An insurance brokerage firm is responsible for the wrongful conduct of its agents and employees while they give the appearance that the individual is working on behalf of the brokerage.

In Hawaii, a case arose around two homeowners’ insurance policies issued by Certain Underwriters at Lloyd’s of London through its broker Seacoast Brokers of Hawaii LLC, and placed by defendant Harry Wengler, an insurance agent associated with defendant Bishop Insurance Agency, on behalf of plaintiff Steven Vreeken.

The policies purported to insure Vreeken’s home in Hauula, Hawaii, from March 3, 2004, through March 3, 2005, and from May 9, 2005, through May 8, 2006. The house collapsed on May 23, 2005, during a structural renovation. Because the original policy had lapsed on March 3, and because the application used to procure the second policy incorrectly stated that there was no renovation work underway, insurers denied Vreeken’s claim and a lawsuit followed.

Vreeken testified that he contacted Wengler on March 23, 2005, to ensure that his policy would continue to be in force. Wengler told him that “he would take care of it.” Wengler, with the assistance of Bishop Insurance employee Carol Young, attempted to reinstate the policy, but learned that same day that the original policy would not be reinstated. Neither Wengler nor Bishop Insurance ever notified Vreeken that the original policy had not been reinstated. Wengler also concealed from Vreeken that he had submitted the second application with a material misrepresentation that resulted in voiding the second policy.

The appellate court found there was no basis for punitive damages against Bishop because the agency was not vicariously responsible for Wengler’s actions, but the court affirmed the punitive damages against Wengler.

Case Analysis

The Bishop defendants owed Vreeken a duty to inform him that Wengler’s attempt to reinstate the original policy failed and of Wengler’s actions in seeking the second policy. Wengler had taken on the responsibility of reinstating the policy, and Vreeken was not aware that his home would not be covered.

An agency relationship between an insurance broker and the insured terminates upon procurement of the requested insurance policy, but in the continuation of an insurance policy the agent has the duty to notify the applicant if the insurer declines to continue to insure the risk, so that the applicant may not be lulled into a feeling of security or be put to prejudicial delay in seeking protections elsewhere.

When an agent undertakes to procure insurance and fails to do so, or when he fails to inform the brokerage that insurance from a prospective insurer is unavailable so that the brokerage can obtain insurance elsewhere for the client, the agent may be liable. The burden of proving unavailable coverage is on the insurer or the broker, because it is an affirmative defense that is within the peculiar knowledge of those familiar with the market. Furthermore, a broker cannot meet its burden of showing a lack of proximate cause between its failure to properly procure insurance and the insured’s lack of coverage merely by showing that the insurer which it approached would not supply the insurance in question.