Courts considering agent and broker errors and omissions claims are relying more and more on a presumption that intermediaries are–and present themselves as–experts in insurance coverage.
This trend means that more juries may be charged with deciding whether a very general request for coverage from a customer can form the basis of a claim for negligence or breach of contract against their agent or broker, when it turns out the customer doesn’t have sufficient insurance to cover a specific loss.
A September 2007 ruling from the Appellate Division, First Department of the Supreme Court of New York in Hersch vs. DeWitt Stern Group Inc., provides one example of the trend.
In Hersh, the owner of a cooperative apartment that was damaged by fire sued his insurance broker when his property insurance ended up providing coverage for only 10 percent of the additions, alterations and “contents” of the apartment, including the flooring, carpeting, curtains, painted walls and bookcases.
The apartment owner’s broker procured a policy specifically providing that coverage for such items would be limited to 10 percent of their value, absent the purchase of an additions-and-alterations policy rider.
At deposition, the insured testified he told the broker what the apartment consisted of, how it was furnished, what had been done to it, and said that he wanted to make sure it was properly insured.
Since he had not testified, however, that he had specifically requested purchase of the additions-and-alterations rider, the broker moved for summary judgment dismissing, among other things, the insured’s negligence and breach of contract claims.
In general, the basic duty of an agent and broker is to provide requested coverage for customers within a reasonable time period. Historically, courts have found that agents can only be liable for failing to provide a particular type or level of coverage when it has been shown that such coverage was specifically requested or promised.
In this case, however, despite the fact the customer’s request was general rather than specific, the trial court denied the broker’s motion to dismiss.
The broker appealed. Although one justice on the appellate court panel cited traditional arguments favoring the broker’s position, the majority ruled otherwise.
Without substantial discussion devoted to the issue, the majority–apparently relying upon the plaintiff’s testimony that he requested coverage that would adequately insure the apartment and its contents–noted that although the plaintiff “admittedly received and read the policy procured by the defendant brokerage, he was allegedly assured that the requested coverage had been obtained and he had a ‘right to look to the expertise of [his broker] with respect to insurance matters’” (quoting Baseball Office of Commr. vs. Marsh & McLennan, a 2002 holding by the same court).
This decision is significant in that it is evidence of a continued cementing of the perception in the courts that, in fact, agents and brokers are more than just “order takers.” They are, instead, being viewed more and more as “experts.”
As such, they can expect more and more to at least be compelled to go to trial on issues regarding whether generalized–as opposed to specific–coverage requests should have prompted brokers to seek or procure certain coverages, or to provide advice to insureds regarding coverage.
The Hersch case was just one of a number of 2007 cases tackling the standard crop of insurance agent and broker E&O issues, several of which included interesting twists and surprises. In Avery vs. Diedrich, unlike Hersch, for example, insureds made a very specific coverage request, but the Wisconsin Supreme Court found their agent’s failure to get it for them was not an act of negligence.
The court held that “an insurance agent does not have a duty to procure requested insurance coverage until there is an agreement that the agent will do so.”
While this would seem a straightforward proposition, the question of exactly when an agent has a duty to procure coverage arose in the following context: A specific request was made for an agent to procure a certain level of coverage, there was uncontradicted evidence of this request, but the agent, nevertheless, failed to obtain the coverage.
Arguably, is that not the very essence of a failure-to-procure claim? Not so fast.
In Avery, the insureds were owners of a summer home that they had procured property insurance for through an agent they had used as their insurance agent in purchasing various coverages for six years.
After initially placing property coverage for the home in the agreed amount of $150,000, they requested on renewal that he increase the coverage by $100,000.
The agent was unsure whether the proposed increase in the insured value was appropriate, thought the carrier would view the increase with suspicion, and suggested that the insureds have a property appraisal prepared before the increase was requested. In the meantime, the property remained insured at the $150,000 level.
While the insureds did, in fact, receive a verbal appraisal in excess of $250,000, they never received a written appraisal, and never advised the agent of the appraisal.
The house was then destroyed by fire, and the cost of replacing it ended up exceeding $250,000, while coverage was limited to the $150,000 in place.
The insureds, finding themselves without sufficient coverage, sued the agent, claiming he had acted negligently in failing to procure the coverage they requested. They argued that he had a duty to do so once they had determined the value they wanted insured and instructed him to obtain the coverage–notwithstanding his disagreement about the value at which to insure the property.
Noting that this was a case of first impression, the Wisconsin Supreme Court concluded that an agent cannot have a duty imposed on it unilaterally by the insured. The duty can only arise when the agent has actually agreed to procure the coverage.
Accordingly, because there was no dispute the agent had not agreed to procure the coverage at the requested $250,000 limit, the agent was entitled to summary judgment dismissing the claims.
In another 2007 case, Haynes vs. Edgerson, the insured didn’t request more coverage, but instead asked his broker to obtain the same coverage for his business on renewal. The broker’s failure to renew the policy with the same terms ultimately put him on the receiving end of a lawsuit alleging breach of duty, although his fate is yet to be decided, because some tactics used by plaintiffs’ lawyers to tarnish the broker’s character resulted in a Missouri appellate court’s decision to grant a new trial.
The underlying situation in Haynes involved the owner of a banquet hall, who was sued for wrongful death after an individual attending a birthday party at the banquet hall was shot and killed during the event. A jury verdict was returned against the banquet hall’s owner, in the amount of $5 million, and he was also hit with an additional award of $560,000 in post-judgment interest.
After the suit was initiated, the banquet hall’s owner notified his general liability insurer and requested that he be provided with indemnity and a defense. The insurer denied the claim, because the policy contained an exclusion for claims arising from “assault and battery.”
When the policy had first been issued, it actually included coverage for assault-and-battery claims. This was apparently a mistake by the underwriter, however, which would normally have included an exclusion for such coverage absent a request for this specific coverage and payment of an additional premium.
Prior to expiration of the policy, the insured requested that coverage be renewed. On renewal, the broker submitted the same application form he had submitted when he first procured the liability coverage. This time, however, the policy issued contained an assault-and-battery exclusion.
The broker accepted this coverage, ultimately leading to denial of the claim arising from the shooting incident. Left without coverage for the wrongful death award, the banquet hall owner sued his broker, alleging that the broker had breached a duty of care to him by failing to procure coverage which did not contain an assault-and-battery exclusion.
A jury awarded the banquet hall owner a verdict for $5.73 million against the broker, to be reduced by 25 percent due to his comparative negligence, leaving the insured with approximately a $4.3 million award.
At the close of the trial, the broker moved for a judgment notwithstanding the verdict, on the grounds that the insured banquet hall owner had not presented a “submissible case.” This motion was denied and, on appeal, the broker argued that this was an error.
In making the argument on this point, the broker contended that he had no continuing duty to this insured with respect to providing advice or guidance from one policy to the next. He resubmitted the same policy application, received a policy, and the insured accepted it. That, he argued, was all he was required to do.
The appellate court rejected this argument on the grounds that this case was not about a continuing duty from one policy to the next. Instead, the court said it was about the fact that the broker had been requested to procure the same coverage as had previously been in place, and failed to do so or advise his client of this.
Significantly, the broker admitted that he did not review the first policy before procuring the second. The court found that he had a duty at the very minimum to review the first coverage before seeking renewal and to check to see if he had actually been offered the same coverage.
An extensive review of additional 2007 agent and broker cases reveals that while some old, reliable defense arguments are still hanging tough, the landscape remains packed with potential potholes. Courts still generally expect and impose a duty upon insureds to read their policies, and breach-of-duty claims must still pass proximate cause tests before they can move forward.
However, the argument that an insured only made a generalized request and not a specific request for coverage is finding less support in terms of obtaining summary relief, given the courts’ increasing view of agents and brokers as “insurance experts.”
The catchphrase for insurance agents and brokers remains “proceed with caution.”
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