What could go wrong if an insurance agent tells a client things like “you have full coverage” or “you’re covered from A to Z”? There’s an agent in Texas who knows the answer to that question.
His client was purchasing a Glassair III airplane and was having it shipped from Bristol, Tennessee to League City, Texas. The client asked him to obtain motor truck cargo insurance on the aircraft while it was in transit. The client testified that he requested coverage for all foreseeable loss to the aircraft, beginning when it was being loaded until the time it was unloaded off the truck. He described the coverage he wanted by giving examples, asking things like whether the aircraft would be covered “from A to Z. from loading to unloading; … if (it) fell of the trailer; … if (it) fell off forklift when loading or unloading; … (if) the ties broke; …” and so on.
The agent submitted the risk to a wholesale brokerage, which obtained a policy from a specialty insurance company. The broker later testified that she had “never seen a truck cargo or trip transit policy that provided coverage from ‘A to Z,’ i.e., with no conditions, limitations, or exclusions.” However, she believed she provided an appropriate policy.
Faced with the client’s questions about the coverage, the agent asked the broker what the policy covered. She replied that it covered the aircraft from loading to unloading. According to the court opinion:
“(The agent) then relayed to appellant, ‘This policy covers from loading through unloading’ even though he never read the policy. (Agent) did not advise appellant that he had not read the policy or that coverage was subject to its terms and conditions.”
While the client testified that he did not receive the policy until later, he was provided with a document before coverage took effect showing that the policy contained an exclusion for improper packing, preparation for shipment or loading.” Still, the agent told him that “the insurance coverage was ‘from A to Z,’ ‘100 percent,’ and ‘full coverage.’”
Upon taking delivery of the aircraft in League City, the client found that the fuselage had been damaged in transit. Its tail had not been properly supported, allowing it to rock up and down during the trip and collide with the tie straps. The court’s opinion did not state the amount of the damage, but a Google search shows a 1998 Glassair III listed for sale for $270,000. This was probably a sizable loss.
The insurer cited the improper preparation for shipment exclusion and denied coverage. The agent told the client, “if I screwed up, it’s — it’s the insurance agency’s fault … we have insurance to cover my screw-ups.”
The client sued the agency, the wholesaler and the insurer. The trial court ruled against him, and he appealed only the decision in favor of the agency. The appellate court reversed the decision, saying that the assurances the agent made were more than “vague representations.” It also ruled that, since the client was claiming the agent violated Texas insurance and deceptive trade practices law, the agent could not use the client’s failure to read the policy as a defense.
The agent never read the policy he sold but made broad promises about what it said. The client said he might not have bought the plane had he known about the coverage limitations. Facing a denied claim, he then volunteered his agency’s errors and omissions liability insurance as a replacement for the insured’s coverage. Agents must know what they are selling and give their clients realistic expectations.