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Agency Sued for 100k Liability Underinsurance

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Certain commercial lines classes of business are prone to severe losses. These risks need substantial insurance limits in order to protect themselves and the public. Indeed, some of them are required by law or local ordinances to carry high minimum limits. Insurance agencies who write risks in these classes must know what is required. If they do not, serious trouble may ensue.

In 2004, an insurance agency in Virginia placed automobile liability insurance for a trucking company that operated in multiple states. The company later said that it selected this agency in part because it claimed to be experienced in insuring truckers.

The federal Motor Carrier Act of 1980 requires for-hire vehicles with a gross vehicle weight rating of 10,000 or more pounds and hauling non-hazardous property to carry liability insurance with a limit of at least $750,000 per accident. Regulations issued by the Federal Motor Carrier Safety Administration also require a policy insuring such a vehicle to include Form MCS-90, Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980.

The policy the agency obtained for the trucking company did not meet either of these requirements. It lacked the MCS-90 endorsement and provided an automobile liability limit of only $100,000 per accident.

On August 2, 2005, one of the company’s drivers caused an accident while he was operating a company truck. Two women who suffered severe injuries in the accident successfully sued the company. One was awarded $2,450,000; the other, $275,000. The insurer offered only the policy limit of $100,000 and refused to pay the additional $650,000 required by the federal law. A separate lawsuit ended with trial and appellate courts siding with the insurer.

The trucking company assigned its rights to sue the insurance agency to the two women. In November 2017, they sued the agency for failure to provide proper guidance and failure to obtain proper coverage for the company, alleging breach of contract and professional negligence. The agency moved to have the complaints dismissed on the grounds that the time permitted under Virginia’s statute of limitations for filing suit had passed.

Both parties agreed that the limitations period was at most five years but disagreed over when that five-year period began. The agency claimed it began in 2004, when the policy was issued. It also argued that, even if the period began later on (the date of the accident or the 2009 date the court ruled that the insurer’s liability was limited to $100,000), the women’s lawsuit was still filed too late.

The women argued that they could not file suit until they suffered economic injuries, and that was not until they were awarded damages against the trucking company. The court awarded their damages less than a year before they sued the agency.

The judge agreed with the agency. He cited several prior Virginia court decisions holding that “an action for failure to procure insurance accrues when a breach of the duty to procure insurance occurs, such as when a defective policy is placed, not when a payout under the intended policy would have vested.” Consequently, he ruled that “the duty to procure insurance was breached and the first injury occurred when the legally insufficient policy was placed by Defendants. On that date, this action accrued ...  and the statutes of limitations began to run then.”

The agency was very fortunate to receive this interpretation of the statute of limitations. They were apparently ignorant of the laws governing a class of business with which they claimed to have experience. Further, they obtained a limit of liability ($100,000) that most insurance professionals would find unreasonably low for a risk with a significant exposure to large losses. Any agency seeking to write a high-hazard class of business should insist on the insured purchasing high limits as a condition of obtaining the policy. It is also essential that the agency know the insurance requirements applied by law to the insured.

This agency won its case on a technicality. Other agencies may not be so lucky. Obtaining adequate insurance limits will help keep agencies out of situations like this.

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