The Case: Technical Papers Corporation v. Liberty Mutual Insurance Company, January 14, 2012
Why we featured this case: This recent decision of the Massachusetts Appeals Court is an excellent primer on independent agency risk management. What is surprising is that the lessons arise from an insured’s lawsuit against a direct writer, Liberty Mutual.
What You Should Know About This Case:
A local company, Technical Papers Corporation, had a long-standing insurance relationship with Liberty Mutual. While not quite a household name, Technical Papers began in Boston in the 1920s to serve as an agent of large paper mills. Over the years, the company developed some important paper products that we use today including the first flow-through tea bag as well as one of the first patents on disposable diapers.
Underinsured loss generates lawsuit after fifty-year relationship with Liberty Mutual
As successful as Technical Papers might have been in developing new paper products, it was less successful in monitoring its insurance needs. For over fifty-years, the company purchased all its commercial property, workers’ compensation, automobile, general liability, and excess liability insurance exclusively and directly from Liberty Mutual. It wasn’t until 2005, however, that the company learned the hard way that it did not have adequate insurance limits for its business risks. That year the company had a fire at its data warehouse resulting in over $1.1 million in lost inventory, personal property, and business interruption. It was only then that it realized that the insurance purchased from Liberty Mutual would only cover half of its losses.
Technical Papers sued Liberty Mutual claiming, in part, based upon the long-standing business relationship it had with the insurance carrier, that Liberty Mutual had had a duty to provide it with adequate coverage. Technical Papers claimed that Liberty Mutual was thus liable for the difference between the coverage proceeds and the actual losses that it suffered as a result of the fire.
Claim that Liberty Mutual should have provided the services usually provided by an independent insurance agent or broker.
Surprisingly, the actual legal theory of the complaint was that because of the long-standing relationship with Liberty Mutual, Liberty Mutual should have provided Technical Papers with an advisory service about risk and corresponding coverage typically furnished by an independent insurance broker or agent. Technical Papers contention was that Liberty Mutual had acted as a risk assessment manager and had assumed a duty to recommend adequate coverages.
Technical Papers sued Liberty Mutual under four theories of liability usually employed as the basis of an independent agency error and omission claims: (1) general negligence; (2) negligent misrepresentation; (3) breach of contract; and (4) unfair or deceptive acts or practices within the meaning of G. L. c. 93A, §§ 2 & 11.
What the Court said:
The Appeals Court affirmed the summary judgment entered in favor of Liberty Mutual on all of the counts put forth in the Technical Papers lawsuit. With regard to the negligence claim, the appeals court affirmed that independent agents, and therefore Liberty Mutual under Technical Paper’s legal theory, have no general duty “to ensure that the insurance policies procured by the insured provide coverage that is adequate for the needs of the insured.”
Technical Papers could point to no evidence that would create “special circumstances” requiring an independent agent or an insurance company allegedly acting in the role of independent agent to exercise a heightened duty of due care to its customer.
The Appeals Court also emphasized that a long-term relationship between the parties and public representations of expertise or public promises to provide specialized services by an insurer can be factors supporting, but not conclusively establishing, a finding of special circumstances. In other words, there has to be an assertion or representation by the agent or company and reliance by the insured upon the representation or assertion made by the agent or company.
Notwithstanding the long-standing business relationship, the court found that Technical Papers could produce no evidence that Liberty Mutual ever had made specific assertions or representations about the adequacy of its coverage upon which Technical Papers reasonably could have relied.
Technical Papers also had urged the court to find that letters where Liberty Mutual assured that it wanted to provide “the best possible coverage at a fair price” – constituted a specific assertion regarding the sufficiency of its coverage making Liberty Mutual responsible for the adequacy of the coverage placed. The court simply affirmed that such statements are “… more akin to the sort of bland assertion contained in a generic media advertisement” and that there was no liability because Technical Papers could not identify any actions undertaken by Liberty Mutual to suggest that it had assumed a heightened duty of due care.
Technical Papers also argued that Liberty Mutual’s assertion that it aimed to provide “the best possible coverage at a fair price” constituted a false representation inducing the belief that it was providing Technical Papers with the advice and guidance necessary to procure appropriate coverage, and that its justifiable reliance on this information caused inadequate coverage.
Again, however, the court found that such generic assertions are too amorphous to be considered factual representations upon which Technical Papers reasonably could have relied for serious and specific business counsel.
Finally, Technical Papers attempted to argue that a duty to provide advice and guidance is inherent or implied in the contractual relationship of a policy of coverage between the insurer and the insured. The court rejected this notion by specifically holding that no Massachusetts common-law doctrine supports the imposition of such an obligation under the terms of a typical insurance policy. In particular, the court held that unless Technical Papers could identify some specific contractual language in its policy suggesting that Liberty Mutual agreed to provide advisory services there could be no liability.
- Absent special circumstances in the insurer-insured relationship, there exists no duty to ensure that policies obtained by an insured are adequate.
- A statement by an independent agent or its agency that it will get its customers “the best possible coverage” does not create in and of itself any actionable claim for damages.
- Presently, the court says there exists no duty to provide policy advice and guidance under the insurance contract absent a specific provision.
Author: Owen Gallagher