“Cover me for everything!”

These four words might be the most dangerous for an insurance professional to hear in a sales interview.

In several of my past articles I've advised that every insurance professional should do everything possible to avoid becoming entangled in litigation because in litigation, even if you win, you lose. This month's article presents the ultimate proof that my belief is not only correct, but understated.

I just finished testifying at a trial where the underlying event to the litigation occurred in early 1999. I personally have been deposed two times, the involved broker three times, there was a trial and appeal, and the new trial, which just occurred. The unfortunate broker in this matter has had to deal with the pressure and upset of litigation where he has been one of the main defendants for almost 15 years.

At this writing, the case will go to the jury within the next week.  Let's assume the insurance professional gets a favorable decision from the jury. I cannot imagine that anyone reading this article would take the position that after 15 years of litigation, depositions, testimony and upset, the broker is winner. The best you can say is he was less of a loser. 

The plaintiff and insured is a presenter and producer of various types of shows which have some high hazard aspects to the presentations. The producer arranged to present one of his shows at a facility which could provide the proper infrastructure and had the capacity for the expected attendance. After the technical arrangements were made, a request was made for a certificate of insurance which outlines and reflects the facility's insurance requirements. The request was for a comprehensive general liability policy with a high limit of insurance. The facility's executives warned the producer that they were fussy about their insurance requirements because they had been involved in a substantial uncovered loss as a result of a similar presentation several years ago.

The producer visited with his insurance representative and advised him of the insurance request from the facility and related the story about how the facility's uncovered loss. Then the producer utters those dangerous words: “Cover me for everything.” The agent, a long-time insurance pro with several professional designations, realized immediately that the exposures presented by this risk would not fit his standard markets. So he brought the business to a leading excess and surplus brokers, which agreed to send a description of available coverage and a quotation as soon as possible.

The retail broker sent the quotation and description of coverage and to his client and the owner of the facility, who was to be included as an additional insured. But there was one small problem: some of the exclusions did not cover several of the high- hazard risks inherent to the production.

The day after the quote was delivered, the promoter called the retail broker telling him what he needed, and the broker agreed to procure the insurance if possible. The presentation was going to take place in about two weeks and it was likely that the policy would not be delivered until after the event was over. To solve that problem, the broker issued a certificate of insurance showing the limits of insurance with no exceptions or exclusions.

You don't have to be a detective to figure out what happens next. There was a serious injury, and subsequent litigation which took about five years to resolve. This particular phase of the litigation resulted in a low eight-figure judgment in favor of the plaintiff.

But that's only the beginning of the story. The insurance company appealed the judgment and won a reduction in the judgment, but lost the overall appeal. The insurance company made a partial payment and re-appealed the case on a different basis. This time they won their appeal and the case was remanded to the original court for retrial. This is the trial that I just testified at, which is now 14 years after the original event.

The basis of appeal centered on the issues of an insurance producer's duty to follow instructions, to procure insurance, to advise the insured that the coverage is not available, the standard of care which requires reasonable care and diligence, and finally, in this particular state, the broker has a duty of loyalty to its client.

The insurance professional in his defense alleged that his client did not know what he wanted and he was confident that the insurance that he'd placed was appropriate. Furthermore, the client had been given a quote with all of the exclusions detailed, and even if he had been able to obtain the coverage, the cost of insurance would have been prohibitively expensive.

This is where my opinion as an insurance expert comes into consideration. Remember that the broker was given instructions to provide certain coverage; he agreed to do, was unable to do so, but never notified his client. It was undisputed that the producer only approached a single resource, which in my opinion did not amount to reasonable care and diligence. The insurance producer also forgot that the final decision-maker as to coverage purchased is the insured. Finally, the broker, when reporting the claim, advised the carrier that the coverage for this type of claim was excluded and not to pay the claim. I opined that as the insurance representative he had a duty of loyalty to his client and his actions were tantamount to “trying to put out a fire by pouring gasoline on the flames.”

Whatever your opinion might be, one thing is certain: an insured gets to make the final decision, and that decision needs to be an informed decision. As I reflect back on my eight-year involvement in this litigation, I am certain that even if the jury reaches a favorable verdict for the defendant broker, there is no way he comes out a winner. The plaintiff's attorney indicated that if they lose, they were going to appeal the decision. On the other hand, if the defendant does not get a favorable verdict, his errors and omissions policy does not have sufficient insurance limits to cover the potential damages.