Insurance agents and brokers should never make a claims decision. Claims handling is the duty of the insurer's claims staff. When a claim is reported to an insurance agent or broker, their duty is to immediately report that claim to the insurer to investigate the facts and the policy wording to determine if the loss is compensable under the policy. Failure to do so can lead to discipline from the Department of Insurance and damages incurred by the insured for the error.

In the following case, the insurance agent made a claims decision, denying a claim to the insured and failing to report the claim to the insurer. She then compounded the error by testifying that she knew that her failure could–and eventually did–cause injury to the plaintiff. The error cost the agent and the insurer she represented $12.6 million.
Missouri insurance agent Catherine Philipp and American Family Mutual Insurance Co. were assessed more than $12.6 million in damages to be paid to plaintiff Galen Richey. Richey was seriously injured when he fell from the roof of his sister's house while attempting to remove a large tree limb. He sued his sister's insurer and Philipp, who procured the company's homeowner's policy on behalf of Richey's sister. Richey sought damages for the bodily injuries he sustained as a result of the fall and alleged that Philipp and the company made negligent misrepresentations concerning the coverage provided by his sister's insurance policy or were negligent by failing to submit the insurance claim in a timely manner.
On July 19, 2000, a large limb broke off a tree and landed on the roof of the house of Richey's sister, Brenda Bricker. Bricker telephoned her insurance agent, Philipp, and asked if her homeowner's insurance would cover removal of the limb. According to Bricker, Philipp told her that there was no such coverage. A few days later, Bricker called Philipp about removing the limb from her roof, and Philipp again said that no coverage was provided for tree removal.
Later, Bricker asked Richey if she could borrow his chain saw to remove the limb. Bricker told Richey that her insurance agent had told her that her policy did not cover tree removal. On Aug. 8, 2000, Richey went to his sister's house to remove the limb. While removing some debris from the roof, the tree limb unexpectedly rolled and knocked Richey off the roof. Richey suffered a spinal cord injury and was rendered a complete paraplegic.
Richey sued Philipp and American Family for fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty and negligence. After a trial on Richey's claim for personal injury, Richey's claims were submitted to the jury based upon negligent misrepresentation and negligence. The jury assessed 95 percent fault to Philipp and American Family and 5 percent fault to Richey. They found that Richey's damages totaled $13,350,000. The circuit court entered its judgment for Richey in the amount $12,682,500, accounting for the 5 percent reduction in the damage award due to the percentage of fault assessed against Richey.
Missouri recognizes negligent misrepresentation as an actionable tort and has recognized the right of a third party to sue an insurance company for negligent misrepresentation. (Vickers v. Progressive Cas. Ins. Co., 979 S.W.2d 200, 203-04 [Mo. App. 1998]). The submissibility of a misrepresentation claim depends not upon the contract, but upon the establishment of all the elements of the misrepresentation. Richey's claim is not based upon any insurance contract; it merely relates to a contract in that Philipp allegedly misrepresented that Bricker did not have insurance coverage for removal of the tree limb. The fact that the alleged misrepresentation made by Philipp in this case was that Bricker did not have insurance coverage for removal of the tree limb does not foreclose Richey's claim for negligent misrepresentation.
To prevail on his claim for negligence or negligent misrepresentation, Richey had to establish that Philipp and American Family's conduct directly caused or contributed to cause damage to Richey.
The court explained its decision to affirm the verdict by noting that Missouri, like many other states, does not apply a pure foreseeability test. Rather, Missouri courts have generally said that the injury must be a reasonable and probable consequence of the act or omission of the defendant. This is generally a "look back" test, but to the extent it requires that the injury be "natural and probable," it probably includes a sprinkling of foreseeability. To the extent the damages are surprising, unexpected or freakish, they may not be the natural and probable consequences of a defendant's actions.
The Missouri court explained that the proximate cause of an injury, if not the precise one in question, must have been reasonably foreseeable. It is only necessary, the court concluded, that the party charged knew or should have known there was an appreciable chance some injury would result. The negligence need not be the sole cause of the injury; it must be one of the causes without which the injury would not have occurred.
Finding that Philipp and American Family were the proximate cause of Richey's injuries, the court explained that Philipp admitted that her conduct would likely injure a person like Richey. Richey established that "but for" Philipp, Richey would not have climbed on the roof to remove the tree limb. Philipp knew, or should have known, that his action would likely occur if she told his sister there was no coverage for removal of the tree limb. In fact, Philipp admitted that Richey's injuries were a reasonable and probable consequence of her misrepresentation to Bricker concerning the insurance coverage and of her failure to promptly turn in the claim.
Generally, the issue of foreseeability and causation is a contested issue, but in this case it was not. The court was not required to decide whether or not Richey's injuries were reasonably foreseeable because Philipp testified that she knew that there was an appreciable chance some injury would result from her conduct.
Philipp admitted that she had a duty to promptly turn in claims and to not misrepresent insurance coverage. She admitted that these duties existed to protect the insured and family members from getting on the roof and being injured while attempting to remove a tree limb. She further acknowledged that violation of these duties could result in injuries to an individual in the same manner in which Richey was injured.
To make a submissible case of negligent misrepresentation for a pecuniary loss, Missouri law requires a plaintiff to establish:
1. The speaker supplied information in the course of his or her business because of some pecuniary interest;
2. That was false;
3. Without exercising reasonable care or competence in obtaining or communicating this information;
4. For the guidance of a limited group of persons in a particular business transaction;
5. The listener justifiably relied on the information; and
6. As a result, suffered a pecuniary loss.
In Missouri and most jurisdictions, one who negligently provides false information is subject to liability for physical harm caused by action taken by the other in reasonable reliance upon such information, where such harm results to the other, or to such third persons as the person making the misrepresentation should expect to be put in peril by the action taken.
The rule is particularly applicable when it is a part of the person's business to give information upon which the safety of the recipient or a third person depends. The rule is not limited to information given in a professional capacity. It extends to any person who, in the course of an activity that is in furtherance of his own interests, undertakes to give information to another and knows or should realize that the safety of others may depend upon the accuracy of the information.
The court concluded that "a third party, although not in privity, has a claim for the alleged negligence of a professional who renders an opinion upon which the third person relies to its detriment." (Dueker v. Gill, 175 S.W.3d 662, 669 n.7 [Mo. App. 2005] quoting Miller v. Big River Concrete, LLC, 14 S.W.3d 129, 134 [Mo. App. 2000].) It also found that the trial court did not err in instructing the jury that Philipp and American Family should be held to a professional standard of care.
The court noted that insurance professionals must be judged by the standard of care of those in the insurance field and not of an ordinary person. Holding the agent and the insurer to that professional duty of care required the agent and the insurer to pay the plaintiff for his injuries.
Richey v. Philipp, No. WD68064 (Mo.App. W.D. 03/04/2008).
Barry Zalma, Esq., CFE, is a California attorney specializing in expert witness testimony and consulting with plaintiffs and defendants on insurance coverage, claims handling and bad faith. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He can be reached at zalma@zalma.com. His consulting practice's Web site is www.zic.bz.

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Down to Cases: Rash claim decision costs agent $12.6 million

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