“Cover me for everything!”

These four words might be the most dangerous for an insuranceprofessional to hear in a sales interview.

In several of my past articles I've advised that every insuranceprofessional should do everything possible to avoid becomingentangled in litigation because in litigation, even if you win, youlose. This month's article presents the ultimate proof that mybelief is not only correct, but understated.

I just finished testifying at a trial where the underlying eventto the litigation occurred in early 1999. I personally have beendeposed two times, the involved broker three times, there was atrial and appeal, and the new trial, which just occurred. Theunfortunate broker in this matter has had to deal with the pressureand upset of litigation where he has been one of the maindefendants for almost 15 years.

At this writing, the case will go to the jury within the nextweek. Let's assume the insurance professional gets afavorable decision from the jury. I cannot imagine that anyonereading this article would take the position that after 15 years oflitigation, depositions, testimony and upset, the broker is winner.The best you can say is he was less of a loser.

The plaintiff and insured is a presenter and producer of varioustypes of shows which have some high hazard aspects to thepresentations. The producer arranged to present one of his shows ata facility which could provide the proper infrastructure and hadthe capacity for the expected attendance. After the technicalarrangements were made, a request was made for a certificate ofinsurance which outlines and reflects the facility's insurancerequirements. The request was for a comprehensive general liabilitypolicy with a high limit of insurance. The facility's executiveswarned the producer that they were fussy about their insurancerequirements because they had been involved in a substantialuncovered loss as a result of a similar presentation several yearsago.

The producer visited with his insurance representative andadvised him of the insurance request from the facility and relatedthe story about how the facility's uncovered loss. Then theproducer utters those dangerous words: “Cover me for everything.”The agent, a long-time insurance pro with several professionaldesignations, realized immediately that the exposures presented bythis risk would not fit his standard markets. So he brought thebusiness to a leading excess and surplus brokers, which agreed tosend a description of available coverage and a quotation as soon aspossible.

The retail broker sent the quotation and description of coverageand to his client and the owner of the facility, who was to beincluded as an additional insured. But there was one small problem:some of the exclusions did not cover several of the high- hazardrisks inherent to the production.

The day after the quote was delivered, the promoter called theretail broker telling him what he needed, and the broker agreed toprocure the insurance if possible. The presentation was going totake place in about two weeks and it was likely that the policywould not be delivered until after the event was over. To solvethat problem, the broker issued a certificate of insurance showingthe limits of insurance with no exceptions or exclusions.

You don't have to be a detective to figure out what happensnext. There was a serious injury, and subsequent litigation whichtook about five years to resolve. This particular phase of thelitigation resulted in a low eight-figure judgment in favor of theplaintiff.

But that's only the beginning of the story. The insurancecompany appealed the judgment and won a reduction in the judgment,but lost the overall appeal. The insurance company made a partialpayment and re-appealed the case on a different basis. This timethey won their appeal and the case was remanded to the originalcourt for retrial. This is the trial that I just testified at,which is now 14 years after the original event.

The basis of appeal centered on the issues of an insuranceproducer's duty to follow instructions, to procure insurance, toadvise the insured that the coverage is not available, the standardof care which requires reasonable care and diligence, and finally,in this particular state, the broker has a duty of loyalty to itsclient.

The insurance professional in his defense alleged that hisclient did not know what he wanted and he was confident that theinsurance that he'd placed was appropriate. Furthermore, the clienthad been given a quote with all of the exclusions detailed, andeven if he had been able to obtain the coverage, the cost ofinsurance would have been prohibitively expensive.

This is where my opinion as an insurance expert comes intoconsideration. Remember that the broker was given instructions toprovide certain coverage; he agreed to do, was unable to do so, butnever notified his client. It was undisputed that the producer onlyapproached a single resource, which in my opinion did not amount toreasonable care and diligence. The insurance producer also forgotthat the final decision-maker as to coverage purchased is theinsured. Finally, the broker, when reporting the claim, advised thecarrier that the coverage for this type of claim was excluded andnot to pay the claim. I opined that as the insurance representativehe had a duty of loyalty to his client and his actions weretantamount to “trying to put out a fire by pouring gasoline on theflames.”

Whatever your opinion might be, one thing is certain: an insuredgets to make the final decision, and that decision needs to be aninformed decision. As I reflect back on my eight-year involvementin this litigation, I am certain that even if the jury reaches afavorable verdict for the defendant broker, there is no way hecomes out a winner. The plaintiff's attorney indicated that if theylose, they were going to appeal the decision. On the other hand, ifthe defendant does not get a favorable verdict, his errors andomissions policy does not have sufficient insurance limits to coverthe potential damages.