Your client has a major coverage gap. You think you’ve told them that. You’ve delivered a policy and two renewals containing the coverage gap. Does the client really know and understand the situation? As a Minnesota agent found out, the answer may be no. Worse, the agent may have contributed to the confusion.
The client was an industrial cleaning service that owned a fleet of vehicles. Starting in 2009, the agent obtained liability insurance for them, including commercial general liability and automobile liability coverage. The policy provided a $1 million limit of liability.
In late 2010/early 2011, the client’s president met with the agent to discuss buying more coverage. The company was growing, and some new customers were insisting that the service carry higher liability insurance limits. Notably, he said that he was concerned about the coverage he would need for “a bad situation” involving the company’s vehicles. His concern, he said, “was about ‘three people dying and having the company exposed.’” He told the agent to obtain a $10 million umbrella policy. The president later claimed the agent told him the company would be “bubble wrapped” with such a policy. The agent denied saying that.
The agent emailed the insurer that was providing the liability coverage, saying the client wanted to explore increasing their limits for up to $6 million. He also asked what the premium would be for a $10 million umbrella. The insurer was willing to offer a quote, but only under a harsh condition. Loss experience for the auto liability coverage was poor, and the insurer did not want to increase its exposure. The insurer insisted that the underlying auto coverage be replaced before it would offer the umbrella.
The insurer sent a notice to the client before the underlying policy’s expiration that the renewal would not include auto liability coverage. The agent replaced the auto liability coverage with another carrier, though for a limit of only $500,000. Discussions about an umbrella policy resumed, with the incumbent insurer willing to offer it only with an automobile liability exclusion attached. The agent later claimed that he told his contact at the client this and that she informed the company president. Both individuals subsequently denied that this happened.
The incumbent insurer issued the umbrella in April 2011 with a $10 million limit and three auto liability exclusions. An office manager for the client signed a renewal application in December that acknowledged the exclusions. The insurer issued renewal policies containing the exclusions in 2012 and 2013. However, during this time the agency “issued multiple certificates of liability insurance to PPS, many of which mistakenly indicated that PPS had $1 million in automobile coverage and indicated that there was a $10 million umbrella policy.” Worse, the certificates did not mention the exclusions.
In 2013, a company vehicle was involved in an accident that fatally injured the other driver. The insured settled the ensuing wrongful death suit for $1.7 million, with the underlying auto insurer paying $481,382. The umbrella carrier denied coverage based on the exclusions. The insureds claimed that this was the first time they learned of them.
Lawsuits against the insurer and agent ensued. The client lost in the trial court and appealed. The appellate court awarded summary judgment in the insurer’s favor, but not so for the agent. “If Sampson did receive directions to ‘put in place’ an umbrella policy that extended to coverage of automobile-related liability,” the judge wrote, “and if Sampson knew the policy he obtained a quote for did not provide that coverage, then there is a basis for finding that he failed to follow PPS’s instructions.” The suit was sent back to the trial court for a jury proceeding.
This agent made at least two mistakes. One, it appears that he never communicated in writing to the client about the auto liability exclusions in the umbrella policy. Two, his office issued certificates of insurance that sent a conflicting message. Certificates are errors and omissions hand grenades waiting to explode, and the agency helped pull the pin.
Documented and accurate communications with clients help agents win E&O lawsuits. Anything short of that, as this case shows, will leave them vulnerable.