When there is a claim that exceeds the limits of coverage purchased, the insured often seeks to blame the insurer and the insurance agent for not forcing him to buy more coverage. Such was the situation in Tornado Technologies Inc. v. Quality Control Inspection Inc., et al., 2012 Ohio- 3451 (Ohio App. Dist.8 08/02/2012), in which the Ohio Court of Appeal was asked to hold an agent responsible because there was insufficient limits to cover its loss.
Quality Control Inspection (QCI) appealed the trial court's decision granting summary judgment in favor of appellees Fitzgibbons, Arnold & Co. Agency. and Clark Fitzgibbons (FAC).
Rick Capone founded QCI in 1985 as a construction inspection firm, which provides engineering and architectural support services for governments and private contractors on construction projects. Clark Fitzgibbons and Dick Arnold formed FAC in 1991 as an independent insurance agency. FAC arranges personal and commercial lines of coverage, as well as bonds, health and benefits coverage.
In 2004, QCI began storing its electronic data off-site on servers that would eventually be owned by Tornado Technologies (Tornado). On Nov. 28, 2008, as a result of an electrical surge, Tornado's server crashed and substantially all of QCI's data stored on the server was lost. Tornado's backup file was affected by the electrical surge, and was unable to restore all of QCI's data.
QCI reported the incident to FAC, which in turn forwarded a claim to Ohio Casualty, the insurance carrier. After investigating the claim, Ohio Casualty issued a check in the amount of $50,000 to QCI. This amount represented the limit of coverage under the commercial computer coverage policy.
QCI asserted claims of breach of contract against Ohio Casualty and breach of fiduciary duty, negligence, along with insurance malpractice against FAC and Clark Fitzgibbons. QCI alleged that FAC failed to ensure that it was protected against catastrophes such as Tornado's server failure.
QCI timely appealed the trial court's decision granting summary judgment in favor of FAC and Clark Fitzgibbons.
In the instant case, QCI argued that FAC failed to competently advise it as to the type and amount of coverage that would have guarded against the loss incurred when Tornado's server crashed. This alleged failure, QCI claims, amounted to negligence, insurance agent malpractice and breach of fiduciary duty.
To establish any type of actionable negligence, a plaintiff must show the existence of a duty, a breach of that duty and injury that is the proximate result of that breach. In the insurance context, an action for negligence may be based upon an insurance agent's failure to procure insurance. Pertinent to the elements of duty and breach, an insurance agency has a duty to exercise good faith and reasonable diligence in obtaining insurance that its customer requests. However, an insurance agent owes no duty to seek replacement coverage for an insured in the absence of a request by the insured to do so. FAC maintains it was not on notice that QCI was storing electronic data off-site and, more importantly, QCI never asked FAC to place or arrange any coverage for data stored with Tornado.
The Court of Appeal looked at the declaration's reference to duplicate storage and references different locations, as well as coverage during transit. QCI should have notified FAC that it stored data at Tornado and queried the propriety of additional coverage.
The Court of Appeal noted that an insured has a corresponding duty to examine the coverage provided and is charged with knowledge of the contents of his or her own insurance policies. The onus was on QCI to review the policy declaration, notify FAC that it was storing electronic data with Tornado, and request the appropriate level of coverage. It did not.
Nonetheless, QCI maintained that it relied on FAC's expertise to procure sufficient coverage. In essence, QCI argued that FAC were fiduciaries with a higher duty of care, a duty not only to provide the coverage requested but also to advise QCI of the amount of coverage needed.
The Ohio Supreme Court defined a "fiduciary relationship" as one in which special confidence and trust is reposed in the integrity and fidelity of another and there is a resulting position of superiority or influence, acquired by virtue of this special trust. A fiduciary relationship may be created out of an informal relationship only when both parties understand that a special trust or confidence has been reposed. While the law has recognized a public interest in fostering certain professional relationships, such as the doctor-patient and attorney-client relationships, it has not recognized the insurance agent-client relationship to be of similar importance. In this case the record shows the relationship between QCI and FAC was nothing more than an ordinary business relationship between insurance agent and client.
FAC's exercise of good faith and reasonable diligence was satisfied when it obtained the insurance requested by QCI over the years. There was no duty to advise QCI, without them furnishing additional and pertinent information, that additional coverage was needed. As such, no evidence existed from which reasonable minds could conclude that the relationship between QCI and FAC was anything other than an ordinary business relationship between an insurance agent and a client.
Because FAC was not negligent and not in a fiduciary relationship with QCI, the Court of Appeal found QCI's claim that FAC committed insurance agent malpractice unsustainable.
The relationship between an insurance agent and insurance buyer is—barring special arrangements—nothing more than a business relationship where the insurance agent obtains for the insurance buyer that which the buyer requested. It is no different a relationship that a store clerk who is only required to provide the buyer with the canned peas and corn requested and is not obligated to advise the buyer that carrots are needed to make succotash.
Insurance agents and brokers should be careful to avoid the creation of a fiduciary relationship. After obtaining the insurance requested, it should present the coverages to the insurance buyer with a letter advising that the insurance was ordered and that the insured should check the coverage to ascertain that it received everything it ordered. QCI in this case failed to review the coverages available to it or advise the agent, FAC, of the coverages it needed and was stuck with only the coverages it ordered.
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