Proving Negligence

Insurers who find it necessary to sue an insurance agent for negligence, and the agent sued for negligence, should retain the services of an expert as soon as possible who can testify convincingly that the agent failed to act, or did in fact act, in conformance with the custom and practice of the industry. For want of an expert witness, Celina Mutual Insurance Co. lost its action against an insurance broker who decided to advise its insured to misrepresent a material fact about a prior fire loss. Had Celina known the truth, it would not have issued the policy.

The Kentucky Court of Appeals, in Celina Mutual Insurance Co. v. Harbor Insurance Agency LLC, No. 2009-CA-000790-MR (Ky. App. 07/16/2010) held that expert testimony was required to establish an insurance agent's professional negligence.

Related: Read Barry Zalma's August Down to Cases column: “Do agents owe clients fiduciary duty?”

The facts that gave rise to an appeal started when Todd Latham (the insured) purchased a farm security policy of insurance from Harbor Insurance Agency through Celina Mutual Insurance Co. The insurance application asked the applicant to list all losses of the potential insured in the last 5 years. The insured disclosed to Harbor's agent Bill Kearney that he had a prior fire loss, but maintained that the fire was not attributed to him and would not show up in his loss history. At this juncture, the parties disagreed as to what happened next. Kearney asserts that he had a conversation with Celina's employees about the prior fire loss and that Celina investigated the insured's claims history at Kearney's request. Regardless, the application for insurance listed “none” in regard to the prior loss question. Approximately a month after the issuance of the policy, the insured's home and contents were destroyed in a fire and Celina paid pursuant to the policy. Celina contends that if Kearney had truthfully answered the application reflecting the prior fire loss of the insured, it would not have issued the policy.

The trial complaint alleged the agents “held themselves out as experts in the field of insurance coverage and by reason of their position in the insurance industry, said defendants were in a superior position to determine whether or not to recommend that Celina provide insurance coverage to the insured.”

The complaint further alleged that the agent had a duty to exercise due care in his professional conduct. The trial court found that most professional negligence claims require expert testimony, with the common exception being where the experience or common knowledge of laymen is extensive enough to recognize or to infer negligence from the facts.

Related: Read “Never lie on a COI.”

Therefore, based upon the facts of this case, expert testimony would be necessary to establish the duty from the agent to the company and whether such duty was breached given the facts of this case. While there may be questions about what conversations took place between the agent and company representatives, that fact is not material without expert proof on the standard of care due by insurance professionals under the circumstances here.

Hence, the trial court determined that Harbor was entitled to judgment as a matter of law on the negligence claims set out in the complaint.

A party opposing a properly supported summary judgment motion cannot defeat that motion without presenting at least some affirmative evidence demonstrating that there is a genuine issue of material fact requiring trial.

In the case the parties raised a legitimate question as to the need of an expert. Celina argued that a jury would know that submitting a form which contained an incorrect answer was clearly negligence. As discussed, the court deferred to the trial court's finding that the issues were complex, thus necessitating an expert witness.

During oral arguments and because the trial court determined that expert testimony was necessary, Celina argued that it should have additional time to employ an expert. In Baptist Healthcare, the Kentucky Supreme Court concurred with the Kentucky Court of Appeals opinion, which had affirmed the trial court's denial of Celina's motion for summary judgment.

First, to state the obvious, this case is not a medical malpractice case. Second, based on the facts of the case, Celina maintained that no expert testimony was necessary and did not identify an expert witness prior to the discovery deadline. Thus, the issue as to whether expert testimony was necessary did not arise until Harbor's motion for summary judgment. Further, the issue was not whether to sanction the Celina for failure to meet a deadline to acquire an expert witness but rather to apply a legal standard regarding an absence of proof, which was necessary to go forward in this situation. Celina's response to the motion for summary judgment by Harbors was to continue to insist that an expert was not needed. It never requested that the trial court grant it additional time to secure an expert instead of granting the summary judgment motion.

Celina next argues that summary judgment as to the claim of indemnification was inappropriate as this allegation is based in tort, not contract, providing a common law right of indemnification.

The law is well settled in Kentucky that one is entitled to indemnity if, in the absence of a contractual indemnity obligation, the liability to a third party is the result of a wrongful act of a joint tortfeasor. There is nothing to support that Harbor engaged in any tortious conduct. Based on the absence of any proof of negligence, it was proper for the trial court to grant Harbor's motion for summary judgment on the indemnity claim.

This case teaches a very important point to be recognized by members of the insurance profession, their insurers and counsel: Failure to properly prepare litigation in an attempt to reduce expenses can be, and usually is, fatal to litigation.

Insurance companies like Celina should complete a thorough investigation and retain appropriate expert witnesses before filing suit against the agent and in every case before expiration of the court's order regarding designation of experts.

Insurance agents or brokers who are sued should instruct his or her counsel to retain a competent expert who can advise whether there is sufficient evidence to establish negligence on the part of the agent or broker. If the answer is no, the case should be taken to trial; if the answer is yes, counsel should be instructed to immediately open negotiations for settlement.