An insurance agent is the intermediary between the carrier and the client. That puts the agent in a tricky position; she passes information from the client to the carrier and vice versa. That information has to be accurate. Otherwise, problems arise and the agent has to depend on either a good defense or good fortune.
For most of its history, a Utah-based trucking company obtained its insurance from one agency. On one renewal, the agency obtained a commercial automobile policy from one particular carrier. The policy covered only “specifically described autos” for Liability Coverage. According to the published record, “(The insured) intended to have all of its vehicles covered by the policy.” The carrier scheduled the autos on the policy in accordance with a list the agent provided.
Thirteen months later, the insured sold or leased most of its assets to another trucking company, including the lease of 93 trailers. The lease included a requirement that the second trucking company indemnify the owner “from and against all claims, liability, or expenses (including attorney fees) relating to the trailers.” The first company decided to keep insurance on the trailers in force.
Later that month, one of the leased trailers was involved in a fatal accident. The victim’s family filed wrongful death lawsuits against both trucking companies. The first trucking company submitted a claim to its insurance carrier. However, the trailer involved in the accident was not one of the autos scheduled on the policy. It had been on the list the insured provided to the agent, but it was not on the policy.
The carrier denied coverage. The insured paid $93,000 for its own defense against the wrongful death suit. The suit settled for $1.1 million, though a court later reduced that to an undisclosed amount. Regardless, the insured was out of business by then; its only assets were potential claims against third parties.
In the settlement, the insured assigned its rights to any claims against the other trucking company (except for attorneys’ fees) to the victim’s family. It also agreed to pursue claims against its carrier and agent. Its attorney fees for the suits against the carrier and agent were to be paid for first out of any recovery it received. The settlement amount would be paid after that with the balance going to the insured. In exchange, the family agreed not to sue the insured’s owners.
The insured received $90,000 from the second trucking company under the indemnity agreement, but it paid nothing toward the settlement with the family. Its attorney admitted in court that the insured would never pay the settlement as it had no assets other than third-party claims. He also said that the insured would not pursue the balance of the attorneys’ fees.
The carrier and agent moved for verdicts in their favor based on the law. The trial court ruled that, since the insured was not obligated to pay anything, neither was the agent. The insured appealed.
The appellate court sided with the agent, finding that the insured had not suffered any damages. “If (the insured) does not recover against (the agent or carrier) based on the settlement agreement and consent judgment, (it) will not suffer any actual injury because it will never have any assets to pay the (family.) … We decline to conclude that a party has suffered an actual injury if their injury would only exist if they were successful in the lawsuit to recover for that injury.”
This agent got lucky. Its insured went out of business and could not suffer a loss because it had no assets to lose. What if the insured had stayed in business? The record does not explain why the trailer in question was left off the policy. The agent would have been looking at a significant errors and omissions claim if the insured was still operating. Did the agent have documentation to explain leaving that trailer off the schedule? If not, defending the claim would have been difficult.
It is essential that all information an agent passes between the insured and carrier be accurate and documented. Agents should document all communications. It can rescue an agent from a predicament like this one.