Good insurance agents want to learn new coverages and markets. However, the agent might not fully understand the risk they’re trying to insure. An uninsured loss may result and the insured might try to blame the agent.
GDL was an Arizona-based shipping company that had a contract with Intel, the giant computer processor manufacturer. They asked their long-time insurance agency to obtain “appropriate insurance to protect from losses GDL might suffer under its contract with Intel.” GDL paid the agency a fee for its services in lieu of commission.
The Agency was an agent of Farmers Insurance, but Farmers did not offer coverage that met the insured’s needs. The agency then contracted with a wholesale broker. After email conversations about appropriate coverage including “trade show commodities and capital equipment,” the wholesaler obtained a Lloyd’s of London policy through another brokerage. That policy took effect in December 2017.
The following summer, a GDL representative asked the agency whether the policy insured “electronics … including capital equipment …” The response: “Yes and yes!” (The exclamation mark was in the original.)
The policy was renewed the following year. During the 2018-19 policy term, GDL suffered two losses to capital equipment that involved shipments for Intel. The court’s decision did not describe the nature or amounts of the losses. Of note, the parties involved labeled them the “Seattle and Israel claims,” indicating that these were international shipments. Because the shipments were described as “capital equipment,” it is likely that the lost property was worth well into six figures.
The Lloyd’s broker, who appears to have been acting as a managing general agent, denied coverage for both claims because the shipments were not “Trade Show Equipment.”
Both the 2017 and 2018 policies insured:
- “Trade Show Equipment for Intel Only (but excluding absolutely any Electronics including Laptops/Tablets/Cellphones/Hazardous Batteries)”, and
- “[o]ther shipments. . . at rates and conditions to be agreed.”
That second coverage category was a reporting arrangement. The insured reported covered shipments to the agency, who forwarded the reports to the wholesaler. The wholesaler calculated a premium based on the report, sent an invoice to the agency, who billed the insured. The insured would pay the agency, who would forward payment to the wholesaler.
Following the claim denial, the insured sued the agency and the wholesaler for negligence and breach of contract, among other charges. The agency and the wholesaler argued that the facts were not in dispute and the court should rule in their favor based on the law.
On October 26, 2022, the judge ruled in the agency’s and wholesaler’s favor on all claims except one. The record showed that the insured was assessed premium charges for some shipments of “capital equipment” (as opposed to “trade show equipment.”) However, it also showed evidence that capital equipment shipments were not covered, since the Seattle and Israel claims were denied. “What is missing,” he wrote, “is evidence that the parties agreed on a rate and conditions for the capital equipment in the Seattle and Israel shipments, which are the only two at issue in this case.” Since the facts were in dispute, he ordered the parties to go to trial.
An out of court settlement seems likely.
The judge’s opinion doesn’t provide enough detail to know exactly what happened, but the agent may have been in over his head with this part of his client’s operations. The opinion described him as GDL’s “longtime insurance broker,” but his work for them might have been limited to writing a BOP and Workers’ Comp insurance. As an agent of a carrier that concentrates on personal lines, he may have lacked the experience and expertise to properly handle international cargo coverage.
Agents should be cautious when branching out into new areas. A placement involving a retail agency, two brokers and Lloyd’s may have been too much for this agent at this time. The coverage he obtained did not match the client’s needs, and it cost him a long-term relationship and time spent on litigation. Agencies should seek new lines of coverage and markets, but they must be smart about it. Otherwise, they may end up in court.