Insurance Broker is Only Required to Sell the Policy Ordered
I have said before that much insurance litigation would be resolved by the persons insured, and their lawyers, actually reading the insurance policy. Failure to do so can be, and usually is, expensive.
Insureds, who did not get what they expected after a loss, must also understand the law relating to insurance agents, brokers and insurer’s obligations with regard to the acquisition of a policy of insurance. When they do not they find, as did the parties in Crossroads Convenience, LLC, as successor to TFL Associates, LLC, and assignee of Anderson Oil Company, Inc. v. First Casualty Insurance Group, Inc., Civil Action No.: 1:15-cv-02544-JMC, United States District Court For The District Of South Carolina Aiken Division (June 13, 2018) themselves up the creek without a paddle.
Plaintiff Crossroads Convenience, LLC (“Crossroads”), as successor to TFL Associates, LLC (“TFL”), and assignee of Anderson Oil Company, Inc. (“Anderson Oil”), sued Defendant First Casualty Insurance Group, Inc. (“First Casualty”) alleging claims for breach of contract, negligence, negligent misrepresentation, promissory estoppel, constructive fraud, breach of fiduciary duties, equitable indemnity and quantum meruit in the context of an insured-insurer relationship.
Crossroads is the successor in interest to TFL, which owned premises located at 324 Main Street North in Allendale, South Carolina (the “premises”). TFL leased the premises to Anderson Oil, which operated a convenience store there. Beginning on August 1, 2007, Anderson Oil subleased the premises to Varni Enterprises, LLC (“Varni”).
The sublease provided that Varni would maintain insurance policies for the premises “in such amounts as are reasonably necessary to protect [Anderson Oil] and such amounts shall be at least for the fair market value of the buildings and equipment.”
Varni contracted with First Casualty, as an agent, to procure an insurance policy that would meet the requirements set forth in the sublease for policy period July 2009 to July 2010. Varni’s principal, P.J. Patel, gave First Casualty’s agent, Gary Kunce, explicit instructions that the limit of any insurance policy should be set at $400,000.00 for each insured location. Kunce was not provided a copy of the lease between Varni and Anderson Oil and “was never asked to interpret the lease or opine on Varni’s insurance obligations under the lease.”
As a result of Patel and Kunce’s interaction, First Casualty procured for Varni from Employers Mutual Casualty Company (“Employers Mutual”) an insurance policy on the premises for the period July 1, 2009 to July 1, 2010. In September 2009, Anderson Oil was added to the policy as an additional insured. Thereafter, “Varni purchased coverage from Employers Mutual in 2010-2011and 2011-2012, through First Casualty.” In 2011, Employers Mutual automatically increased to $420,000.00 the limit on the policy for the premises “and advised First Casualty that the limits increase was non-negotiable.”
Under the terms of the insurance policy, in the event of damage or loss to covered property, Employers Mutual agreed to “[p]ay the value of the lost or damaged property” or to take equivalent action. “The policy contained an 80% co-insurance clause under which the insured would be penalized if the property were not insured to at least 80% of its replacement value.” Kunce explained the co-insurance clause to P.J. Patel, who asked  no questions and appeared to understand [the] explanation.”
On October 29, 2011, the convenience store located on the premises was destroyed by fire. On January 13, 2012, Varni executed a Sworn Statement in Proof of Loss and submitted it to Employers Mutual, as required by the insurance policy. The proof of loss documents demonstrated that the estimated replacement cost of the convenience store building was $767,653.21, that the insurance coverage limit needed to meet the 80% mark was $614,122.57, that the coverage limit in the policy was $420,000.00, that the actual cash value (“ACV”) of the building was $498,974.59, that the total ACV of loss and damage was $317,027.71, and that, after its $35,000.00 deductible, Varni was owed $282,027.71 under the insurance policy. Employers Mutual paid Varni $282,027.21 on January 18, 2012 and stamped Varni’s Sworn Statement in Proof of Loss as having been received on January 19, 2012.
On October 20, 2014, Anderson Oil and TFL sued Varni, First Casualty and Employers Mutual. Anderson Oil and TFL alleged that Varni had placed a special trust and confidence in First Casualty to select the proper insurance policy to meet the requirements of the sublease; that Varni had informed First Casualty that the policy would need to protect Anderson Oil’s interest in the premises and cover an amount at least equal to the fair market value (“FMV”) of the premises; that First Casualty was aware that Anderson Oil had insured the premises for a replacement value of approximately $669,000; and that Varni had reasonably relied on First Casualty’s selection of insurance policy.
Anderson Oil and TFL further alleged that First Casualty’s selection of a policy with a coverage cap of $420,000.00 and a provision that covers less than the full amount of property loss or damage if the cap fails to meet the 80% percent mark rendered the premises “significantly underinsured.”
On May 14, 2015, Varni assigned to Anderson Oil any rights Varni may have had against First Casualty arising in connection with the insurance policy in exchange for Anderson Oil’s agreement not to execute any judgment against Varni arising from the pending litigation.
On March 4, 2016, First Casualty filed its first Motion for Summary Judgment. In its Motion, First Casualty advanced three arguments supporting judgment in its favor. First, it argued that all the claims asserted against it in the Second Amended Complaint are barred by the three-year statute of limitations. Second, First Casualty argued that, because all the claims against it are premised not only on its liability to Varni but also on Varni’s liability to Anderson Oil (which is in turn liable to Crossroads as TFL’s successor in interest) Varni’s dismissal from the action with prejudice extinguished any potential liability Varni could have to Crossroads, and, consequently, Crossroads could not plausibly allege a cognizable injury to Crossroads flowing from First Casualty’s actions allegedly injuring Varni. Third, First Casualty argued that all claims against it fail on their merits since it acquired the policy ordered and because there was no evidence that First Casualty breached its sole duty-to procure coverage per its customer’s request-or took on any additional duties.
The District Court agreed with First Casualty that the evidence of record – when viewed in the light most favorable to Crossroads as the nonmoving party – demonstrates without dispute that Varni, through its principal P.J. Patel, has not been exonerated from being at fault in causing its own damages and those suffered by Anderson Oil as it relates to the procurement of insurance coverage on the premises. Because of this evidence, First Casualty is entitled to summary judgment on Crossroads’ cause of action for equitable indemnity.
First Casualty did what it was asked to do – it acquired a policy with specific limits and an 80% co-insurance clause. The negligence, if any, was from Varni who ordered the policy. The error was letting Varni go so the insurer could be sued when the real wrong was done by the person the plaintiffs let go. A party should never let a viable defendant go in exchange for an assignment against a deep pocket unless they are sure to win.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Books from Full Court Press
Full Court Press continues to publish expert secondary content. This time it’s a new collection of ew insurance law treatises from consultant, expert witness, arbitrator, and mediator Barry Zalma.
Barry Zalma practiced law in California for more than 44 years as an insurance coverage and claims-handling lawyer, and has spent more than 50 years in the insurance business. We welcome his deskbooks as the first published under our Full Court Press imprint. Three titles are available in ePub and MOBI format, as well as on the Fastcase legal research platform.
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An annual subscription to secondary content on the Fastcase platform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books. Details on the three new e-books are available at https://www.fastcase.com/product-category/fcp/ Subscribers to fastcase.com can search the three books as they do case law.
An annual subscription to secondary content on the Fastcase platform includes new editions and updates published by the author as they are rolled out, so you can rest assured that your research is up to date. Go to fastcase.com for more detail and how to use the material on-line as part of your legal or insurance research or as stand-alone e-books.
Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.