinsurance agents and brokers can lead to way more difficulties thana bad hair day.

Agents may find themselves in trouble because of lack of action,such as failure to renew policies, failure to use proper insurers,or failure to warn insureds of exclusionary clauses in policies.All of these failures can lead to an errors and omissions claimagainst a producer, as well as claims disputes against p&cinsurers.

Negligent Misrepresentation

One case in point: An insurance agent failing to procure blanketcoverage for an insured led to a claim for negligentmisrepresentation in Office Furniture Rental Alliance, LLC v.Liberty Mutual Fire Ins. Co., Civil No. 3:11cv1889 (JBA), 2013WL 5934049 (D. Conn. Nov. 1, 2013).

The insured had purchased coverage from Liberty Mutual from 1998to 2001 through agent James Lavangie, who had advised the insuredto buy blanket coverage as opposed to per-location. Based on thatrecommendation, the insured purchased blanket coverage. During the2001 to 2002 policy period, the insured switched to a differentcarrier. The following year, Lavangie provided a quote to theinsured to try to win his business back. The insured asked forcomparable coverage to what he had purchased between 1998 and 2001.

Lavangie emailed the insured a quote, but it was on aper-location limit rather than a blanket limit. Robert Orenstein, amember of the Office Furniture Rental Alliance, received the quote.He stated that he did not remember if he read the entire quote, buthis normal procedure would have been to review the portion of thequote setting out the premium. He said the agent never informed himthat the policy did not contain a blanket limit, and coverage waspurchased and renewed from 2003 to 2009.

In 2009, a fire caused extensive damage to the insured'swarehouse. Liberty Mutual paid only the location limit on thepolicy, which was considerably less than the cash value of theloss—an amount that would have been fully covered by a blanketlimit.

The insured brought action against Liberty Mutual for claims ofbreach of contract, negligent misrepresentation, and reformation.While the court stated that a reasonable jury could not findgrounds that the parties contracted for blanket limit coveragewithout evidence of a prior oral agreement for the breach ofcontract claim, the fact that the written contract did not conformto the oral request for blanket insurance was admissible for thenegligent misrepresentation and reformation claims.

Quoting Coppola Const. Co. v. Hoffman Enterprises Ltd.P'ship, 309 Conn. 342 (2013) the court said, “Traditionally,an action for negligent misrepresentation requires the plaintiff toestablish 1) that the defendant made a misrepresentation of fact;2) that the defendant knew or should have known was false; 3) thatthe plaintiff reasonably relied on the misrepresentation; and 4)suffered pecuniary harm as a result.”

Whether Lavangie and Orenstein discussed theterms of the quote remains disputed. The insurer argued that evenif the insured could show that the agent committed negligentmisrepresentation by omission, the insured nevertheless had aresponsibility to read the quote, along with the policy to confirmthe terms.

An expert witness testified that “the language concerning theapplication of limits is often obscure and would not likely bedetected by an untrained policyholder.” He also stated that evenagents cannot always distinguish between polices with blanketlimits and policies with per-location limits.

The court stated that a reasonable jury could conclude thatbecause Lavangie knew the plaintiff wanted blanket limits butremained silent about the fact he was quoting per-locationlimits—even though he had previously advised against buyingper-location limits and because he never drew the insured'sattention to the change—he realized the insured believed he wasreceiving blanket limits.

A jury could also conclude, according to the court, that theagent renewed the policy knowing the insured still believed he wasgetting blanket limits, and that, based on the expert's testimony,the policy language was so complex that the insured relied on theagent to explain the terms.

Under Connecticut law, the duty to disclose correct informationarises from a closer degree of reliance and trust than in anordinary business relationship. Quoting De La Concha ofHartford, Inc. v. Aetna Life Insurance Co., No. CV980580129,2002 WL 31170495 (Conn. Super. Ct. Aug. 23, 2002), the court said,“Accordingly, a claim for negligent misrepresentation can onlystand when there is a special relationship of trust and confidencewhich creates a duty for one party to impart correct information toanother.”

This special relationship exists between insureds and agents.Insureds rely on agents to provide correct information aboutcoverage and to properly procure it. Agents' mistakes in failing toprovide these services can cost insureds dearly when loss or damageoccurs. As you can see, these mistakes result in expensive andtime-consuming litigation.