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Court Lets Carrier Off the Hook Leaving the Agency to Defend Itself

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An insurance agent should never assume that a client understands coverage details. Even if they’ve discussed it, the agent cannot be sure that he has communicated the important facts unless he puts them in writing. People remember discussions in different ways, especially when there is a disputed claim.  

A Connecticut agency specialized in the retail, hardware, lumber, and building materials industry. It had insured a lumber and hardware wholesaler and retailer  that had multiple locations. In 2009, a competing agency took over the account.

Four years later, the original agency’s producer asked the client about quoting its renewal coverage with a different carrier. The client consented, indicating he would switch only for significant premium savings. In turn, the producer emphasized his agency’s relationship with this specific carrier.

The carrier developed a proposal based on the client’s expiring policies and loss runs. The agent and client met briefly to discuss the proposal but later disagreed about the conversation.

The expiring policies provided blanket coverage for the buildings, personal property and equipment. The agent claimed he told the client the new policy “does not blanket coverage the same way” that the expiring policy did. Actually, it would not provide blanket coverage. The client, having told the agent he wanted price savings on an “apples-to-apples” basis, left the meeting thinking he had blanket building coverage.

After coverage was bound and the policies ordered, the producer asked agency staff for a Statement of Values for the client to sign for blanket coverage. However, that statement was never obtained or forwarded to the carrier.

More than a year later and after the first renewal, a fire destroyed retail and storage buildings, personal property and equipment at one of the client’s locations. The court opinion does not state how much the insurance carrier paid for the loss, but the client alleged that coverage on all of the covered property was inadequate, probably because individual limits applied instead of blanket limits. Also, the business income and extra expense coverage they expected was missing entirely. The shortfall may have approached seven figures.

The client sued the carrier and the agency for negligence, misrepresentation of policy terms, breach of fiduciary duty and violation of the state’s unfair trade practices law. The carrier and agency asked the court for summary judgment, meaning that the case should be dismissed as a matter of law because the facts were not in dispute.

The court found no case against the carrier, but the agency did not fare so well. While the court agreed that the agency had not violated the unfair trade practices law, it did rule that there were questions about the agency’s interactions with the insured.

While the producer claimed he provided the apples-to-apples quote the client requested, he admitted that he did not specifically explain to them that there was no business income coverage for two locations. He also said he never asked the client about the personal property values at those locations or what the occupancies were at any of the buildings.     

The court ruled that it was unclear whether the agency exercised the “reasonable care” required of it under state law. It also said there was doubt as to whether the agency misled the client about blanket building coverage. Because these questions were in dispute, the court also refused to dismiss the claim that the agency owed the client a fiduciary duty.

This case will either go to trial or the parties will settle out of court. The judge rendered this decision in late August 2018, and there were no updates as of this writing.

This agent mistakenly offered a quote based solely on the coverages in the expiring policies. He did not investigate building occupancies or explore potential coverage gaps, such as the lack of business income coverage on two locations.

He also relied on verbal communication about the lack of blanket coverage. Insureds have a general duty to read their policies, but the insured was clearly concerned about blanket coverage. The agent should have communicated its absence in writing.

Written communications about coverage differences and suggestions of additional coverage give agencies a defense against errors and omissions claims. Agents should consistently do both.

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