An agency’s breakdown in procedures resulted in a trucking company suffering an uninsured loss of more than $100,000.
The case involved an Ohio based national freight hauling and brokerage company that hired an Alabama trucking company to haul third parties’ goods. The contract between the two required the trucking company to hold the brokerage harmless and to obtain $100,000 liability insurance coverage against loss of or damage to any cargo. The policy was to name the brokerage as an additional insured.
The trucking company enlisted an insurance agency, which worked with a wholesale brokerage to obtain the motor truck cargo coverage.
The wholesaler issued a binder, a cover note, a premium invoice and a list of individuals to contact. The court’s opinion is unclear as to whether an actual policy was ever issued. However, the coverage apparently came with a condition: It applied to cargo only if it was in a vehicle listed in the policy. There would be no coverage if the insured did not inform the insurer of a new vehicle within 30 days.
In March 2013, the trucking company had an accident while transporting some construction equipment. The brokerage settled with the customer and paid $105,824.40 for the damaged equipment. They sought reimbursement from the trucking company, who submitted a claim to the insurance company.
The company denied coverage because the trucking company had replaced the vehicle on the schedule several months before. The trucking company notified its insurance agent at the time. The agency informed the automobile liability insurance carrier, but it failed to inform the wholesaler and the carrier providing the motor truck cargo coverage. Since the insured did not notify the carrier of the new vehicle within 30 days, there was no coverage.
The brokerage sued the trucking company and won a default judgment, including attorneys’ fees, interest and court costs, exceeding $113,000.
They followed this with supplemental complaints against the insurance company and the agent, demanding the proceeds of the policy and accusing the agency of negligence for not reporting the change in vehicles. They argued that the wholesale broker was the insurance company’s agent and the retail agent was the wholesaler’s agent. Therefore, when the agency learned of the vehicle change, that knowledge was imputed to both the wholesaler and the insurer.
The trial court disagreed, ruling for the insurance company. The brokerage appealed, and the appellate court decided that the brokerage had a case. The insured, they noted, asked their agent to bind coverage in the belief that doing so was the same as asking the insurer. The agent contacted the wholesaler, believing that contacting them was the same as contacting the insurer. Then the wholesaler contacted the insurer. Everyone in the chain thought the next party had authority. The court said that this at least implied the agency’s authority to accept vehicle changes.
A negotiated settlement of the judgment is expected.
This opinion leaves questions open. Why did the agent notify one carrier about the vehicle change but not the other? Were they unaware of the condition in the motor truck cargo policy? If so, why? It appears the insured did their part by notifying the agent. The contact list they received with the binder gave instructions for reporting claims but no name or phone number for reporting changes. Thus, the insured told the agent.
It appears that the agency did not have a settled procedure for knowing what the policy required or for notifying all involved carriers of exposure changes. Where there are no formalized procedures, mistakes happen. The result was a six-figure uninsured loss.