Insurance agents and brokers are invariably sued by insureds who have a loss not covered by the policy. With the advantage of 20/20 hindsight, and the motivation of a large out-of pocket loss, the insured will argue that the agent promised or should have provided the coverage needed.
In Tennessee, insureds are charged with reading the policy delivered to them and it is not sufficient to claim that "I trusted my agent" when filing suit for a loss not covered by the policy. In the case that follows, the agent was sued because the named-peril policy issued to the insured did not cover theft. After a theft loss, the insured claimed the agent represented that the policy contained theft coverage. The agent denied the representation.
Although the agent succeeded on appeal, the lawsuit and appeal could have been avoided if the agent had explained the limitations of the coverage in writing. A named-peril policy provides very limited coverage and the letter could have been a brief recitation of the perils listed in the policy and a statement that no other coverages were available. If the insured was not satisfied with the coverage stated in a clear and short letter, the agent would have been in a position to sell an "all risk" or "direct risks of physical loss" policy that would have cost the insured more and gained the agent a larger commission.
As you read the following case, consider how the litigation could have been avoided by a professional agent communicating carefully with the insured.
Finchum v. Patterson

theft, except for building damage caused by the breaking in or exiting of burglars."

inter alia

Barry Zalma, Esq., CFE, is a California attorney specializing in expert witness testimony and consulting with plaintiffs and defendants on insurance coverage and claims handling. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He can be reached at zalma@zalma.com . He also publishes the free Zalma's Insurance Fraud Letter every two weeks at www.zalma.com .

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Down to Cases: Avoid Litigation by Explaining Coverage in Writing

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