“… (A)n insurance agent may assume a greater duty to the insured when … `holding himself out‘ as having expertise in a given field of insurance being sought by the insured.’” So said a California court about a dispute involving a damaged shipment. When does an agent “hold himself out” as an expert, and what does that mean for potential errors and omissions liability?
The dispute surrounded a coverage placement that was performed very quickly under a deadline. A man purchased $37,000 worth of used computer equipment and arranged to have it shipped to a Texas location. The shipper’s website stated that, if he did not declare a value for the shipment, their liability for damage to it was limited to $100. However, if he paid an additional charge and declared a value, they would be liable for up to $50,000. When he inquired about this, the shipper suggested that he not declare a value and instead contact their subsidiary, an insurance brokerage.
He asked the brokerage to obtain $37,000 coverage on his used computer equipment, to be shipped from California to Texas that same day, and paid a $350 premium. That day, an insurer issued a marine certificate of insurance as evidence of coverage.
The equipment was shrink-wrapped and placed on a cart with wheels. However, it was damaged at some point in transit. The owner filed an insurance claim for $36,666.85. After inspecting the damage, the insurer denied coverage because the policy he had purchased did not cover the damage. He subsequently learned that it covered only catastrophic losses such as destruction of the vehicle transporting the goods, but not losses caused by mishandling during shipping.
As the court wrote in its opinion, “The crucial provision explaining coverage is contained in a single, lengthy, 95-word sentence.” This sentence said the coverage was “Warranted free from Particular Average (FPA) unless the vessel or craft be stranded, sunk or burnt …” with several exceptions including fire, collision with a substance other than water, non-delivery and theft.
The insured sued the brokerage for “failing to fully explain the FPA provision in the [Certificate], not disclosing other available insurance products to Murray[,] and not giving Murray the opportunity to purchase insurance that would cover loss or damage caused by factors other than a catastrophic loss.” The brokerage asked the trial court to rule in its favor based on the law, and the court did so. The insured appealed.
The three-judge appellate court panel ruled for the insured, saying that the brokerage had held itself out to be an expert in this type of insurance. They offered only one policy to one-time shippers. The policy specifically covered domestic inland shipments by truck. The brokerage was a subsidiary of a shipping company. It acted as an agent for only one insurer. Lastly, the brokerage selected for the insured a policy that “was anything but understandable, especially to a one-time customer unfamiliar with marine transport insurance.” The judges rejected the brokerage’s argument that the insured should have asked about what he did not understand.
The average person does not know what “free from Particular Average” means. The brokerage should not have assumed that their client, particularly one who did not frequently ship goods, understood the phrase. Had the insured known the limitations, he likely would have sought alternate coverage. Instead, he relied on a firm that at least implied that they were experts. The lesson is clear: Insurance agents and brokers should not assume that clients understand a policy’s terms, and they should take care as to how they portray themselves.