An insurance brokerage firm is responsible for the wrongfulconduct of its employees, agents and independent contractors aslong as they give the public the appearance that the individual isworking as an agent of the brokerage.

In Hawaii, Certain Underwriters at Lloyd's LondonSubscribing to Policy No. LL001HI0300520 v. Vreeken, SlipCopy, 2014 WL 2949463 (Hawaii App.), a case arose around twohomeowners insurance policies—the “original policy” and the “secondpolicy”—issued by Certain Underwriters at Lloyds through its brokerSeacoast Brokers of Hawaii LLC , and placed by Defendant HarryWengler, an insurance agent associated with Defendant BishopInsurance Agency, Inc. on behalf of Plaintiffs Steven andPamela Vreeken.

The policies purported to insure the Vreekens' home in Hauula,Hawaii, from March 3, 2004 through March 3, 2005, and from May 9,2005 through May 8, 2006, respectively. The house, elevatedapproximately nine feet above the ground since July 2004, collapsedon May 23, 2005 during an attempted structural renovation. Becausethe original policy had lapsed on March 3, 2005, and because theapplication used to procure the second policy stated that there wasno renovation work underway on the property, and thus contained amaterial misrepresentation which voided the second policy, theVreekens were left without insurance on the house.

A lawsuit followed, and a jury found Wengler and BishopInsurance liable for general, special, and punitive damages.

The critical focus is not on the principal's and agent'sintention to enter into an agency relationship, but on whether athird party relies on the principal's conductbased on a reasonable belief in the existence of such arelationship. The agency relationship between Wengler and Bishopwas established by Steven’s testimony that he went to BishopInsurance's office for his first meeting with Wengler. Thereceptionist summoned Wengler, who emerged from inside the BishopInsurance office area, and Steven was directed by the receptionistto a room off to the side to discuss insurance matters withWengler. Further, Steven testified that he made his check out toBishop Insurance and that Wengler accepted the check. BishopInsurance then placed the original policy with Lloyds.

The appellate court concluded that based on the evidence, thejury could reasonably find that Wengler had apparent authority toact on behalf of Bishop Insurance and that Bishop Insurance wasliable to the Vreekens for Wengler's acts.

Steven contacted Wengler on March 23, 2005 to “find out what Icould do to make sure my policy would continue to be in force.”Steven testified that Wengler told him that “he would take care ofit.” Wengler, with the assistance of Bishop Insurance employeeCarol Young, attempted to reinstate the policy, but learned thatsame day that the original policy would not be reinstated. NeitherWengler nor Bishop Insurance ever notified the Vreekens that theoriginal policy had not been reinstated before the house collapsedtwo months later. Wengler also concealed from the Vreekens that hehad submitted the second application with a materialmisrepresentation that resulted in voiding the second policy.

The Bishop defendants owed Steven a duty to inform him thatWengler's attempt to reinstate the original policy failed and ofWengler's actions in seeking the second policy. Wengler had takenon the responsibility of reinstating the policy, and Steven was notaware that his home would not be covered.

Although, as a general rule, the agency relationship between aninsurance broker and the insured terminates upon procurement of therequested insurance policy, inherent in the obligation to seekcontinuation of an insurance policy is the duty to notify theapplicant if the insurer declines to continue to insure the risk sothat the applicant may not be lulled into a feeling of security orbe put to prejudicial delay in seeking protections elsewhere.

When an agent undertakes to procure insurance and fails to doso, or when he fails to inform the principal of the nonavailabilityof insurance from a prospective insurer so that the principal canobtain insurance from another insurer, the agent may be liable. Theburden of proving the nonavailability of insurance coverage is onthe insurer or the broker, because it is an affirmative defensethat is within the peculiar knowledge of those familiar with themarket. Furthermore, a broker cannot meet its burden of showing alack of proximate cause between its failure to properly procureinsurance and the insured's lack of coverage merely by showing thatthe insurer which it approached would not supply the insurance inquestion.

Although Hawaiian law has not yet addressed the specificquestion to require plaintiffs to establish the availability ofalternative insurance coverage in all cases involving negligentfailure to procure a policy would require more than the“substantial factor” test. Even if a plaintiff would have beenunable to obtain alternative coverage, an insurance agent's failureto notify the plaintiff that the agent was unable to obtaincoverage, or that the agent had engaged in conduct resulting in thepolicy becoming void, could still be a “substantial factor” causingthe plaintiff's damage. The Vreekens were not required todemonstrate that alternative insurance was available as part oftheir prima facie case.

There was evidence adduced from which the jury could concludethat Wengler made the statement “I'll take care of it” withoutsufficient intent that he would be able to renew the policy,despite Steven's reliance on the renewal. Wengler testified thatwhen Steven telephoned, Wengler did not tell Steven that he wouldneed a new policy, and did not tell Steven to make the insurancerenewal payment by credit card or any other instantaneousmeans.

Punitive damages were assessed against Wengler and Bishop. Theappellate court found there was no basis for punitive damagesagainst Bishop since they were not vicariously responsibleWengler’s actions, they reversed the punitive damages againstBishop and affirmed the punitive damages against Wengler.