A Colorado couple found out after a wildfire that their home was underinsured. They sued their agent and several other parties for the difference.
The agent had obtained homeowners insurance for them from 2014 to 2019. In 2019, she recommended that they switch carriers because their incumbent carrier was about to cease writing homeowners insurance in Colorado. She allegedly told the insureds that the replacement policy provided “comparable coverage” and would include “50% Extended Replacement Cost Coverage.” This coverage would give them additional protection should their home be completely destroyed. They took her advice and purchased the replacement policy.
The agent retired in early 2020. The insureds renewed the new policy each year through 2021 and asked a sales representative to review the policy at each renewal. However, they did not have any conversations about the policy’s terms and conditions. In 2021, they renewed the policy with limits of $381,000 on the dwelling and $38,100 for other structures on the premises. The carrier calculated these limits using a commonly-used software application for calculating reconstruction costs.
The December 2021 Marshall Fire destroyed their home and they submitted a claim. The carrier paid out the policy limits for the dwelling and other structures, a total of $419,100. This was not enough to cover the cost of rebuilding, though the court opinion did not state the amount of the shortfall. During the claim process, the insureds learned that their policy did not contain the 50% Extended Replacement Cost Coverage that they thought they had purchased two years earlier.
They sued the agent, her agency, the replacing carrier, and the developer of the reconstruction cost software. They charged the agent with negligence, negligently misrepresenting the terms of their policy, and breach of her fiduciary duty to them. They held the agency responsible for her actions. All the defendants asked the court for summary judgment – a judgment in their favor based on the law when the facts are undisputed. The trial court granted their request, and the insureds appealed.
In February 2026, the appellate court upheld the verdict. “While (the agent) may have had a duty regarding the 2019 policy,” the judges wrote, “… the 2019 policy was not in effect at the time of the 2021 Marshall Fire. Rather, the (insureds) renewed their homeowners’ policy … in July 2020 and July 2021, and they had the option to obtain additional coverage at either time. After (the agent) retired in early 2020, she was not involved in the 2021 policy renewal. Thus, she owed no duty to the (insureds) vis-a-vis the 2021 policy.”
Moreover, the insureds testified that they read the replacement policy “cover to cover” and therefore should have known in 2021 that it lacked the Extended Replacement Cost Coverage. The judges also found that the agent did not owe them a fiduciary duty. Because they found her not to be at fault, they also agreed that her agency could not be held liable.
Courts generally hold that insureds have a duty to read their insurance policies. Whether it is reasonable to impose a duty to read complex contracts on the public is a matter of debate, but it is the law. The court’s opinion did not explain how or why the replacement policy did not contain the Extended Replacement Cost Coverage. If the agent erroneously failed to include it in the applications to the new carrier (which the insureds should have read and signed,) she is fortunate that a loss did not occur during the 2019-2020 policy term. If the new carrier declined to include it, she should have informed the insureds of that. As it was, the insureds learned of the coverage’s absence at the worst possible time.
For whatever reason, the insureds had the impression that their coverage would do something that it would not do. Clear communication between the agent and the insureds might have prevented this lawsuit. Instead, they ended up in litigation.
