Few situations are worse for an insurance agent than making a material error on a submission. But attempting to fix that mistake after a loss—before the carrier becomes aware—can be far more damaging. A New York agency learned this the hard way, resulting in a judgment exceeding $1.2 million.
The case involved a limited liability company that owned a building insured under a policy containing a protective safeguards endorsement (PSE), which required a functioning sprinkler system. In reality, no such system existed.
When the insured asked the agency to obtain replacement coverage, they provided only a copy of the existing policy. Rather than independently verifying the risk, the agency assumed the prior coverage was accurate. Based on that assumption, the agent submitted an application indicating the building had a sprinkler system. This resulted in a lower premium and inclusion of the same PSE in the new policy.
The carrier issued a proposal clearly warning that failure to maintain a sprinkler system could lead to denial of a claim. However, the agency forwarded the quote to the insured without including the critical forms or warning notices. The insured accepted the policy without reviewing it.
Months later, a fire severely damaged the building.
After the loss, a public adjuster identified the PSE issue and advised the agency to have it removed. On the same day as the fire—and with full knowledge of the loss—the agency contacted the carrier multiple times requesting removal of the endorsement retroactive to the policy’s inception. Unaware of the fire, the carrier processed the change.
Three days later, the carrier received notice of the loss. During the claims process, an agency principal falsely stated that he learned of the fire after requesting the endorsement removal. An investigation later revealed that the agency knew about the loss beforehand.
The carrier ultimately denied coverage and pursued legal action against the agency for breach of contract, citing failure to provide accurate underwriting information and failure to give timely notice of the loss.
The court ruled decisively in favor of the carrier, awarding $1,236,004 in damages. The judge noted that the litigation was a direct result of the agency persuading the carrier to remove the endorsement without disclosing the fire.
Key Failures That Led to the Judgment
The agency’s liability stemmed from several critical missteps:
- Failure to independently verify material underwriting information
- Incorrectly assuming prior coverage details were accurate
- Submitting inaccurate information about the presence of a sprinkler system
- Attempting to correct errors only after a known loss
- Misrepresenting facts to the carrier during the claims process
Takeaways for Insurance Professionals
This case highlights a fundamental principle: accuracy and transparency are non-negotiable in insurance underwriting and claims handling.
Agents must verify key risk details rather than rely on prior policies. When mistakes occur, the proper course is to address them openly—often in coordination with their errors and omissions (E&O) carrier—not to conceal or retroactively alter facts.
Efforts to “fix” an error after a loss, especially through omission or misrepresentation, can escalate a manageable mistake into a catastrophic financial and reputational event.
In this case, the original error was costly—but the attempted cover-up proved far worse.
