[Editor’s Note: This post is being written in the midst of the coronavirus pandemic. That means today, most of the litigation we see relates to business interruption insurance. No matter what your claim or loss involves, however, this post contains important information about when and how to sue an insurance agent.]
Over the last three months we have written several posts on business interruption insurance. As a result of the global pandemic, it seems that virtually every business in the country is struggling. Many businesses thought they were prepared for a disaster because they purchased business interruption insurance. Now they are finding their claims denied.
In our cornerstone business interruption claims post, we explain the ins and outs of getting your claim paid. If your problem involves business interruption insurance, start there.
Across the nation, insurance companies are improperly denying tens of thousands of claims. They simply don’t want to pay and figure the average small business can’t find a lawyer willing to sue for a couple hundred thousand bucks. (We will.) In many cases we can pursue a viable claim despite the insurance company pointing to a pollution exclusion or arguing that there was no physical damage. Sometimes, however, the policy truly is written in such a way that the insurance company gets the upper hand.
Let’s look at one such example. Policies with an ISO 2006 virus exclusion. This little gem says, “We will not pay for loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.”
Let’s say your business interruption claim is denied and your policy contains a virus exclusion or some other language that your lawyer says kills your chances of winning a lawsuit. Now what?
Depending on what conversations you had with your agent, you might have a claim against the agent who sold you the policy. Because they are in the insurance business, most agents have errors and omissions coverage in case they screw up. That means if you win, there is still a deep pocket to pay your claim.
To prevail against your agent you must demonstrate that you were explicit in instructing your agent as to what type of coverage you wanted and that the agent failed to deliver and didn’t tell you that the policy he or she sold you was missing that coverage.
Winning a claim against an agent won’t be easy. Until December, COVID-19 didn’t even exist. Until sometime in February, no one knew it would devastate our economy and cause hundreds of millions of Americans to stay home.
One business in Philadelphia is suing its agent, Nottingham Agency Inc, of failing to obtain virus protection. The insured said it asked the agency for “all appropriate insurance coverage” including for viruses and pandemics.
Does that seem farfetched? Why would a business want pandemic coverage? It’s not as farfetched as you think. We know of several possible scenarios, although there are likely others.
Perhaps the business is particularly risk averse. Think of auto insurance. Some drivers just buy the bare minimum. Others get maximum coverage, gap insurance, new vehicle replacement, roadside assistance, towing assistance, liability umbrella policies, etc.
Another reason could be a business that suffered as the result of the SARS scare several years ago. There were very few cases in the United States but it did affect some travel businesses.
Probably the most likely explanation is that the insured’s policy came up for renewal in December 2019 or early 2020. By then, we knew about COVID-19 but most people (and insurance companies) weren’t worried about it becoming a pandemic. While most didn’t think about, some savvy business owners probably did. If the agent failed to listen or failed to tell their client that the policy didn’t contain the requested coverages, the agent could be liable. (We wrote our first coronavirus business interruption story in early February long before COVID-19 was impacting US businesses. We were worried back then and no other businesses that were as well.)
While it’s probably not enough to claim you told your agent you wanted “full coverage,” we expect to see some cases where the insured business went into enough detail about its coverage needs that the agent becomes liable.
Duties of Insurance Agents
Insurance agents owe a legal duty to their clients (customers). Specific duties include:
- Understanding their customer’s insurance needs
- Letting the customer know if the desired coverage isn’t available
- Placing insurance with a financially sound company
- Explaining the policy and exclusions to customers
- Explaining any differences in coverage when policies renew
- Properly communicate claims to the insurance company
- Forwarding premium payments to the insurance company
If you think claims against insurance agents are rare, you are wrong. As many as one in 3 agents face a claim each year.
To prove your claim, you must prove three things:
- The agent owed you a legal duty;
- The agent breached that duty; and
- the damages you suffered were proximately caused by the breach of duty.
In some states such as Texas, the courts place a high degree of responsibility on agents. “An agent owes his clients the greatest possible duty. He is the one the insured looks to and relies upon. The insured looks to the agent he deals with to get the coverage he seeks, with a sound company who can and will promptly pay claims when they are due. It is his duty to keep his clients fully informed so that they can remain safely insured at all times.”
Other states that place a higher duty of care on insurance agents include Missouri, New Jersey, Louisiana, Illinois and Idaho.
To keep this post simple, we have been using the term insurance agent. There is a difference, however, between an agent and a broker even though the public uses the term “agent” for both.
A true agent works for the insurance company he represents. He is considered to be acting for the company. That means his actions bind the company. Think of State Farm. Their agents just work for State Farm and not other insurance companies.
If one of these agents fails to obtain specific coverage that the insured requested, both the agent and insurance company can be sued.
In contrast to an insurance agent, an insurance broker typically works with many insurance companies and is considered to be acting for the insured. These brokers are commonly called independent agents. If an independent agent failed to obtain virus insurance, he or she would be liable and not the insurance company.
Suing insurance agents is tough. Depending on your date of renewal or first obtaining insurance, it will be particularly tough to claim an agent failed to procure insurance for a virus if that virus wasn’t even known to man at the time the policy was written.
How Do I Sue My Insurance Agent?
If your business interruption, civil authority insurance claim or other type of claim is denied, you need professional assistance. Our first line of attack is against the insurance company itself but in some cases, you may not have a winnable claim. If you don’t have the coverage you wanted or the policy language has exclusions that leave you without coverage, it may be possible to sue your agent.
All your communications with your agent become critical if you sue the agent. Did the agent know your needs? What did you tell the agent? Did she explain the exclusions in the policy?
Perhaps the coverage you sought wasn’t available? Did the agent let you know? Did she really shop around and try to find the coverage you wanted?
It can be tough to find a lawyer that handles insurance bad faith claims in good times. As a result of the pandemic, finding a lawyer could be even more difficult. Depending on the coverage and wording of the policy, you may have a better claim against the insurance agent who sold you the policy.
We invite you to first visit our coronavirus business interruption claims information page. Ready to see if you have a case against your insurance company or agent? Contact us online, by email or by phone 800.669.7782. We have attorneys and law firm partners across the United States. We fight for the maximum coverage and benefits due our clients and maximum damages when the carrier has wrongfully failed to pay.
Cases can be handled on a contingent fee basis meaning no fees or out-of-pocket costs unless we win. All inquiries are confidential.