Be Careful What You Say to Your Customers

A couple of years ago, I wrote a blog post on the duties owed by an insurance agent to his or her customer.  In that post, I pointed out that, although as a general rule an insurance agent had no duty to their customer, the words and conduct of an agent could create a duty, for the breach of which an agent could be sued.  A recent decision of the Georgia Court of Appeals revealed just how easy it is to create such a duty regarding the obtaining of adequate insurance coverage.

The case before the Court of Appeals involved a small trucking company that had been sued by its customer for damage to some goods it was hired to carry.  The insurance agency had obtained a cargo insurance policy from the Underwriters at Lloyds (“Lloyds”) for its customer.  While that policy did provide coverage for the damage to the goods, it did not require that Lloyds assume the defense of the claim made by their customer’s customer.  It only gave Lloyds the option to do so.

The refusal of Lloyds to provide a defense lead to the filing of a declaratory judgment action by Lloyds in federal district court, in which action it prevailed.  As you might suspect, this lead the insurance agency’s customer to sue the agency for negligence and breach of contract for failing to obtain an insurance policy that required the carrier to defend any claims made under it.  The agency moved for summary judgment on the basis that it did not owe a duty to its customer to obtain such an insurance policy and even if it did owe such a duty, if the insured had read the policy obtained it would have known that the carrier had no duty to defend any such claims, only the option to do so.

The appellate court ruled against the insurance agency on both counts.  It found that the agency’s customer had put forth sufficient evidence to require a jury to decide whether the agency had held itself out as an expert and the customer had reasonably relied on the agency’s expertise to identify and obtain the correct amount or type of insurance.  That evidence consisted of statements by the customer’s owners that they told the agency they “wanted a policy which covers everything, the trucks, the cars, the cargo… physical damage, liability, general liability, everything.”  The owners did not request any particular coverage.  Instead, when they spoke to a representative of the agency, they were asked what type of business they did and then were told by that representative what type of insurance coverage they needed and perhaps, most importantly, that once they obtained the coverage recommended “you are covered, don’t worry.”  Sound familiar.

The insurance agency was not saved by the exception to the rule of expertise, which will let an agency or agent escape liability even if they do owe a duty to the insured to obtain a particular type of coverage if an examination of the policy would have made it “readily apparent” that the coverage requested was not issued.   In this case, the relevant language was buried in a paragraph of the policy that did not appear from its heading to have anything to do with the carrier’s duty to defend and the important language did not clearly state the carrier had no duty to defend.  I am sure it will come as no surprise that the customer’s owner testified that “she did not understand” the meaning of that language.

If you don’t want to end up like the insurance agency in the above case, be careful what you say to your customers about the coverage obtained for them and above all else don’t tell them that “you are covered, don’t worry.”