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Carrier Sues Both Agency & Their Agency Network



Insurance carriers rely on the information their agents give them about the risks they consider. Agents must be familiar with a carrier’s underwriting guidelines and strive to submit risks that fit. If an agent provides inaccurate information on a risk submission, and the carrier later pays a small or moderately large claim, the agent may earn the carrier’s displeasure. If the carrier ends up paying a large claim, it may decide to sue the agent.


A Pennsylvania agency was a member of a network of 300 agencies. Among the carriers the network represented was one that provided Workers’ Compensation insurance for construction contractors. In 2015, the agency sent this carrier a submission for a roofing contractor.


The carrier’s underwriting guidelines said that it would not insure risks with operations more than 15 feet above ground. The application the agency completed stated that the insured met this requirement. Based on the application, the carrier issued a policy in July. At some undetermined date, the carrier also performed a worksite inspection of the insured’s operations.


In September, one of the insured’s employees fell from a roof 25 feet off the ground. The resulting claim for Workers’ Compensation benefits exceeded $1 million. Two months later, the carrier sued to have its policy rescinded because the insured allegedly made misrepresentations on the application. Over the next three years, the carrier lost its case in both trial and appellate courts.


In the summer of 2019, the carrier sued both the agency network and the agency for either negligently or intentionally misrepresenting the insured’s operations on the application. The agency asked the court to dismiss the suit.


In a February 2020 decision, the judge declined to do so. He ruled that the agency had a duty to the carrier to use reasonable care in completing applications, and that the carrier was justified in relying on the information provided. Although the agent provided evidence that the carrier had performed the worksite inspection, the judge held that it would be “improper” to consider it, as the carrier’s complaint did not refer to it or base its claims on it.


The judge also rejected the agency’s argument that the carrier was bound by its unsuccessful attempt to rescind the policy and was barred from pursuing other remedies. He permitted the case to move forward for trial. There is no further record at this time; the parties may be negotiating a settlement.


The court’s opinion does not explain why the agency stated on the application that the insured did not work above 15 feet. It seems unlikely that a roofing contractor, if offered a profitable job that involved work at two stories or higher, would pass it up. The agency even produced to the court a brochure created by the insured as evidence that the carrier should have known about the nature of the operations. As with the inspection, the judge refused to consider the brochure.


Either the agency knew the insured worked above 15 feet and gambled that they could get away with it, or they did not verify the insured’s statements to the contrary. Either way, their relationship with the carrier is permanently damaged. Their continued membership in the network may also be at risk. Networks can and do revoke the memberships of agencies they deem untrustworthy.


It is a cliche, but true, that an agency is the carrier’s eyes and ears. While the carrier is the final underwriter of an account, it will rely on the information an agent provides. If that information is inaccurate, chances are that it will come back to haunt the insured and the agent.

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