You Only Get What You Ask For
Insurance brokers transact insurance with, but not on behalf of insurers. They act to obtain the insurance requested by the insured unless they take on, specifically, a special duty to obtain the insurance needed by the insured whether asked for or not. In Barry Wallman et al v. Benjamin Suddock Etc., et al, No. B224601 (Cal.App. Dist.2 11/17/2011) the owners of a great deal of commercial property asked their broker
to obtain liability insurance only to find a suit filed that the insurer claimed was not covered.
Plaintiffs Barry Wallman, Stan Wallman, and Nancy Wallman (the Wallmans) are general partners of plaintiff Sea Val Enterprises, a general partnership that owns interests in real property. Defendant Benjamin Suddock, doing business as Suddock Insurance Agency (Suddock), is an insurance agent who procured the American Guarantee policies.
In 1994, the Wallmans owned an apartment building at 1325 Ingraham Street in Los Angeles (the Ingraham property). From December 4, 1993, to December 4, 1994, the Ingraham property was insured by Crusader Insurance Company (Crusader). The Crusader policy provided bodily injury liability coverage of $500,000 per occurrence “arising out of the ownership, maintenance or use of the insured premises.”
In February 1994, a child named Anthony Rodriguez fell from a third story window of the Ingraham property and suffered a serious head injury. The Wallmans sold the Ingraham property in August 2001. Since the statute of limitations for injury to a minor does not begin to run until the minor reaches the age of eighteen, Rodriguez was able to sue the Wallmans after they sold the Ingraham property.
The Rodriguez Litigation
Barry Wallman filed the present action for negligence, breach of insurance contract, bad faith, and declaratory relief against defendants Benjamin Suddock, Suddock Insurance Agency (erroneously sued as Ben R. Suddock Insurance Services) on June 29, 2007. Plaintiffs filed a first amended complaint on December 12, 2007, and a second amended complaint on April 1, 2008.
The second amended complaint, which is the operative complaint as to Suddock alleges that Suddock was negligent in failing to procure excess coverage that would have protected plaintiffs against claims connected with previously-owned properties, including the Ingraham property, and in assuring them that the American Guarantee policy would cover them for any claims arising out of their business.
Suddock’s Motion for Summary Judgment
Suddock moved for summary judgment on October 24, 2008. He argued:
(1) because plaintiffs never requested coverage for previously-owned buildings, he owed no duty to seek or recommend such coverage;
(2) he met any applicable duty of care in procuring insurance coverage for plaintiffs; and
(3) because there is no evidence that plaintiffs could have obtained coverage for previously-owned buildings or prior years, plaintiffs could not show causation or damages.
On February 4, 2009, the trial court granted Suddock’s motion for summary judgment. The court noted there was no dispute that, as a general matter, a broker does not owe a duty to obtain coverage a client has not requested. Further, the parties agreed that when the Wallmans asked Suddock for a quote, they did not identify either the Ingraham property or any other property they had previously owned. Finally, it was undisputed that it was plaintiffs’ custom and practice in its prior dealings with Suddock to ask Suddock to remove from their insurance policies any buildings plaintiffs had sold.
Plaintiffs’ sole claim against Suddock is for negligence. To establish negligence, plaintiffs must prove
(1) Suddock’s legal duty of care towards plaintiffs,
(2) Suddock’s breach of that duty,
(3) injury to plaintiffs as a proximate result of the breach, and (4) damage to plaintiffs.
Whether a duty of care exists is a question of law for the court. Ordinarily, an insurance agent assumes only those duties normally found in any agency relationship. This includes the obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. The mere existence of such a relationship imposes no duty on the agent to advise the insured on specific insurance matters. In the ordinary case, the onus is squarely on the insured to inform the agent of the insurance he requires.
How an Agent Assumes A Greater Duty
An insurance agent may assume a greater duty to the insured by holding himself out to be more than an “ordinary agent” or by misrepresenting the policy’s terms or extent of coverage. In other words, while agents do not generally have a duty to advise insureds regarding the sufficiency of their liability limits, once agents elect to respond to these inquiries, a special duty arises requiring them to use reasonable care.
Plaintiffs allege there are triable issues of fact as to whether Suddock breached the ordinary duty of care by failing to obtain the insurance they say they requested – i.e., excess insurance over existing and past primary insurance policies. They further allege there are triable issues of fact as to whether Suddock assumed additional duties by holding himself out as an insurance expert and advising them of the adequacy of their coverage, and whether he breached these additional duties. It is undisputed that an insurance agent’s failure to procure agreed-upon coverage is actionable negligence.
Plaintiffs’ vague requests for insurance that would protect them in the event of “any possible lawsuit that could happen in the future” fail to raise a triable issues of fact to support plaintiffs’ contention that Suddock failed to procure the coverage they requested.
The Wallmans’ statements that Suddock “held himself out to us as an expert in insurance matters, and specifically, for the type of risks our family business encountered” and “offered to act as our insurance consultant, advising us on our insurance needs” are too conclusory to raise a triable issue of fact. Notably missing from these statements are what Suddock said to give rise to the Wallmans’ purported belief that he was an expert in insurance matters.
Under some circumstances, an agent’s misrepresentation about the scope of an insured’s coverage can constitute actionable negligence. Plaintiffs contend Suddock’s alleged statement that he “could not imagine any claim that came that would not be covered” by the excess policy constitutes such a misrepresentation and gives rise to a cause of action for negligence.
The agent’s motion for summary judgment was upheld because the Wallmans’ were unable to show he failed to obtain the insurance they requested, did not misrepresent the coverages available and did nothing to assume a fiduciary relationship.
If an insured wishes to impose a fiduciary duty on an agent it must document its desires in writing and obtain a promise from the agent that he is taking on the extra duty. The Wallman’s failed to do so and lost their suit and failed to convince the Court of Appeal because all they could state in opposition to the agent’s motion for summary judgment were statements that were their conclusions rather than facts that established that the agent took on a greater duty. In fact the agent obtained the insurance the Wallmans’ asked him to acquire.
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, “Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Zalma on Diminution in Value Damages,” “Arson for Profit,” “Insurance Fraud,” and others that are available at www.zalma.com/zalmabooks.htm.
Mr. Zalma has published three new E-Books: “Zalma on Insurance,” “Murder and Insurance Fraud Don’t Mix” a short novel and “Zalma on California Claims Regulations – 2011 is now available for $5 and $25 respectively.