Some insurance coverages almost become afterthoughts. Either the premiums are small, claims are rare, or clients seldom request them. However, a coverage that generates one or two hundred dollars in premium can be essential when a loss occurs. If the client does not have that coverage, he may ask why his insurance agent did not get it for him.
A Delaware couple owned two businesses – a Christmas tree farm and a Christmas store. The farm was on property they leased from their daughter and son-in-law. The daughter and her husband also worked in the businesses during holiday seasons.
One summer day, the son-in-law gave a ride in his personal vehicle to an exterminator who was providing an estimate for spraying some trees on the farm. On the return trip, he drove into the path of a motorcycle. The rider was thrown into the air and suffered serious head injuries. He survived in a vegetative state and died six years later.
After years of litigation, all parties agreed to submit to arbitration. The sole issue for the arbitrator to decide was the appropriate amount of damages for the rider’s widow. She agreed not to attempt to collect damages in excess of available insurance coverage. She also agreed not to pursue damages from the owners, the in-laws or the businesses individually.They, in turn, assigned any rights of recovery they may have had to her. The arbitrator subsequently awarded damages to her. The amount was not publicly reported.
Unfortunately, the businesses’ auto or CGL policy did not include Hired and Non-Owned Auto endorsement. The record does not show the amount of uninsured damages. However:
· Hired and Non-Owned Auto Liability insurance is excess over the liability coverage for the vehicle’s owner. The judgment must have exhausted the son-in-law’s limits.
· The victim died after suffering for six years. The arbitrator likely awarded a very large amount of damages.
The business owners claimed that their insurance agent never offered the coverage to them. The widow then sued the insurance agency, the producer, and the insurer for negligently failing to provide the correct coverage for the businesses. The defendants moved to have the case dismissed, arguing that the agency met the legal standard of care for insurance agencies.
The widow’s insurance expert testified that it was customary for agents and brokers to automatically include Non-Owned Auto Coverage in insurance for commercial accounts. The agency’s expert maintained that an agent does not ordinarily have a duty to give advice. Rather, he said, the duty is to follow the insured’s instructions.
The court rejected the defendants’ request for dismissal. While it agreed that an insurance agent generally has no duty to advise a client, it said the rule does not apply when:
· The agent voluntarily assumes responsibility for selecting appropriate coverage for the insured, or
· The insured’s request for coverage is ambiguous.
The court said a jury must determine whether the agency met the standard of care. It noted the expert’s testimony that automatically providing Hired and Non-Owned Auto Liability Coverage is standard procedure. It pointed out that the agency had a 60-year relationship with the owners. Also, it found the owners’ instructions to the agent to be ambiguous – they allegedly told him “we needed liability.” Because of these disputes, a jury had to sort out the truth. A jury trial was scheduled for the spring of 2016, but the outcome was not reported in the media.
The failure to include in the policy a low-premium coverage that does not receive much attention proved costly. There are a few things the agent could have done to either prevent the lawsuit or get it tossed:
· He could have used a coverage checklist when interviewing the business owners, to remind him to discuss all relevant coverages. He could then have asked the owners to sign the checklist as evidence that they went through it.
· He could have added the coverage to the policy and given the insureds the option of having it removed if they wanted.
Sometimes, the absence of a seemingly minor coverage can create huge problems for agencies and their clients. As this case shows, attention to detail can make the difference between a pleased client and disaster.