A retail insurance agency, seeking liability quotes for a client, asked a wholesale broker to remove an exclusion from its quote, and the wholesaler did so. After the losses that would have been excluded started coming in, the carrier sued the wholesaler and the wholesaler sued the agency.
For years, the agency had handled the coverage for the insureds, a large alarm monitoring company. In 2012, they marketed the insured’s general liability coverage and sent a submission, including loss runs, to the wholesale broker. That August, one of the wholesaler’s underwriters provided a quote that included an exclusion for losses arising out of alleged or actual violations of the Telephone Consumer Protection Act (TPCA). The TPCA is a 34-year-old federal law that restricts the use of unsolicited telephone solicitations.
The retail agency asked for a quote without the exclusion, saying that the insured would not violate the law but had no control over dealers who might. They also argued that the insured carried cyber insurance and had hold-harmless agreements in their favor from dealers.
The wholesaler had a contract with the carrier’s managing general agent (MGA) for certain insurance programs, including one for security guards. One provision of that contract prohibited the wholesaler from making any changes to insurance coverages or conditions without the MGA’s approval. The TPCA exclusion was a mandatory condition of the program. Another was an explanation of any prior losses greater than $50,000.
The underwriter’s supervisor approved removing the exclusion and a new quote was issued. The insured accepted the quote and the wholesaler ordered a policy from the carrier’s managing general agent, effective August 31, 2012.
Shortly after, TPCA claims started coming in. The carrier provided defense and indemnity for at least 14 of them, including several that a court consolidated into one action. In March 2013, the carrier attempted to add the exclusion to the policy and the insured sued to stop them.
Eventually, the carrier sued the wholesaler for the cost of the TCPA claims, arguing that the wholesaler removed the exclusion without permission. That lawsuit eventually settled out of court. In the meantime, the wholesaler sued the retail agent for the costs they incurred from settling the carrier’s lawsuit. They charged the agency with “grossly (misrepresenting) the true nature of (the insured’s) exposure to TCPA claims in order to induce (the wholesaler) to issue policies without a [TCPA] exclusion, thus forcing (the carrier) to cover the TCPA claims.” The judge’s opinion did not state the amount of damages sought, but the cost of defending and indemnifying 14 lawsuits must have been hundreds of thousands.
In 2022, the agency asked the court for summary judgment (a ruling based on the law when the facts are undisputed) in its favor. The court granted that request the next year on all but three of the claims. The agency quickly moved for summary judgment on the other three, and the court held a hearing in May 2024.
That July, the judge handed down a mixed ruling. The wholesaler had claimed that the agency had induced it by fraud to remove the exclusion, and she found that the two sides did not agree on the facts. Therefore, she said, a jury had to decide the question, and summary judgment was inappropriate. However, she ruled in the agency’s favor on the other claims.
There is no further public record of this case. The litigation may be ongoing, or the two sides may have settled.
It seems clear that either the insured misrepresented their TCPA exposure or the retail agency did. Given that the agency had obtained the insured’s coverage for several years, it is difficult to believe that the insured had not faced TCPA lawsuits before the policy in question took effect. If the agency deliberately concealed prior losses, that could be grounds for a license suspension. At best, it was a lapse that may cause other industry partners to hesitate doing business with them.
Shading the truth will eventually backfire. Agencies desiring long-term success will tell their carrier and broker partners the full story about every risk.
