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Legal Updates for Insurance Agents & Brokers - January 2019

January 10, 2019
Presented by the Insurance Agents & Brokers Liability Practice Group

edited by Timothy G. Ventura, Esq.

Defense Verdict for Insurance Agency and Owner in Professional Negligence Case  

By Christopher J. Conrad, Esquire

We successfully defended an independent insurance agency and its owner against claims of professional negligence brought by former long-time customers of the agency in a lawsuit filed in the Centre County Court of Common Pleas.

In December 2014, a couple purchased a residential property in Philipsburg, PA, which they planned to renovate on their own and then either flip or keep as a rental. The day after closing on the property, they contacted the agency to advise they had purchased the property and sought insurance coverage. At the time, the couple already had insurance on their primary residence and another rental property (as well as several automobiles) which they had obtained through the agency.

Based on information that the wife provided about the property, an agency sales representative prepared a quote for the couple. When initially discussing the quote with her, the sales representative explained that because the property was unoccupied, and since the couple planned to renovate the property themselves with no definite end date for completing the renovations, only one carrier with which the agency had a relationship would write coverage on the property. Specifically, our clients proposed a dwelling fire policy through Millville Mutual Insurance with coverage of $21,500, equivalent to the purchase price plus closing costs (i.e., actual case value), and the couple was told that coverage could increase periodically as renovations were completed.

The couple agreed to the dwelling fire policy proposed by the agency. The husband completed and signed the application and authorized the agency to bind coverage. Notably, he testified at trial that our clients told him the dwelling fire policy was the best coverage the agency could offer them and they were free to seek coverage elsewhere if they did not find the policy suitable. Still, the couple applied for and obtained the dwelling fire coverage.

In January 2015, the wife contacted the agency to advise they had completed some renovations and requested an increase in coverage by $8,500. Our clients honored this request, notified the carrier, and coverage was increased to $30,000. The couple claimed that they contacted the agency again in June 2015 and asked for an additional $20,000 in coverage after completing more renovations. Our clients adamantly disputed that the wife ever made this request. The agency had no record of the request, despite maintaining accurate phone logs and electronic claim notes detailing each and every conversation they had with the couple about the property and their other insurance needs. Our clients admitted at trial there were several documented telephone conversations with the wife in June 2015, particularly concerning two automobiles the couple insured through the agency, but none of these conversations had anything to do with the property. The couple acknowledged at trial they never followed up with the agency or Millville Mutual directly to confirm whether their supposed request for an increase in coverage had been confirmed, nor did they ever check their mail to see if they had received a new declarations page or a bill for a premium increase from the carrier.

In October 2015, the property was completely destroyed by a fire caused by three volunteer firefighters who later were convicted of arson. These three individuals were not sued by the couple, however, even though they were directly responsible for the loss. Instead, the couple only sued our clients for professional negligence, advancing two theories: (1) our clients were negligent for not increasing coverage by $20,000 in June 2015, as the couple allegedly requested; and (2) our clients were negligent in failing to offer the couple a “builders’ risk” policy, which, they argued, would have insured the property for $158,000, its replacement value.

In support of their “builders’ risk” theory, the couple called to testify at trial an expert witness who had 40+ years of experience as an insurance and construction surety bond agent in Pennsylvania. The couple's expert testified that in his opinion, the standard of care applicable to insurance agents in Pennsylvania requires agents to offer their customers the best possible coverage available, and it has always been his practice to do so. During cross-examination, the expert acknowledged he was present for and heard the husband's earlier testimony when the husband stated the agency told him the Millville Mutual dwelling fire policy was the best coverage the agency could offer. Most critically, the couple's expert conceded that in light of the husband's testimony on this point, together with his own opinion concerning the applicable standard of care, our clients in fact met the standard of care under the circumstances by proposing the dwelling fire policy to the couple, which was the best coverage our clients could offer.

We also were successful in convincing the trial judge to charge the jury on contributory negligence, as this remains a viable affirmative defense in professional negligence actions in Pennsylvania, despite the couple's attorneys arguing that the Comparative Negligence Act should apply instead. Consequently, we argued to the jury in closing that the couple was negligent for waiting until after closing to contact the agency for insurance on the property, yet claiming they felt they had no other choice but to accept the dwelling fire policy proposed to them; they were negligent for not seeking coverage elsewhere, even after the Millville Mutual policy was in place, despite personally knowing at least two other local insurance agents and they claimed they were dissatisfied with the amount of coverage under the policy; and they were negligent for failing to make any effort (including reading their mail) to verify that coverage had been increased by $20,000 in June 2015 as they supposedly requested.

The jury never reached the question of the couple's contributory negligence, however. Rather, after deliberating for less than an hour, the jury returned a verdict in favor of our clients, finding that neither of our clients was negligent under the circumstances. The couple did not file any post-trial motions or an appeal from the jury’s verdict.

 

The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive this complimentary Legal Update for Insurance Agents & Brokers,
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Affiliated Attorney

Christopher J. Conrad
Shareholder
(717) 651-3531
cjconrad@mdwcg.com
Timothy G. Ventura
Shareholder
(215) 575-2582
tgventura@mdwcg.com
Christopher E. Dougherty
Director, Professional Liability Department
(215) 575-2733
cedougherty@mdwcg.com
Eric A. Fitzgerald CPCU, CLU
Assistant Director, Professional Liability Department
(215) 575-2688
eafitzgerald@mdwcg.com

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