The Case: Witkowski v. Richard W. Endlar Insurance Agency, May 29, 2012, Massachusetts Appeals Court
Why we featured this case:
This case is another in a line of cases finding potential liability against insurance agents arising out of certificates of insurance. Certificates of insurance can create an E&O exposure for agents even though they have specific disclaimers as evidenced by this case.
What you should know about this case:
The Richard W. Endlar Insurance Agency, of Dedham (Endlar) specializes in providing property and casualty insurance products to condominium associations and other habitation-related clients. The agency was recently acquired by Brown & Brown (For more information, see Agency Checklists May 16, 2012 Article).
A recent decision of the Appeals Court reversed summary judgment in the agency’s favor on an error and omission claim arising out of a certificate of insurance issued on a condominium closing and an uncovered flood loss of a “Garden style” condominium in Andover.
The plaintiff, Mr. Witkowski, purchased a basement unit in the Balmoral Condominiums, a building that had originally been the headquarters for the American Woolen Company. Mr. Witkowski’s unit was one of four basement condominiums in this 86 unit project that had been constructed from what had been the grand executive offices of the company. The Balmoral Condominiums were beautifully situated near the Shawsheen River and the condominium trust even owned its own picturesque private dam on the river.
Not surprisingly, the Balmoral Condominiums were designated in the Federal Emergency Management Agency (FEMA) flood plain maps for the area as being in a special flood hazard area. Mr. Witkowski’s mortgage lender accordingly required evidence of flood insurance for the unit as a condition of closing. A paralegal for the company doing the closing for the bank requested a certificate of insurance from Endlar.
The agency furnished a certificate of insurance regarding insurance on the condominium. The particulars of the flood insurance indicated that this coverage was in force with the Hartford and covered the building in the amount of $9,800,000.00, as per the certificate. The certificate of insurance had some of the standard disclaimers but it specifically stated that “the above unit is insured under the master policy issued to: Balmoral Condominium Trust, its trustees and all unit owners, as their interest may appear.” The closing attorney accepted the certificate of insurance as adequate proof of flood insurance and dispersed the mortgage proceeds at the closing.
Ten months later, on Mother’s Day weekend in May 2006, twelve inches of rain fell in Andover over a three day period. The Shawsheen River went almost nine feet over its banks and the Balmoral Condominiums had to be evacuated. Mr. Witkowski’s basement unit was flooded out and completely destroyed.
If that were not enough, as Mr. Witkowski was recovering from the devastation to his recently purchased condominium, he was advised by a trustee of the condominium that the flood insurance policy for the condominium trust specifically excluded his unit, among others, because of the potential for flooding (The Shawsheen had crested at ten feet in 1996). Finally, to add insult to injury, Mr. Witkowski then found out that under the applicable building codes, his unit could not be rebuilt because of its basement location in a building situated within a special flood hazard zone.
Mr. Witkowski sued his title insurance company and the Endlar Agency. In Superior Court both defendants were awarded summary judgment but, Mr. Witkowski appealed. The appeal was upheld on the title insurance company (finding no defect in title as of the date of closing) but the judgment in favor of the Endlar Agency was reversed. The matter was sent for trial on the question of whether there was potential liability under the insurance certificate issued by Endlar.
What the Court said:
In its motion for summary judgment, Endlar asserted that Mr. Witkowski’s claim for misrepresentation fails as matter of law because the certificate it furnished contained no false statement. According to Endlar, the certificate merely states (correctly) that the policies listed in the certificate had been issued in favor of the Balmoral Condominium Trust. Endlar’s argument to the Court was that the certificate made no representation concerning insurance issued in favor of the plaintiff’s unit (as compared to the condominium as a whole).
The Appeals Court disagreed. The Court said that while one could give the certificate such a narrow reading, the certificate could also be read as falsely stating that the plaintiff’s unit was covered by flood insurance. The Court ruled that in deciding the case a judge or jury could take into account the circumstances of the request and the fact that the agency would have known the purpose for which the certificate was intended.
The Court did acknowledge that, while a certificate could not reasonably be expected to set forth all the terms, conditions, and details of every policy, the particular exclusion of Mr. Witkowski’s unit from coverage entirely was “a particularly dramatic limitation in the circumstances.” The Court went on to rule that where such an undisclosed exclusion in the policy totally negates the essential purpose for which the certificate was requested there is a question of fact as to whether the agency’s certificate negligently misrepresented that there was flood coverage.
- Certificates of insurance are not the legal equivalent of a contract between the holder of the certificate and the carriers who issued the policies identified on the certificate. It is important to note that certificates are representations in some cases of when an agency issues them thus, creating a potential E&O exposure for agents, as happened in this case.
By Owen Gallagher