If an insurance agent completes an application for coverage on behalf of a client, and the client signs it, the agent probably believes any inaccuracies on the application are the client’s problem. Not so, at least for an agent in Michigan.
According to the state Court of Appeals’ opinion, Lawrence Holman bought a 2007 sport utility vehicle right after Christmas 2014. He called the Heinzman Agency to obtain insurance on the vehicle, and Mr. Heinzman wrote down information during the call. He later completed the insurance application based on the answers Holman gave him during the conversation. In particular, the answer was “no” to this question on the application: “Has the Applicant or a member of the Applicant’s household driven or moved any vehicle owned by the Applicant which has NOT had the required insurance in force for the preceding six months?”
The application also asked for the name and policy number of the applicant’s current insurer. A specific policy number was provided with an expiration date in January 2015. According to the opinion, the following events transpired:
- Heinzman faxed a temporary certificate of insurance to Holman and requested proof of his prior insurance.
- The same day, Holman faxed Heinzman a certificate of insurance from the named insurer, but with an expiration date in January 2013.
- Six days after the purchase, Heinzman reviewed the fax and informed Holman that proof of current insurance was needed.
- Holman replied that the 2013 certificate was the only evidence he had.
- The agent sent the application to the insurer without the proof of current insurance.
- More than three weeks later, the insurer wrote to Holman that it was rejecting his application as incomplete. Holman later claimed that he did not receive this letter before February 5, 2015.
- On February 5, Holman was involved in a car accident that caused him “extensive injuries.” The physicians who treated him placed him into a medically induced coma for several weeks. The physician and hospital bills were likely in the high six figures to seven figures.
Holman, who said he became aware of the insurer’s letter only after he regained consciousness, sought Personal Injury Protection (PIP) benefits from the insurer. At the time, Michigan state law required vehicle owners to purchase unlimited PIP coverage (it has since been amended to offer owners a choice.) The insurer denied payment on the grounds that it was not bound on his insurance.
Holman sued to force the insurer to pay, lost at the trial court level, and appealed. The Court of Appeals ruled that the insurer was within its rights to rescind the policy because of the misrepresentation on the application. He then sued the Heinzman Agency for allegedly completing the application in error.
The client and agent disagreed on exactly what happened and who provided the wrong information. Regardless, the trial court ruled in favor of the agent, and Heinzman appealed.
In August 2022, the Court of Appeals reversed the decision and ruled in Heinzman’s favor. They said that the prior decision about whether the insurer could void the policy did not prevent the client from suing the agency for negligence.They ruled that an agent who was, under Michigan law, an “order taker” had “a duty to do so accurately and not contribute false information to the application, whether purposefully or mistakenly.” While Heinzman bore responsibility for the inaccurate information, the prior decision did not prevent him from suing the agency for contributing to the situation.
The agency and the client will likely negotiate a settlement to this suit.
This agency probably should have refused to bind coverage until it had received all the necessary information. If they had stopped the process when Holman failed to produce evidence of current coverage, and clearly communicated that they could not help him until he did, they might have avoided this fight.
Insurance agents are in the business of selling insurance. It’s natural for them to expedite the sales process for a routine automobile purchase. However, that urgency to sell the policy can have unwelcome consequences. It is better to assemble all the required information before selling the policy than to sell a policy that will later be rescinded.