| In this claim, the agency’s
client was a new customer of the agency for commercial
auto coverage. The policy was written with $1,000,000 limits
for BI and UIM. The client company was owned by two partners,
one being Mr. X. When the policy was written, neither of
the owners were listed as additional insureds on the policy.
Following the policy inception, Mr. X was killed while
jogging. His estate made a claim against the UIM portion
of the Commercial Auto policy. The carrier disclaimed based
on the fact he did not qualify as an insured, as he was
not in the course of his employment and he was not operating
nor was he in a covered auto. Suit was filed against both
the carrier and the agent. The Estate produced a witness,
the deceased’s daughter, who said she overheard her
father discuss the need to be added to the policy. This
was denied by the agent. Although counsel filed for a dismissal
based on the fact the agent owed no duty to advise the
partners of the need to be added as additional insured’s,
the Court denied the motion, stating there was a question
of fact as to the duty owed. The case was venued in rural
county, and counsel advised there were dangers associated
with trying a case in that venue, based mainly on the sympathy
factor. The case was settled for $150,000.
 Lesson: When
offering Commercial Auto coverage to an entity that is
owned by one or more individuals, offer the option to have
those individuals listed as additional insureds on the
policy.
This E&O claims
involves an agency who wrote a CGL and a Commercial Auto
for a client. The CGL had a $1,000,000 limit, and the Commercial
Auto had a $300,000 limit. One of the client’s vehicles
struck and killed a motorcyclist, who died 30 days after
the loss. The value of the underlying death claim was in
the $1,500,000 to $2,500,000 range. After the client was
sued by the Estate, the client alleged the agent told him
that the CGL would respond in excess of the $300,000 auto
limit, and further alleged the insured should have recommended
higher auto limits. The insured denied ever telling the
client that the CGL would be excess for an auto loss, and
further stated the client had been informed numerous times
in the past the increase the auto limits. Unfortunately,
there was no paper back up of those discussions and due
to the long term relationship with this client, the claim
against the agent settled for $500,000.
Lesson: Document
in writing any time coverage limits are discussed with
a client. This documentation will play a major role in
the defense of the agency.
This
claim deals with the issue of the agent failing to report
a loss to a CGL carrier following an auto loss. The client
ran a jewelry business and there was non-owned auto coverage
on the client’s CGL but the agent only reported the
loss to the personal lines carrier. The CGL carrier disclaimed
when the loss was reported much later. The claim stems
from an accident in which one passenger was killed and
another rendered a paraplegic while riding in a van owned
by the agency’s client’s principal. It was
alleged the van was being used for business purposes, as
the parties in the van were on their way back from a trade
show. The injured parties had already collected $3,500,000
from other sources, and took an assignment of the rights
from the client company to sue the agent. They alleged
that the agent’s failure to report the loss to the
CGL carrier resulted in a disclaimer. There were some defenses
to the claim, but it was clear the agent did not report
the loss to the CGL carrier, who was successful in maintaining
their disclaimer. The claim against the agency was settled
for $290,000.
Lesson: Be
aware of the coverage granted under a CGL for non-owned
autos, and if the agency also writes personal lines coverage
for a commercial client’s principal, ask questions
concerning the use of the vehicle when a loss is reported
under a personal lines policy.
In this E&O claim,
the agency’s client alleged a special relationship
with the insured. The insured had secured coverage for
a number of operations for the client, but did not obtain
coverage for the operation of a small airport owned by
the client. The insured informed the client on numerous
occasions that there was a gap in coverage as regards liability
coverage for the airport. The agency file was well documented
to that effect. When an underlying loss occurred (injury
to a plane passenger who is now a quadriplegic as a result
of injuries sustained in a plane crash at the airport),
the client claimed because of a longstanding special relationship
the agent had a duty to secure the coverage. While the
agent had advised the client of the need to secure coverage,
the client claimed confusion. The client and the injured
party agreed to a $10,000,000 consent judgment, and the
client filed suit against the agent. Other insurance had
already paid the injured party $2,000,000 on behalf of
the plane owner. The case against the agent was settled
for $200,000.
Lesson: When
a long time insured repeatedly ignores advice concerning
coverage, have the client sign a rejection of coverage
letter. A much greater duty is owed to a client when there
is a special relationship between agent and client.
In this claim, the agent
wrote property coverage for their client who was in the
business of refurbishing railroad cars. A hurricane destroyed
one of the client’s locations, and a claim for Business
Interruption was made with carrier. The policy was placed
through an MGA and had a 90% co -insurance clause for Business
Interruption. The agent was confused as to how to calculate
the proper limit of coverage for Business Interruption
and assumed the proper limit for Business Interruption
was merely profits. In actuality, the proper method to
calculate limits for that coverage is profits plus continuing
expenses. Following the loss, it was determined the agency
client was drastically underinsured, resulting in an 82%
coinsurance penalty. The loss to the client due the coinsurance
penalty was around $160,000 and the case was settled for
$135,000.
Lesson: When
in doubt concerning how to calculate the proper amount
of coverage, don’t guess—consult various resources,
including the carrier.
This
claim involves a client who claimed the amount of coverage
for her home and contents was insufficient. This was a
new customer to the agency and the agent did not inspect
the home, seeing it only from a distance. A previous appraisal
for $591,000 was given to the insured by the client, and
a $600,000 policy was procured with a replacement cost
endorsement through the HO carrier. As a result of a fire,
the house and contents were destroyed. At that time, it
was discovered that the home had expensive ornate fixtures,
and was filled with artwork owned by and produced by the
client, a world-renowned artist. The house and contents
were valued at $2.4mil each ($4.8 million total). The carrier
balked at payment, and suit was filed against both the
carrier and the agent. The carrier then filed a cross claim
against the agency. Although it was believed that the claim
against the agent was defensible, following testimony by
the carrier’s underwriter, who said the insured did
not follow proper procedures, and also stated that the
carrier would not have written the risk had it known the
true value of the property, the claim was reassessed. Utica
had some defenses as the carrier failed to inspect the
location and accepted an outdated appraisal. The claim
was settled with both the carrier and Utica contributing
with Utica’s share on behalf of the agency being
$800,000.
Lesson: Make
sure that you know what you are insuring and either inspect
the interior of an expensive home or ask detailed questions
concerning the interior and personal property before requesting
coverage.
In
this case, the agent sold a life policy (annuity) to a
client and told him that after making premium payments
of $90,000/year for 5 years he would have no further premium
obligations. There were serious questions if the agent
understood what he was selling. When the predicted level
of investment income for the Life carrier did not pan out,
after 5 years, the client was told he would have to continue
with annual premium payments of $27,000 to keep the policy
in force. The client then cashed in the policy at a loss,
and claimed he would not have retired from his business
(he owned an agency) had he known he would have to continue
with payments. The client also received 50% of the commission
for the sale of the annuity. He testified he did not understand
annuities, and he had no life license. Counsel believed
the provable damages were around $100,000 range. The client
was unreasonable, and never lowered his demand of $750,000.
Utica offered $80,000 but in view of the impasse in negotiations,
Utica entered into a binding arbitration agreement. The
arbitrator awarded $384,000.
Lesson: Know
what you are selling. When selling an annuity, do not make
representations concerning future premium obligations unless
you are positive no future premium payments are due under
any circumstances.
The details behind this
claim involve a sub-agent, using the named insured agency’s
list of P&C customers with the insured’s permission,
to “churn” life policies for a number of customers
by replacing existing policies with policies that were
on less favorable terms. The total alleged damages were
$1.8 million and it was also determined that the sub-agent
did not have a license to sell insurance. Some of the wronged
customers were not on the list the agent had provided to
the sub-agent, and the damages related to customers of
the agency were in the range of $800,000. While Utica believed
the life carrier bore a considerable portion of the exposure,
the carrier settled out, leaving the insured agency and
the sub-agent exposed. While the insured agent had no dealings
in so far as the life policies sold, he did receive part
of the commission for the sales. The case against the agent
was settled for $200,000.
Lesson: Whenever
an agency enters into an agreement with a sub-producer,
make sure that person has a license. Also, make sure that
you know what your producers are doing and saying.
In
this claim, the agent was an exclusive agent to market
and sell WC coverage to overseas employees of companies
under Federal Contract. A foreign national was working
for a subcontractor to a company under U.S. contract to
restore electricity to Iraq, and was killed by a vehicular
bomb in Iraq. He was determined to be eligible for the
benefits, and his family has been receiving the maximum
of $1,047 per week (this amount is determined by the provisions
of the Longshoremen's Act). The widow made a claim that
the brochure prepared by the agent stated survivor’s
benefits were to be 66 2/3% of the average weekly wage
with no maximum. This statement in the brochure was clearly
misleading. The brochure was given to the employer, who
in turn gave a copy to the deceased. Since the deceased
made around $3,380 per week, the widow claims she is entitled
to $2,253 per week (2/3) instead of $1,047 per week. Over
a 25-year period (her estimated future life span), this
amounts to a difference of $2,868,203 between what she
will get and what she believes she is entitled to. This
matter is still ongoing with attempts to settle underway.
Lesson: A
good lesson to learn from this claim is: Do not publish
brochures that explain coverage unless all necessary parties
(carriers, managing agents) have thoroughly gone through
the brochure and have signed off as to the content.
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