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Agency Defeated in Court after it Omitted UIM on an Umbrella Policy



An insurance buyer who thinks his policy should cover a particular event can be unhappy when he finds out it doesn't. A policyholder who learns that his policy does not provide a coverage he specifically requested? He will get a lawyer. That's what happened with a former police officer in Minnesota and his insurance agent. It was the case of the missing million dollar uninsured motorists coverage. It did not end well for the agent.

According to the police officer, the agent advised him to buy an auto insurance policy that included uninsured/underinsured motorists coverage with a limit of $100,000. He also recommended a personal umbrella policy that would provide an additional $1,000,000 in UIM coverage. The officer took the advice and bought both policies.

According to the Minnesota Supreme Court's opinion, the agent made "representations" that led his client to believe that the umbrella policy provided the $1,000,000 UIM coverage. The truth was that the agent did not ask the insurer to add the endorsement to provide the coverage.

Six months after their initial meeting, the officer injured his back in a car accident. He required three surgeries and physical therapy. Unfortunately, the driver responsible for injuring him did not carry insurance limits sufficient to cover the cost of the treatments. To make matters worse, the officer was permanently restricted from lifting more than 25 to 30 pounds. The restrictions on his ability to lift ended his career.

Sometime after his second surgery, he found out that his umbrella policy did not provide the $1,000,000 UIM coverage that he expected. He sued the insurer for breach of contract and the agent for negligent procurement of insurance coverage. He eventually settled with the insurer for $100,000, with the stipulation that the settlement would have no effect on his claims against the agent. The agent unsuccessfully attempted to have the suit thrown out because of the settlement with the insurer. The case went to trial.

The jury awarded the officer damages of $753,000. It apportioned responsibility 10 percent to the insurer and 90 percent to the agent. The judge reduced the award by $200,260 to offset amounts the plaintiff received from the underinsured motorist and from two Workers' Compensation settlements. The reduction did not include amounts he had to pay attorneys to obtain the Workers' Compensation awards.

The agent appealed. The appellate court also rejected the argument that the plaintiff's release of the insurer released the agent. It also held that the insurer had no obligation to hold the agent harmless. Lastly, it upheld the calculation of the award reduction. The agent appealed to the Minnesota Supreme Court.

A divided Supreme Court agreed with the other courts' conclusions. The majority noted that the plaintiff brought separate claims against the insurer (breach of contract) and agent (negligence). Since the claims were distinct and separate, the court said that a release of one claim did not by itself affect the pursuit of the other.

The agent also argued that, since the plaintiff had agreed to hold the insurer harmless against further claims, and the agent believed that the insurer must hold it harmless, that the release prevented the plaintiff's claim against it. Otherwise, the plaintiff would be holding the insurer harmless from his own claim. The court, however, found that the contract between the agent and insurer did not require the insurer to hold the agent harmless. The court also upheld the offset calculation, saying that the exclusion of attorney fees was appropriate.


This mistake cost the agent almost $500,000. The record does not show why the agent did not request the UIM endorsement to the umbrella policy. Whether it was an oversight in completing the application for insurance, a clerical mistake, or some other reason, the result was difficult for the agent to swallow. The lesson here is that agents must take great care with the promises they make and in their transactions with insurers. Standard agency procedures that all are expected to follow reduce the chances that these kinds of mistakes will occur. They may not eliminate all errors, but they will make it less likely that an agency will be on the hook for a half million dollars.



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