An insurance carrier issued a property insurance policy with a significant difference from what the applications requested. The insurance agency missed that difference, failed to tell the insured, and ended up with a $4.6 million lawsuit.
The insured was a family-owned manufacturer of industrial tools based in Pennsylvania. Since 1994, it had owned a location in South Dakota where it made specialized tools and equipment for aerospace and automotive industry customers. By the mid-2010s, it had its commercial property insurance through an agency that obtained coverage from a specific carrier.
In 2017, the family member responsible for obtaining the insurance, while apparently happy with the carrier, wanted to change agents. He contacted another agency that represented the carrier. The new agency reportedly “spent several months” reviewing the existing coverages and facilities to develop recommendations.
In June, the agency presented an “initial proposal” for coverage with the same carrier. Among other features, the proposal included blanket coverage for the company’s buildings and business personal property (BPP,) including Agreed Value Coverage, with a BPP limit of $7.175 million. Agreed Value suspends the policy’s coinsurance condition where the insured has purchased a limit at least equal to the Agreed Value shown in the declarations. The agency used a statement of values provided by the company to arrive at this limit.
However, after the agency delivered the initial proposal, the carrier informed it that blanket Agreed Value Coverage was available for the buildings only and not the BPP. Two subsequent quotes from the carrier confirmed that it was not offering blanket Agreed Value on the BPP. “(The agency) failed to point out this change … to (the insured), and also kept the agreed value blanket coverage in a Revised Proposal it submitted to (the insured) on July 10, 2017,” the trial court wrote.
In late July, the agency submitted applications to the carrier, again requesting blanket Agreed Value Coverage on the BPP. The carrier issued a three-year policy without the requested blanket Agreed Value. The agency did not catch this discrepancy, nor did the insured.
Although the policy would not expire until 2020, the agency submitted what it called a new proposal in June 2018. This proposal appears to have been more a coverage summary than a proposal. The agency was still unaware that the policy did not provide blanket Agreed Value on the BPP, so the proposal did not mention that.
In November 2018, a fire destroyed the South Dakota facility’s BPP. A public adjuster estimated the value of the loss at $6.5 million. The insured submitted a claim, expecting the $7.175 million limit to more than cover the loss. However, the carrier applied the coinsurance condition, found the BPP to be severely underinsured, and paid only $1.9 million.
The insured sued the carrier and the agency for the $4.6 million difference in May 2020 and later settled with the carrier. In June 2024, a jury found the agency liable for the loss and awarded the insured $4.6 million. The agency appealed, but in April 2025 the appellate court upheld the verdict. Referring to the agency as an “insurance broker,” the court said, “… (A)n insurance broker has a duty to affirmatively notify an insured that the policy issued by the insurer does not contain the same coverage provisions that were requested by the insured. … (N)o two reasonable minds could disagree that (the agency) breached its duty to advise (the insured) that the coverage provisions of its policy differed from those it requested …”
The carrier told the agency three times – in two quotes and in the issued policy – that it was not providing Agreed Value on the BPP. The agency apparently missed it all three times. Had the agency caught the discrepancy, it could have alerted the insured to get its BPP appraised to avoid a coinsurance penalty. Because the policy was not checked against the applications, this detail was missed. The agency owes a multi-million dollar damage award as a result.
