The agent’s lack of product knowledge resulted in an angry client and a lawsuit. Agents who want to avoid situations like this must become familiar with the terms of the policies they sell.
When an insurance policy’s terms differ from what an agent thinks they are, problems can ensue. Eventually, the agent may sell that policy to the wrong client.
An Alabama orthopaedic surgeon held an occupational disability insurance policy. It insured him in the event of a total disability if he was unable to perform his occupation, regardless of whether he was employed in another occupation or not. In 2006, his insurance agent, located in Indiana, suggested he increase the amount of his coverage and switch to another carrier. He recommended one particular policy as the best replacement. The surgeon accepted the advice.
The agent asked an Indiana brokerage to obtain an occupational disability policy from this carrier that insured the surgeon’s occupation in the event of a total disability as a surgeon, without the need for him to be gainfully employed. The brokerage obtained a policy from the carrier and told the agent that it “was an occupational disability coverage policy that insured (the surgeon’s) occupation in the event of a total disability (without the need to be insured in another occupation) and a residual disability.” The agent delivered it and told the surgeon that it “provided occupational disability coverage which insured (him) in the event he became totally disabled in his occupation (without the need to be gainfully employed).”
However, the policy did not specifically insure his occupation. It insured him only if he was:
“a. Prevented from performing the material and substantial duties of (his) Regular Occupation;
b. Not Gainfully Employed; and
c. Receiving appropriate care from a Physician who is appropriate to treat the condition causing the Impairment.”
It is unclear whether anyone – the brokerage, the agent or the insured – read the policy. Regardless, the surgeon bought it and renewed it for the next ten years.
In March 2017, the surgeon became disabled. In late summer, he attempted to return to work but found he was unable to perform some of his significant duties. By February 2018, his doctor had determined that he was permanently and totally disabled. He gave up his practice and found work for an orthopedic device manufacturer.
In the meantime, following the disability policy’s 90-day elimination period, the insurer began paying the policy’s $10,000 per month benefit to the surgeon. It stopped the payments after he returned to work in late summer, citing the policy’s requirement that he not be gainfully employed in order to receive benefits. However, he was no longer able to practice as a surgeon and expected his benefits to continue.
He sued in the federal trial court, charging the insurer with breach of contract and negligence and the agent and brokerage with negligence in obtaining the policy. Although he lived and practiced in Alabama, he asked the court to apply Indiana law, which was more favorable to his case. All of the defendants asked the court to dismiss the suit.
Ruling that Alabama law applied, the judge dismissed all of the negligence claims. Alabama law required the insured to have “knowledge of language in a policy received by that insured.” It also made “contributory negligence” on the part of the injured party a complete defense against a negligence claim. “Had (the surgeon) read the Policy when he received it,” the judge wrote, “he would have discovered that the Policy did not provide the occupational disability coverage that (the agent) represented it did.”
He also held that Alabama’s two-year statute of limitations began to run on the day the surgeon received the policy in 2006. The surgeon did not file the suit until June 2018.
The policy the agent obtained did not do what he thought it did. With better knowledge of the product, he might have recommended an alternative to the surgeon. At the least, he could have informed his client about the requirement that he not be gainfully employed. In addition, it appears that whoever he worked with at the brokerage also was unfamiliar with the policy’s terms. This set the stage for an underinsured loss.