Every insurance professional should do everything possible to avoid litigation, because even if you win, you lose.

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

The insured plaintiff is a producer of entertainment performances with high hazard aspects. The producer arranged one of his shows at a facility that 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 outlining the facility’s insurance requirements. The request was for a comprehensive general liability policy with a high insurance limit. 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 from a similar presentation several years ago.

The producer visited his broker and advised him of the facility’s request and prior loss, adding those dangerous words: “Cover me for everything.” The broker knew the exposures presented by this risk would not fit his standard markets, so he approached a leading E&S broker, which agreed to send a description of available coverage and a quotation.

The retail broker sent the quote and description of coverage to his client and the facility owner, who would be included as an additional insured. But some of the exclusions did not cover the risks inherent to the production.

The day after the quote was delivered, the producer called the retail broker, telling him what he needed, and the broker agreed to procure the insurance if possible. The policy would probably not be delivered until after the event was over, so the broker issued a certificate of insurance showing the insurance limits with no exceptions or exclusions.

There was a serious injury and subsequent litigation that took about five years to resolve. This phase of the litigation resulted in a low eight-figure judgment in favor of the insured.

The insurer appealed and won a judgment reduction, but lost the overall appeal. The insurer made a partial payment and re-appealed the case on the issues of a broker’s duty to follow instructions, procure insurance, advise the insured that the coverage is not available, the standard of care that requires reasonable care and diligence, and that the broker has a duty of loyalty to its client.

This is where my expertise comes in. The broker was instructed to provide certain coverage; he agreed, was unable to do so, but never notified his client. It was undisputed that the producer only approached a single resource, which did not amount to reasonable care and diligence. The broker also forgot that the final decision maker is the insured. When reporting the claim, the broker told the carrier that the coverage was excluded and not to pay the claim. I testified that the broker had a duty of loyalty to his client and his actions were tantamount to putting out the fire with gasoline.

Even if the jury favors the broker, he still doesn’t come out a winner. The plaintiff’s attorney said they would appeal the decision if they lose. If the broker doesn’t get a favorable verdict, his E&O policy doesn’t have sufficient limits to cover the potential damages.