An insurance agent is only required to obtain the insurancerequested by the insured. The insurance agent does not guaranteethat every claim the insured presents will be covered by theinsurer.

In Glasser v. M&O Agencies Inc., aninsured sued his agent because the policy he ordered was not ineffect at the time of a loss. The agent's defense was that therewas no coverage for the loss.

Repairs or renovations?

In March 2010, Elliott J. Glasser bought a large commercialproperty (called the McDowell Property) that was previously anautomobile dealership. Glasser's employees began cleaning andmaking repairs, but Glasser did not lease the property or occupy ithimself.

Glasser, through his insurance agent M&O Agencies, added theMcDowell Property as a scheduled location on his existingcommercial insurance policy from Cincinnati-based Great American Insurance Co., which covered theMcDowell Property with property and liability insurance. In April2010, and at the direction of an employee of Glasser's business,M&O Agencies instructed Great American to delete the propertycoverage for the McDowell Property.

On July 6, 2010, Glasser discovered theft and vandalism at theMcDowell Property, and submitted a claim for the loss to GreatAmerican. The carrier denied the claim because the policy did notcover property damage at the McDowell Property, and the propertyhad been vacant for more than 60 days before the loss, a vacancyexclusion term under the policy.

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Glasser filed a lawsuit against M&O Agencies, alleging thatit breached the agreement by failing to obtain appropriateinsurance coverage for the McDowell Property, and negligentlymisrepresented that it had secured appropriate insurance coveragefor Glasser's real properties.

M&O Agencies moved for summary judgment on the grounds thatGlasser had produced no evidence that the policy would have coveredthe loss even if it had been in effect and that Glasser, therefore,could not prove that M&O Agencies' allegedly negligent conductcaused him any damage. In response, Glasser maintained that anexception to the vacancy exclusion for buildings under “renovation”applied because his employees had been readying the building toserve as his business headquarters. M&O Agencies argued,however, that Glasser's activities at the McDowell Propertyconstituted routine maintenance and repair, not renovation.

The Arizona trial court granted summary judgment for Mahoney,ruling as a matter of law that there was insufficient evidence fora jury to find that the McDowell Property was under renovation atthe time of the loss. The court determined that the evidence onlysupported an inference that the McDowell Property was beingcleaned, repaired and maintained, and such acts, as a matter oflaw, did not constitute “renovation.” Glasser appealed.

Was there enough evidence?

The appeals court found a question of fact regarding whether theactivities of Glasser's employees at the McDowell Property duringthe relevant time qualified as “renovation.” The evidence showedthat two of Glasser's employees were at the McDowell Property everyday after the purchase making changes and repairs to render theproperty acceptable as a business headquarters. If Great Americanand Glasser intended that the policy's renovation exception wouldapply only to substantial reconstruction activities, rather thanminor repairs or cleaning, the court said, they were free tospecify that meaning in the policy.

On appeal, Mahoney argued that courts from other jurisdictionshave read similar policy language in conjunction with the overallpurpose of a vacancy exclusion (to exclude coverage for thosebuildings that might invite liability and damage) and have refusedto find an exception to a vacancy exclusion when the insured'sactivities at the property were not substantial and continuing.

Accordingly, even though the activities at the McDowell Propertymight not have been what is ordinarily envisioned by the wordrenovation, the Arizona Court of Appeal concluded that there was aquestion of fact under the policy whether the activities on theproperty were “renovations.” As a result, the court reversed theruling for Mahoney on the grounds that, even if it had remained ineffect, the policy would not have covered Glasser's loss because ofthe vacancy exclusion.

Factual issues almost always defeat summary judgment. Thequestion of whether the exception to the exclusion applies isclearly factual, and that is why the summary judgment was reversed.The agent's error was to make a motion based on the exclusionrather than on the fact that the insured — through his employee —told the agent to cancel coverage for the building. Because thepolicy was not in effect there was no coverage, and that is whyGreat American wasn't sued.

Barry Zalma, Esq., CFE, is a California attorney, insuranceconsultant and expert witness specializing in insurance coverage,claims handling, bad faith and fraud. Contact him at [email protected].

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