Understanding the Impact of Coinsurance Clauses: Kendall South Medical Ctr., Inc. v. Consolidated Ins. Nation, Inc., 219 So.3d 185 (Fla. 3d DCA 2017)

Edited by Timothy G. Ventura, Esq.

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.