By: AgencyEquity.com
A Texas landscaping company thought its commercial property insurance policy covered loss or damage to its nursery stock caused by freezing. That was untrue, and the company suffered a $1.7 million uninsured loss. They sued their long-time insurance agency over the loss.
The company had done business with the agency’s president for two decades. In January 2020, the company’s owner and the agent met to discuss the upcoming renewals of its policies. He told the agent that he needed $5,000,000 in insurance on his tree nursery stock at a specific location and the coverage had to insure against loss caused by freezing weather events. The agent agreed to search the market.
In April, the agent sent him renewal quotes. The proposal included an offer of $5,000,000 commercial property coverage on the tree nursery stock at the location in question with no exclusions that would apply in the event of extreme temperatures. The agent also said that this was the only coverage option he could find for an amount that large. Based on that statement and the proposal, the owner purchased the coverage.
The agent, working with a wholesale insurance brokerage, ordered the policies. The carrier issued them effective May 6, 2020. For reasons that the judges’ opinion did not not explain, the insured did not receive a copy of the policy and had no opportunity to read it.
The following February, a winter storm destroyed the nursery stock. When the insured notified the agent, the agent advised him to delay reporting the loss to the carrier until May “to determine the full scope of the loss.” He also told the insured he believed the loss would be covered. The insured followed the advice and waited until spring to submit the claim. The carrier issued a reservation of rights letter in July advising that the loss might not be covered. In October, they denied coverage outright, saying that the policy excluded loss caused by temperature extremes. The agent and insured met to discuss the letter and the agent reiterated that he thought the loss was covered.
In August 2022, the insured sued the agency for negligence in failing to obtain the requested coverage and negligent misrepresentation in the agent’s statements about the coverage obtained. In January 2024, the agency asked the court to grant “summary judgment,” which would be a ruling in its favor based on the law when there was dispute over the facts. The next month, the court ruled in the agency’s favor with no explanation. The insured asked for a new trial, the court said no, and the insured appealed.
In April 2025, a Texas appellate court upheld the ruling in the agency’s favor. The judges held that the agency could not have caused the insured’s loss because the insured did not prove 1) that the coverage was available in the marketplace, and 2) if it had been, that it would have covered the loss.
Having lost twice, it seems unlikely that the insured will pursue this case any further.
The agency won, but questions remain about how well it handled the situation:
- Why did the agent believe the policy provided coverage that it did not?
- Why did he tell his client that it provided the coverage both before and after the loss?
- Why did he advise them to delay reporting a loss when commercial property insurance policies typically require the insured to give the carrier prompt notice of loss?
- Why did the insured not receive a copy of the policy?
The carrier makes the final coverage decision in all loss situations. Agencies place themselves in legal jeopardy when they make statements about coverage when that is outside their control. Advising an insured to violate a policy condition is laying the groundwork for a denial based on late reporting. Finally, when the insured does not receive a copy of a policy, the agency loses the defense that the insured had a duty to read it.
The agency won, but other agencies should not follow its example.
