By Susan Massmann, CPCU
Have Been Naughty
Blunders Lead To Claims Disputes, Litigation
Doors front man Jim Morrison was quoted as saying, “Some of the worst mistakes in my life have been haircuts.” Sure—we have all been there, but that kind of mistake
usually does not cause problems in an insurance contract. However,
blunders made by insurance agents and brokers can lead to way
more difficulties than a bad hair day.
The insured asked for comparable coverage to what he had purchased between
1998 and 2001.
Lavangie emailed the insured a quote,
but it was on a per-location limit rather
than a blanket limit. Robert Orenstein,
a member of the Office Furniture Rental
Alliance, received the quote. He stated
that he did not remember if he read the
entire quote, but his normal procedure
would have been to review the portion
of the quote setting out the premium. He
said the agent never informed him that
the policy did not contain a blanket limit,
and coverage was purchased and renewed
from 2003 to 2009.
In 2009, a fire caused extensive damage
to the insured’s warehouse. Liberty Mutual
paid only the location limit on the policy,
which was considerably less than the cash
value of the loss—an amount that would
have been fully covered by a blanket limit.
The insured brought action against Liberty Mutual for claims of breach of contract, negligent misrepresentation, and
reformation. While the court stated that
a reasonable jury could not find grounds
that the parties contracted for blanket
limit coverage without evidence of a prior
oral agreement for the breach of contract
claim, the fact that the written contract did
not conform to the oral request for blanket
insurance was admissible for the negligent
misrepresentation and reformation claims.
Quoting Coppola Const. Co. v. Hoffman Enterprises Ltd. P’ship, 309 Conn.
342 (2013) the court said, “Traditionally,
an action for negligent misrepresentation
requires the plaintiff to establish 1) that
the defendant made a misrepresentation of fact; 2) that the defendant knew
or should have known was false; 3) that
the plaintiff reasonably relied on the misrepresentation; and 4) suffered pecuniary
harm as a result.”
Alliance, LLC v. Liberty Mutual Fire Ins.
Co., Civil No. 3:11cv1889 (JBA), 2013
WL 5934049 (D. Conn. Nov. 1, 2013).
The insured had purchased coverage
from Liberty Mutual from 1998 to 2001
through agent James Lavangie, who had
advised the insured to buy blanket coverage as opposed to per-location. Based
on that recommendation, the insured
purchased blanket coverage. During the
2001 to 2002 policy period, the insured
switched to a different carrier. The following year, Lavangie provided a quote to the
insured to try to win his business back.
Agents may find themselves in trouble
because of lack of action, such as failure
to renew policies, failure to use proper insurers, or failure to warn insureds of exclusionary clauses in policies. All of these
failures can lead to an errors and omissions claim against a producer, as well as
claims disputes against p&c insurers.
One case in point: An insurance agent
failing to procure blanket coverage for an
insured led to a claim for negligent misrepresentation in Office Furniture Rental