Insurance agent negligence cases usually come to me with the following question: “Chip, I think the agent screwed up. What do you think about filing a malpractice suit against the insurance agent?” My first two thoughts on this question are:
1. Do you know how complex negligence cases are?
2. In what state did this happen?
An insurance agent’s legal duties vary dramatically from state to state. In my opinion, insurance agents often present themselves as experts and trusted advisors. Still, if they screw up, their lawyers and the entire insurance agent industry argue that they owe a legal duty more akin to the person you order your cheeseburger from at McDonald̵7;s.
To further complicate these cases, most policyholders try to buy policies for the lowest price. Insurance agents often try to discourage policyholders from shopping around by providing cheaper policies with less coverage. Unfortunately, the less coverage and lower priced policies often leave coverage gaps when a loss occurs. When the damage occurs, the policyholder with an uncovered or undercovered damage becomes upset. The insurance agent says that the policyholder should have calculated the coverage gap by reading the policy that was issued.
A typical example of an insurance agent negligence case involved a former Texas Supreme Court justice upset by an appellate court ruling regarding the duties of a Texas insurance agent. His efforts to get the Texas Supreme Court to accept jurisdiction to hear another appeal have failed, but his petition to the Texas Supreme Court1 caught my attention:
The Court of Appeals has erroneously changed the law of Texas … the Court of Appeals misapplied this Court’s decision in May v. United Servs. Ass’n of Am.844 SW2d 666, 669 (Tex. 1992), essentially affecting all businesses, property owners, and homeowners who purchase insurance, receiving false information as to why the agent failed to obtain the requested insurance, leaving the customer without coverage for flood events, which occurred so many Texans after the devastation of Hurricane Harvey.
For decades, the court’s decisions in May v. United Servs. Ass’n of Am., 844 SW2d 666, 669 (Tex. 1992) expressed that an insurance agent owed a duty to his client to obtain the requested insurance and “to use reasonable diligence in attempting to locate the requested insurance; and to promptly inform the client if he is unable to the.’ But is this duty fulfilled when the agent provides false information to the client and when the agent does so after the insurance has been procured?The Court of Appeal’s decision misapplied the trial court’s decision in Maywhich essentially affects all businesses, property owners and homeowners who purchase insurance and are falsely told by their agent, after the policy has been sold, that they needed more information, which the agent later admitted was not true and admitted that the agent’s failure to obtain the requested the flood coverage was a “mistake”.
Wow! Did the lower appellate court really put policyholders at risk by making a big mistake in the law? I read the lower appellate court decision2 and noted that it stated longstanding Texas insurance agent negligence law as follows:
Both parties agree on the basic customary obligations that an insurance agent owes an insured. These two data come from May v. United Servs. Ass’n of Am.844 SW2d 666 (Tex. 1992). An agent has a duty to (1) use reasonable diligence in attempting to underwrite requested insurance and (2) inform the customer promptly if unable to do so… An insurance agent is e.g. liable when he misleads a potential insured into believing that the agent has obtained insurance when he has not. Id. (discuss Burroughs v. Bunch, 210 SW2d 211 (Tex. Civ. App.—El Paso 1948, writ ref’d)). And an insurance agent is liable when he assures an insured that a particular event is covered when it turns out to be excluded….
The Court of Appeals also discussed an agent’s obligation to renew requested coverage:
Garcia’s cites Trinity Universal Ins. Co. v. Burnette560 SW2d 440 (Tex. Civ. App.— Beaumont 1977, no Writ)…In Burnett, the insured had an automatic right to renew his policy. The president of the insurance agency testified that his company always renewed policies for its insureds or notified them when their policies were not renewed. Id. The agent failed to renew the insured’s policy or inform the insured that the policy was not renewed. Id. The Burnett the court relied on a 1968 federal case to hold that the insurance agent has a “duty to keep his customers fully informed so that they may remain safely insured at all times.” …(quoting Cateora v. British Atlantic Assurance, Ltd., 282 F. Supp. 167, 174 (SD Tex. 1968)), where an agent knew that the insurer had become insolvent but did not inform the insured or seek coverage). The Burnett The court also held that the agent breached its duty by not renewing the auto-renewable policy or telling the insured that it was not being renewed.
Texas generally places a duty on the policyholder to read the policy and a presumption that the policyholder understands the contents of the policy. This is where most cases of insurance agents get stuck on who is responsible for the discovered loss. I call this the “slip and fall” issue in agency cases because in every “slip and fall” case, the defendant always says that the plaintiff should have been aware of hazards, even if the defendant created them or did not remove the hazard that caused the plaintiff to slip and fall. Similar to “slip and fall” cases, all attorneys say the policyholder should have read the policy and complained about the coverage gap even though the agent may have created the gap. In this matter, the lower Texas Court of Appeals noted:
[T]he argued whether insureds had a duty to read their policy to discover that it lacked coverage for a risk they likely anticipated and wanted to insure against… The court noted that there is a presumption that an insured knows the contents of his insurance but that the presumption can be overcome with evidence of why the insured does not… If the insured comes forward with evidence of why they do not know the contents of their policy the burden is on the attorney to prove that the insured was negligent by not understand their own policy, for example by not reading it… The issue is generally presented as a contributory negligence issue… The insured’s negligence is determined on a case-by-case basis. -case base, assessment of the facts as they relate to whether it was reasonable not to understand the terms of the insurance and whether the insured reasonably relied on the agent’s knowledge and his own assumption that the agent correctly procured the desired insurance… The insured’s negligence is dependent on facts and not subject to categorical rules. ..Thus Cloesel the trial court did not err in refusing to instruct the jury in a manner that would have presented the issue as if a party’s duty was determinative versus subject to a factual analysis.
In its discussion of the insured’s possible negligence, it has Cloesel the court discussed the concept of an insured ‘relying[ing] after his instructions were properly carried out.’… But the court rejected the idea that the duties of both sides were decisive and held instead that it depended on the facts …. Cloesel does not support the proposition that an insured has a vital right to rely on the insured’s instructions being properly carried out by the agent. Instead, that court held that the issue is one of degree and fact, analyzing the reasonableness of the insured’s conduct as part of an assessment of the insured’s contributory negligence….
The lesson from this is that the specific facts of each case involving an alleged case of insurance agent negligence have a bearing on the outcome. Examining the flow of communication back and forth between the policyholder and the agent is extremely important. I always ask for the emails between the parties when I analyze these cases. What is put in writing during the transaction usually means more than the memories of what was said or misunderstood during discussions.
The other part of the equation is that each state has slightly different laws regarding agent negligence. Some states place an extreme burden on the policyholder to discover and raise the insurance coverage gap, while others appear to place an almost similar fiduciary duty on the insurance agent. Many states say that the agent’s duties depend on the relationship between the insurance agent and the policyholder. This requires further fact-finding and makes the analysis more complex.
Today is Superbowl Sunday, and many are trying to figure out which team will win. It is not an easy task, and the analysis is complex. The lesson from today’s post is that there is nothing easy about a guardianship case. It’s infinitely more difficult than figuring out who wins the point spread in a football game.
The longer you get in life, the more you realize what you will leave this Earth with. It’s not going to be, ‘That was a great platform. It was great to win the Super Bowl, but what you will leave on earth is really the influence on others.
– Joe Gibbs
1 Garcia v. Harwig Moss Ins. Agency, Ltd.No. 22-0817 (Tex. [Motion for Rehearing, filed Jan. 3, 2023]).
2 Garcia v. Hartwig Moss Ins. Agency, Ltd., no. 01-20-00420-CV, 2022 Tex. App. LEXIS 2786 (Tex. App. Apr. 28, 2022).