Agent Sued Over Uninsured Loss After Leaving the Insurance Business
- February 17, 2020
Insurance agents, being human, are always vulnerable to potential claims against them for errors and omissions during their active careers. Do they still face the possibility of lawsuits even after their insurance days are over? One former agent in California found out that the answer is an emphatic “yes.”
The agent was contracted with a captive carrier, but she also had a brokerage agreement with a wholesaler to place business that her carrier would not write. After about a year in the insurance business, she went to work as a loan processor for a financial services company while also staying active as an insurance agent.
In June of that year, she met with a potential client in the financial services company’s office. The man believed he was paying too much for homeowners insurance and wanted “something cheaper.” Over subsequent conversations, she presented him with quotes for three replacement policies. Two of them provided personal liability coverage limits of at least $200,000. She explained to him how the premiums and coverages differed from his current policy. For him, the choice was simple: The court opinion quotes him as saying, “go with the cheapest one.”
She also asked if he would like to purchase a personal umbrella policy with a $1,000,000 limit “to make up for any areas lacking.” He rejected the suggestion. She submitted an application to the broker, who obtained coverage through another broker. The homeowners policy took effect in July. She never had contact with the insured again. Two months after she obtained the coverage, she left the insurance industry; she left the financial services company the following year.
The policy was cancelled after the first renewal, and the insured worked with the broker to have it reinstated. However, the broker sent him a non-renewal notice the following spring because the carrier had discontinued its program. The broker included an offer of replacement coverage through another carrier with the notice. When the insured failed to send a premium payment by the time his policy expired, his coverage lapsed.
In September, a guest at the insured’s home fell off his deck onto the concrete and ground below. She sued him two years later. He submitted the claim to what he thought was his homeowners insurer. The carrier, of course, denied coverage because its policy expired two months before the accident. A court awarded a judgment in favor of the injured guest, and the insured assigned his claims against the carrier and agent to her.
The claimant then sued the former insurance agent for allegedly failing to obtain proper coverage, failing to advise the insured about issues occurring after he bought the policy, and not informing him that she was leaving the insurance business. The agent asked the court to dismiss the suit as not supported by the law. The trial court agreed, and the claimant appealed.
The appellate judge ruled in the agent’s favor. He found that she had no duty to advise the insured of the pending non-renewal, nor did she owe them an announcement that she was leaving the business. He also ruled that she met her obligation to obtain the coverage the insured requested (e.g., the cheapest policy.) Accordingly, he upheld the trial court’s dismissal of the claim.
This appears to have been a case where a price-focused client found himself uninsured when a loss occurred and looked for someone to blame. Fortunately, the agent did what she should have; she offered alternative quotes, placed coverage based on the insured’s instructions, and offered him more coverage than he requested. It was not her fault that he rejected her offers.
Most state laws require carriers to notify insureds of cancellation and non-renewal, not agents. The court correctly determined that she had no obligation to echo the carrier’s non-renewal notice or to tell the insured about a career change. The insured’s arguments were weak; the agent should have won.
The opinion said that the agent “established” that she had offered these alternate quotes. That implies that her records backed up that version of events. This is another example where good documentation protected an agent from a lawsuit - even after she was no longer an agent.