Presented by the Insurance Agents & Brokers Liability Practice Group

Legal Updates for Insurance Agents & Brokers - September 2019

Edited by Timothy G. Ventura, Esq.

Choice of Law Considerations Are Important When Considering Assignability

All1, LLC v. Pinnacle Insurance Solutions, LLC, 219 Westlaw 3072090, 219 N.J. Supr. LEXIS 1617 (N.J. App. 2019)
After Automotive Innovations suffered a fire loss at one of its locations, it discovered it had inadequate insurance coverage to cover its property losses and losses from the interruption of its business. Automotive Innovations later executed an assignment for the benefit of creditors as permitted by statute, and the court approved the assignment of Automotive’s assets to the plaintiff All1, LLC, including the assignment of those potential causes of action against Automotive’s insurance broker, Pinnacle Insurance Solutions, LLC.
All1, as Automotive’s assignee, filed a suit against the insurance broker, asserting that it failed to exercise reasonable skill and diligence in ascertaining Automotive’s coverage needs and/or failed to supply the coverage it undertook a duty to provide. They allege that the defendant was negligent and breached a duty it owed to Automotive as its insurance broker. In Count II, the plaintiff alleged the defendant was liable for consequential damages, including the loss of goodwill Automotive sustained as a result of inadequate business interruption insurance.
The court entered summary judgment in favor of the defendant on the Count II, contending that the plaintiff could only obtain damages in the amount equal to the amount of insurance the defendant was asked to obtain and could not recover consequential damages for losses proximately caused by the alleged inadequate business interruption insurance. The parties went to trial on the first count, and the defendant moved for an involuntary dismissal, contending that the plaintiff, as Automotive’s assignee, could not prosecute the agency negligence claim. The trial court denied the motion for involuntary dismissal and ultimately rendered a verdict in the plaintiff’s favor, which was challenged on appeal.
On appeal, the appellate court reaffirmed New Jersey’s long-standing rule against the assignment of tort claims prior to judgment. The plaintiff had argued that, in essence, the tort claims were in nature of a claim for breach of contract for failure to procure, but the court characterized the action as one sounding in negligence for malpractice and consistent with a long line of cases that have held that those types of negligence claims are not assignable. The plaintiff contended that the rule against assignments should only be limited to tort claims involving personal injuries, but the court disagreed, finding that the prohibition has been applied to assignment tort claims that do not involve merely personal injuries. Because the assignment of the claims against the insurance agent and broker was invalid, the court set aside the verdict for the plaintiff and entered judgment for the defendant.
There is a split of authority among various jurisdictions on whether negligence claims against insurance agents are assignable. The law in New Jersey is a minority view, holding that E&O claims are not assignable, while other courts hold that causes of action against insurance agents are not personal to the claimant and are freely assignable. See Wachovia Insurance Services, Inc. v. Toomey, 994 So. 2d 980 (Fla. 2008); Associated Insurance Services v. Garcia, 307 SW 3d 58 (KY 2010)(claim for professional malpractice against insurance agent could be assigned); but see, Midwest Mutual Insurance Company v. Arkansas National Company, 260 Ark. 3352 (Ark. 1976) (action against insurance agent in a tort was not assignable.)
Most courts recognize that a tort accrues where the last element of the tort takes place, and if the last element of the tort is damages, then those damages are typically suffered in the state of the plaintiff’s residence or principal place of business. Consequently, the law governing the assignability of the claim may flow from the location of the plaintiff’s business, not where the underlying activities of the defendant agency took place. Choice of law considerations are extremely important when considering assignability where the agency and the agency client reside in different venues.

Understanding the Impact of Coinsurance Clauses

Kendall South Medical Ctr., Inc. v. Consolidated Ins. Nation, Inc., 219 So.3d 185 (Fla. 3d DCA 2017)
A coinsurance provision divides the risk of loss between insurer and insured by imposing a “penalty,” or partial forfeiture of property insurance proceeds, which depends on the relative dollar amounts of the policy and the actual value of the property insured. When a coinsurance provision applies to an insured loss, the insurer does not pay the full amount of the loss but, rather, that amount reduced in proportion to the extent the subject property is underinsured. In Kendall South, the Third District Court of Appeal of the State of Florida reversed the dismissal of a claim for negligent procurement of insurance against an insurance agent for failing to account for a reduction in insurance loss proceeds caused by the operation of a coinsurance clause in the property policy issued.
Kendall South, the operator of a medical center, alleged that it had met with Insurance Nation’s agent, Humberto Torres, in order to obtain a commercial property policy in the amount of $100,000 that would cover its property, equipment, supplies and improvements. Torres provided several quotes, including a policy that was purchased providing property coverage of $100,000 with a $1,000 deductible and a 90% coinsurance clause. Kendall South alleged that Torres represented that the policy selected and purchased would meet its needs. Torres also allegedly failed to advise and inform Kendall South of the impact of the coinsurance clause. Kendall South renewed the policy under the same terms. During that period, a sprinkler leak caused alleged damages in excess of $260,000. However, because of the coinsurance clause, the policy only provided $16,562.67 in coverage.
The trial court dismissed the Fourth Amended Complaint with prejudice, ruling that Kendall South failed to sufficiently allege a claim for negligent procurement of insurance. However, the Third DCA reversed, finding that the pleadings were sufficient to pursue such a cause of action. The appellate court explained that the duty to advise and recommend appropriate insurance coverage is part of the agent’s duties, and it should be tailored to an insured’s expressed needs. This general duty requires an agent to exercise due care in advising an insured of the existence and availability of insurance coverage, including exclusions and limits of liability. The Third DCA explained that an agent or broker does not have a duty to know or value the contents and improvements of the premises before procuring or after renewing a commercial insurance policy. Further, an agent does not have a general duty to explain a coinsurance clause to an insured before issuing such a policy. However, when an insured alleges that it specifically communicated its insurance needs to an agent, who then undertook to procure a policy addressing such needs, the insured states a cause of action for negligent procurement where it also alleges that the agent, without providing an explanation that different coverage was obtained, procures a policy not meeting those expressed needs.
This case illustrates the importance for property insurance brokers and agents to understand the impact of coinsurance clauses and that insurance agents in all lines understand if there are policy conditions or exclusions which would negatively impact the coverages being sought by an insured. If a plaintiff can allege that he informed the broker or agent as to the insurance needs of the individual or business and a sufficient policy wasn’t procured without explanation or consent, the complaint will survive a motion to dismiss and must be litigated on the facts. 
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