The typical business owner who buys an insurance policy does not fully understand it. He may have a general understanding, but he probably does not know or understand all the exclusions and conditions. Instead, he relies on his insurance agent to know those details and explain them to him.
Trouble can arise if the agent offers a policy with which he is not familiar. It might contain exclusions that leave the insured with a serious coverage gap. Such a policy left a New York agency to the uncertainty of a jury trial.
The insured ran a logging business full-time and had a second business putting on rodeos. The agency had written his personal and commercial insurance for six years. Before each rodeo, the insured would contact the agency for liability coverage. The agent would obtain coverage for the show and send his client an insurance certificate.
The insured asked the agency to arrange coverage for an upcoming rodeo in Pennsylvania. An office assistant received the request and contacted the brokerage that customarily provided access to the carrier who insured the rodeos. However, this time the carrier declined to offer coverage. The court’s opinion speculated that the Pennsylvania location for the event may have been the reason. Instead, the brokerage procured an alternative policy that supposedly provided equivalent coverage.
After the Pennsylvania rodeo ended, and as a group of animals were being moved through gates to a trailer, four bulls got loose. By the time they had been captured, they had injured several bystanders and these individuals sued the rodeo’s organizer. He notified his insurance agency and only then did the agency principal review the liability policy covering the event. He found out that it excluded coverage for bodily injury or property damage caused by animals. This created an obvious problem for a rodeo as his assistant had overlooked this exclusion when she obtained the policy. The brokerage that provided the policy later fired the employee who issued it.
The carrier denied coverage, citing both the animal exclusion and the exclusion for liability arising out of the use of an auto, since the insured was attempting to load a trailer at the time the bulls escaped. To make things worse, his auto carrier also denied coverage because the trailer at issue had not been scheduled on the auto policy. There was no automatic coverage for the trailer because it was attached to a borrowed truck.
The insured sued his agency for negligently obtaining a rodeo liability policy that did not cover animals. The agency moved to have the case dismissed, and the trial court agreed. The court ruled that the animal exclusion was not the proximate cause of the insured’s loss. The insured appealed to a higher New York court.
A court will dismiss a case (grant “summary judgment”) only when there is no dispute as to the facts and the law clearly indicates which side should win. In this case, the court noted how long the agency had been writing this individual’s insurance and that the agency provided him only with certificates for the rodeo coverage, rather than complete policies. It therefore found that there was a question as to whether or not the insured reasonably relied on the agency’s advice and expertise. When there is a question as to the truth, summary judgment is inappropriate. Therefore, the court reinstated the insured’s case and sent it back for a jury to consider.
Three individuals made mistakes here. The brokerage employee sold a rodeo policy that left a major exposure uninsured. The agency’s office assistant accepted the brokerage’s recommendation without thoroughly reviewing the policy. The agency principal did not look at it until after the loss occurred. None of them were familiar with the product they sold.
When an agency offers an insurance product for sale, it must know what that policy covers and excludes. Because this insured received a certificate and not a complete policy, his reliance on his agency even more important. Sadly, his agency did not know what it sold him.
This case likely settled out of court, as the public record does not show the results of a jury trial. The lesson remains that there is no substitute for product knowledge when it comes to obtaining coverage for a client. When a loss occurs, nothing else – not price or service – matters.