Every insurance agency has procedures, written or understood, for delivering policies to their clients. One particular agency was sued by a carrier when those procedures were not followed.
The insured was a home renovation contractor. Most of their work was interior, but they did occasionally work on roofs. In 2011, they agreed to work with a developer to renovate a home in Pittsburgh. Before the project commenced, they applied online for general liability insurance through an Illinois insurance agency. A producer contacted them, obtained coverage from a non-standard carrier (a risk retention group,) and helped them complete the applications.
The applications, which the insured said they later revised, did not mention the possibility that the work might include roofing. Also, the insured initialed a paragraph on the application stating that a roofing operations exclusion would apply. They also initialed one stating that false information on the application would cause the carrier to void the policy.
The carrier uploaded a digital copy of the policy to a “shared electronic database” to which the agency had access. The carrier also sent an automatically generated email to the agency, informing it that the policy was available for download and delivery to the insured. However, the agency did not deliver it to the insured.
The developer got quotes from other contractors for the roofing work on the Pittsburgh home, but they were expensive. The contractor and developer agreed that the contractor would tear off the old roof and another contractor would install the new one.
The developer hired a college student to help the contractor with the project. They were almost done removing the old shingles when the contractor asked the student to adjust a piece of plywood that was keeping debris from falling on a neighbor’s home. A scaffold was outside a second floor window, 20 feet above ground. The student stepped on to it, landing on a wood plank that the contractor had not anchored to the metal frame. The plank tipped and the student plunged head-first to the ground. He died a week later from brain injuries.
His family sued the developer and contractor, eventually settling with them for $3.5 million. The contractor’s insurance carrier provided defense under a reservation of rights. In the meantime, it sought a court declaration that it did not owe coverage to the contractor because of misrepresentations on the application and the roofing operations exclusion on the policy.
The contractor sued the carrier, claiming that he was not subject to the roofing operations exclusion because he never received the policy. The carrier countersued against the agent for submitting a false application and for not delivering the policy to the insured. The trial court ruled in favor of the contractor and agency, and the carrier appealed.
The three-judge appellate court upheld parts of the verdict but reversed others. They concluded that a jury must decide whether the carrier would have declined to offer coverage had it known about the potential roofing operations. They also held that, for purposes of delivering the policy, the agent was representing the carrier. Consequently, the agent’s failure to deliver the policy was also the carrier’s failure. They ruled that the policy was never delivered and the insured could not know its contents.
Finally, they held that a jury must determine whether the insured had adequate notice of the roofing operations exclusion because of the statement on the application about it. They sent the case back to the trial court for further proceedings. The record does not show the end result, which was likely settled out of court.
Inadvertent omissions on applications can happen; the agency might have avoided this by using a supplemental questionnaire. The failure to deliver the policy may have been the larger issue here. The court’s opinion states that the carrier normally delivered policies to the agency electronically. Why the agency did not obtain this one is an open question, but it points to a breakdown in procedures.
Written agency procedures that the staff regularly follow can help prevent problems like this. An insured has shakier grounds for a lawsuit if they have a copy of the policy and the agency has made them aware of the exclusions.