Presented by the Insurance Agents & Brokers Liability Practice Group

Thorny Statute of Limitation and Choice of Law Problems in E&O Litigation

May 14, 2019

By David W. Henry, Esq.

Statute of limitations analyses in agents’ errors and omissions claims differ greatly from state to state. Some states recognize that the cause of action accrues from the first moment the insured learns they have suffered some loss even though the loss may not have become fully realized. Beddingfield v. Mullins Insurance Company, 2018 Ala. LEXIS 60, 2018 WL 2997849 (Ala. June 15, 2018)(court rejected the notion that the cause of action had not accrued until the underlying litigation was fully resolved on appeal, finding some injury had accrued when the Beddingfields discovered their coverage was allegedly inadequate).

Other jurisdictions, such as Florida, take a more consumer-friendly approach, holding that the cause of action against the agent does not accrue until all of the underlying tort and coverage litigation has concluded and that it is at that time the damages have crystallized and the cause of action accrues. The reasoning being that, if the underlying liability or coverage litigation is resolved in favor of the insured, there may be no cause of action by the insured to litigate against the agent. In Florida, for example, a long line of cases recognizes that in a suit against an agent, a cause of action for inadequate coverage does not accrue until the underlying liability and coverage action is concluded or settled. If suit is filed prematurely, it is subject upon motion to abatement at the request of the defendant agent. Riascos-Mazo v. Certain Underwriters at Lloyd’s of London, 2018 U.S. Dist. LEXIS 152105 (S.D. Fla. Sept. 5, 2018)(citing Blumberg decision from 2001).

A more difficult question arises when the agency relationship is formed in one state but the underlying claim arises in another. Suppose the agent in Beddingfield, residing in Alabama, wrote a condominium policy for a unit in Florida and later the agency client sued in Florida for inadequate coverage after a large first-party property loss. A difficult choice of law question is raised as to whether the Alabama statute of limitations might apply or the Florida limitations period. Alabama has a two-year statute, while Florida has a four-year general negligence limitations statute. Even if the lawsuit against the agency was filed in Florida, a Florida court applying choice of law rules and analyses might conclude that the underlying relationship between the insured and the agency client arose out of Alabama and, therefore, Alabama law should govern the rights and liabilities and responsibilities of the parties. In that case, the Alabama limitations period might apply, even though suit is venued in Florida.

Some jurisdictions follow the Restatement of Conflict of Laws analysis and apply a multifactor test to determine which state’s “interest in the dispute” is the most significant. Other jurisdictions might focus on the contractual relationship between the agency and the customer. If the agent is sued for “breach of contract” for failure to procure, a court could apply a lex loci contractus analysis—where the insurance contract was made governs. Even if the court applied Alabama law to questions of agency negligence or fault, the court could hold Florida law governs damages because that is where the actual loss was suffered.

Whenever one evaluates an agency error or omissions claim where the agency relationship is centered in a state different from the underlying accident or injury to the policyholder, careful consideration to the choice of law rules governing agency liability claims is warranted. This problem surfaces when the litigation is venued in a state different from where the agency-client relationship was formed.

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