This is the first in a four part series based on real cases describing some of the special circumstances that could enlarge the errors and omissions liability of an agent to his or her insured.
The Agent As General Contractor
The general duty that an agent owes to an insured is the duty to use reasonable care, diligence, and judgment in procuring the insurance requested by the insured. Agents, however, often unwittingly enlarge the duty they owe to an insured through actions they take above and beyond the call of duty. Unfortunately, this usually occurs when the agent goes out of their way to help or advise an insured.
Under the law, certain “special circumstances” may give rise to additional or greater duties owed to the insured. Breach of these duties could subject the agent to liability and damages. As such, agents should beware of taking actions that create these special circumstances because as the saying goes, “No good deed goes unpunished.”
What Gave Rise To These Special Circumstances:
An agency’s insured’s home was damaged when a tree fell through the roof of her house in a severe storm. The insured at the time of the loss was 70 years old and submitted a claim through her longtime insurance agent. Wanting to help his longtime client, the insurance agent became actively involved in assisting the septuagenarian insured with adjusting her claim. The agent collected the claim information from the insured and acted as liaison between the insured and her insurance company. The agent located and recommended a repair contractor to the insured and together with the insurer assigned the contractor to perform the necessary repairs and supervised the repairs. When the repairs were done the agent, according to the insured, reported that the “repairs had been adequately completed”. In reality, however, the repair contractor actually only did a temporary repair. Neither the contractor, the agent, nor the insurance company informed the insured of the temporary nature of the repair and that such a repair was unsuitable for long-term use. Nor was the insured informed of the fact that extensive water damage would certainly result if nothing further were done.
In a subsequent suit against the agent and the insurer, the allegation was that, given her age, the fact that the repair was in the roof, and that the damage was hidden, the insured could not have discovered that the repair was performed in an unworkman-like manner. Additionally, the suit alleged that the temporary plastic patch had acted as a water and moisture trap and that ultimately the trapped water leaked from the patch and caused extensive damage to the property and unhealthy levels of black mold. The insured’s son, who had moved in with the insured to care for her because of her declining health, allegedly had to be hospitalized for respiratory symptoms caused by the black mold resulting from the inadequate repair.
After the insured passed away, the son was appointed executor of her estate, and filed a lawsuit against the agent, the insurer and the contractor. The Superior Court dismissed the complaint. The Appeals Court reversed the Superior Court decision as to the negligence claim brought by the insured’s estate and her son and as well as the misrepresentation by omission claim against the agency and the insurance company.
Why This Case Matters:
Although an insurance agent does not ordinarily owe a duty to advise the insured, special circumstances may give rise to such a duty. The Appeals Court held that the allegations of the complaint were sufficient to state the existence of special circumstances, including the relationship between the agency and the insured. The allegations of the complaint that the agency assisted a long-term insured, undertook and supervised the repairs, located the repair contractor, and then reported to the insured that the repairs had been adequately completed raised a question of fact. The Appeals Court then went on to quote Schwartz v. Travelers Indem. Co., 50 Mass. App. Ct. 672 (2001) that establishes that: “Whether the ‘special circumstances of assertion, representation and reliance’ which create an insurance agent’s extended liability, including liability for breach of contract, exist ‘is a jury question.’ ”
What is the New Duty the Agent Owes?
The Appeals Court decision held that on facts alleged, if proven, a jury could find that the agency breached a duty to inform the insured that the roof repair was temporary and unsuitable for long-term use, that extensive water damage and mold would occur if nothing was done and that if she did not hire another contractor to permanently repair the damage, her insurer would likely cancel future coverage. Such a jury finding would make the agency directly liable to the insured’s estate and consequentially liable to her son for his mold-related bodily injury claim.
Potential damages: Cost to repair resulting water damage, bodily injury damages allegedly suffered by occupants of the house from mold resulting from the shoddy repair, and the additional cost to purchase insurance from the Fair Plan after the insurer cancelled the policy because of no permanent repair of the roof.
Acting as an insured’s general contractor on a property loss may lead to agency liability if the damage is not properly repaired;
If you find yourself aiding your insureds above and beyond the call of duty, be sure to inform yourself about the potential liabilities you might be incurring for you and your agency;
If you are unsure whether or not your agency has already incurred these additional duties, best to contact your lawyer to analyze the situation.
Next week, we will take a look at different case in which an agent might find themselves with additional duties resulting from their insured’s claim.
Kara Larzelere joined ForbesGallagher in 1994 and concentrates her practice in insurance and corporate matters. She advises insurance companies and insurance agencies on a variety of matters of concern including issues of regulatory compliance, insurance coverage, liability, employment law, organizational structure and acquisitions. Ms. Larzelere represents businesses and individuals in bringing and defending liability claims and represents insurance companies and commercial entities in complex business and insurance litigation. In addition, Ms. Larzelere has briefed over a dozen appeals before the Massachusetts Appeals Court and the Massachusetts Supreme Judicial Court on varied issues including fiduciary duty law, consumer protection, and indemnification.