There is a human tendency to draw broad conclusions based on an individual’s sole experience. When those conclusions prove to be incorrect, and an insurance client has relied on them, trouble can follow.
A Mississippi man planned to build a home in a beach community. He contacted a local insurance agent to obtain $400,000 in builders risk coverage for the construction and homeowners coverage upon completion. The agent obtained a quote for that amount from a surplus lines carrier, but the insured did not accept it because construction was not ready to begin.
A year later, with construction ready to start, the insured contacted the agent again. This time the agent obtained two additional quotes – one from Lloyd’s of London, and one from the Mississippi Residential Property Insurance Underwriting Association (MRPIUA), the state’s plan for insuring homes the voluntary insurers will not cover. There are two versions of what transpired next.
According to the insured, the agent told him that his only option was the MRPIUA policy. The maximum limit of property insurance MRPIUA would offer was $200,000. The insured testified in writing that the agent told him that no other carriers would insure properties on the beach. He also stated that the agent told him the surplus lines carrier that provided the earlier quote had rescinded it due to the beach location.
The agent remembered things differently, testifying that he presented all three quotes to the insured, including the original $400,000 quote. In his telling, the insured chose the MRPIUA policy over the one with the higher limit.
Halfway through the policy term and with the home in mid-construction, an arsonist burned it to the ground. MRPIUA paid its $200,000 limit, but that amount was insufficient for the cost of rebuilding. The insured later found out policies were available that would have covered the loss in full.
The insured subsequently sued the agent. He charged that the agent was negligent in not advising him of the other options for coverage. He also accused the agent of negligently misrepresenting the state of the market when he claimed that only MRPIUA would offer coverage. The agent moved for a ruling that the facts were undisputed and under the law the agent was not liable. The trial court agreed with the agent; the insured appealed.
The appellate court rejected the agent’s claim that his statement about MRPIUA being the only available market was an “opinion,” not advice. They found that his statement led the insured to purchase the MRPIUA policy. This constituted advice, and the agent had a duty to exercise reasonable care in providing it.
The agent also argued that his statement had to be an opinion because he had not exhausted “each and every possible insurance option.” The court responded, “This cannot be the standard. … (W)e can definitively say that the standard does not require the speaker’s certainty that the statement made is true.”
The agent’s sweeping statement about the state of the market was his undoing. It would have been accurate for him to tell the insured that none of the markets he checked would provide full coverage. Instead, the insured heard the message that no one would provide full coverage. It was only when the insured learned this wasn’t so that he filed suit.
More than one agent who has struck out on finding a market has told an insured that there’s nothing out there. Agents should make such statements cautiously. They know their own markets, but they can’t possibly speak to all of them. An overstatement can earn an agent a lawsuit.
