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Agent Sued Over CGL Policy That Had Limitations

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Many state laws hold that an insurance agent has a legal duty to obtain the coverage the insured requests or to inform the insured of his inability to do so. An agent in Texas received a lesson in what can result from failure to meet these duties.

The insured was in the business of renovating residences to make them accessible for disabled and elderly individuals. In March 2015, he contacted a local independent agent about obtaining commercial general liability (CGL) insurance. The insured later recalled telling the agent that he "performs all types of work, including minor plumbing, installation of handrails and wall attachments, attaching faucets and toilets, tilting work in bathroom areas, and all other handyman type of work.” He told the agent that he needed a CGL policy that would cover all these types of work, and the agent promised to obtain one.

The agent submitted applications to a managing general agent, which in turn placed the coverage with one of the insurers it represented.

That year, the insured participated in a program that Amazon.com piloted to offer various services. The insured contracted to provide handyman services to customers who bought products from Amazon. Late in the year, a married couple purchased a faucet from Amazon, and Amazon hired the insured to install it. The installed faucet leaked and allegedly caused water damage to the family’s property. The record does not describe the damage, but it was likely to the flooring, the ceiling below (if there was one) and any property below that ceiling. The amount was probably thousands of dollars in damage.

They reported the leak to Amazon, which had the insured install a replacement. Amazon told the insured they would handle any issues with the owners. In March 2017, the family sued over the property damage. They served the insured with a notice of the suit a year later. The insured made a claim against his CGL policy, but the carrier refused to cover it. The insured’s policy covered him for carpentry work only, and this loss arose out of plumbing work.

In November 2018, the insured sued the carrier, the MGA, the retail agency and the agent in state court for violations of state law, breach of contract and negligence. The carrier argued that the Texas statute of limitations prevented the insured from recovering damages from the agencies. The court agreed.

Texas law sets the statute of limitations at two years for suits alleging negligence and violations of the law. The agent obtained the CGL policy and made misrepresentations about what it covered in March 2015, but the insured did not file the lawsuit until November 2018. The insured argued that the clock started running when the carrier denied coverage for the loss in March 2018. However, the judge said that the insured should have learned of the policy’s deficiencies after reading it in March 2015.

The insured further argued that, even if he had a duty to read the policy, his failure to do so did not absolve the agent of having obtained inadequate coverage. The judge disagreed. “The question here does not concern Mr. Mitchell's alleged wrongdoing. The issue is whether Plaintiff sought to hold Mr. Mitchell liable for his wrongdoing within the statutory period. Plaintiff did not.”

The agent won this case on a technicality. By the time the insured became aware that his policy did not provide the coverage he requested, it was too late for him to sue. Had Amazon not promised to handle the matter, and the customers had sued in 2016, the insured would have made the claim that year and gotten the denial that spurred this action. The insured requested coverage for several kinds of work, and the agent obtained coverage for only one type of work. But for the statute of limitations, the agent would have lost. He got away with his mistake.

An agent must know what is in the policy he is delivering. If it does not provide all of the requested coverage, he must inform the insured of that. Otherwise, he and his agency are at risk of legal action. The next time, the law might not be able to bail him out.

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