Can an Insurance Agent Be Negligent for Not Obtaining UM Coverage After the Insured Rejects Coverage?
In Arizona, like most states, a statute requires that an insurer offer each insured both Uninsured Motorist and Underinsured Motorist Coverage and holds that it can only be excluded if the insured signs a document specifically rejecting the coverage. In Wilks v. Manobianco, — P.3d —-, 2015 WL 4132181 (Ariz., 7/9/15) the Arizona Supreme Court was called upon to rule on the effect of Arizona Revised Statutes § 20–259.01 on a claim of negligence against an insurance agent. The statute requires insurers to offer uninsured motorist (“UM”) and underinsured motorist (“UIM”) coverage to their insureds. Insurers can prove compliance with the statute by having their insureds sign a Department of Insurance (“DOI”) approved form selecting or rejecting such coverage.
The insured, Wilks, claimed that they had requested the agent, Manobianco, obtain UM/UIM coverage although they admitted signing the form rejecting coverage.
For two years, Lesley Wilks had car insurance from State Farm Mutual Automobile Insurance Company, which she obtained through John Manobianco at the Manobianco Insurance Agency (collectively “Manobianco”). Her policy included liability and both UM and UIM coverage. Wilks later replaced the State Farm policy with a policy from another insurance company. A year later, she decided to switch back to State Farm. When doing so, Wilks asked Manobianco to obtain “the exact same coverage that [she] had previously, full coverage.” Manobianco did not look up Wilks’s prior coverage and procured insurance that did not include UIM coverage. In the course of signing several insurance forms, Wilks signed the DOI-approved form, which had been filled out by Manobianco to reject UIM coverage.
Several years later, Wilks was rear-ended by an underinsured driver. State Farm denied the UIM claim she made under her policy. Wilks and her husband then sued Manobianco for malpractice for failing to procure the insurance coverage they had requested.
Manobianco moved for summary judgment, arguing that it satisfied its duty of care as a matter of law by complying with A.R.S. § 20–259.01.
The trial court found “that [Manobianco’s] compliance with A.R.S. § 20–259.01 demonstrated that [it] fulfilled [its] duties to Plaintiffs regarding offering the UM/UIM coverage,” and therefore Manobianco “breached no duty owed to Plaintiffs.” The court of appeals reversed. The Court of Appeal, reversing the trial court, held the statute did not abolish that duty because the statute does not apply to insurance agents, and it is not broad enough to bar common law negligence claims against them. The Arizona Supreme Court granted review.
Under Arizona’s common law, insurance agents owe a duty of reasonable care when obtaining insurance on behalf of their clients. That duty is founded on an agent’s status as one with “special knowledge,” who “undertakes to act as an advisor” to a client. Manobianco argues that the legislature modified insurance agents’ common law duties to their clients by enacting § 20–259.01, which creates a “safe harbor” if the insured signs a DOI-approved form rejecting UM or UIM coverage:
When interpreting a statute, the Supreme Court’s primary goal is to give effect to the legislature’s intent. Absent a clear manifestation of legislative intent to displace a common-law cause of action, a court must interpret statutes with every intendment in favor of consistency with the common law.
The statute at issue provides insurance companies with a method for proving that they offered UM and UIM coverage to their insureds. It does not purport to bar common law professional negligence claims such as the claim asserted here. Manobianco argues, however, that the statute implicitly bars such negligence claims because the statute’s mandate that “rejection of coverage … shall be valid for all insureds” precludes any action involving a fact-based inquiry related to a plaintiff’s UIM coverage. The “shall be valid” language in A.R.S. § 20–259.01(B) guarantees that if an insurer provides and the insured signs a DOI-approved UM/UIM selection form, the insurer has satisfied the statutory requirement to ‘make available’ and ‘by written notice offer’ UM/UIM coverage.” Thus completing the DOI-approved form eliminates fact questions concerning “whether UM/UIM coverage was sufficiently offered” by the insurer and “whether the terms of the offer were understood.”
It therefore only bars inquiries related to the insurer’s offer of UM and UIM coverage. Because Wilks concedes that she was offered UIM coverage on a DOI-approved form, which she signed, her claim that Manobianco failed to procure the UIM coverage she requested does not frustrate the purpose of § 20–259.01(B). The Supreme Court recognized that the distinction between the facts surrounding an insurer’s offer of UM and UIM coverage and those surrounding a client’s request for such coverage is slight, that distinction is important given the language and purpose of the statute.
The statute imposes a duty on insurers to make an offer of UM and UIM coverage, but it does not discuss or affect whether an agent must honor a client’s request for such coverage. An agent’s common law duty to its clients to procure requested UIM coverage therefore remains distinct from the duties prescribed by § 20–259.01. Whether Manobianco failed to honor the Wilkses’ alleged request for UIM coverage, and whether that failure breached Manobianco’s common law duty of care, are questions for the trier of fact.
Although the statute speaks only in terms of protecting “insurers”—that is, those who write automobile insurance policies—Manobianco maintains that the statute also applies to insurance agents because the term “insurer” necessarily includes insurance companies and their agents.
Because the statute does not bar the Wilkses’ negligence claim, Mrs. Wilks’s admitted failure to read the DOI-approved form she signed—despite its bold print “WARNING” and directive to “read carefully before signing”—may be submitted to the jury to consider during its assessment of comparative negligence. A jury may also weigh the fact that Manobianco complied with the requirements of A.R.S. § 20–259.01 as evidence that he acted reasonably under the circumstances.
The Wilkses’ negligence claim is based on a duty distinct from that imposed by A.R.S. § 20–259.01. Whether Manobianco breached its common law duty by failing to procure the UIM coverage Wilks allegedly requested and whether Wilks should be assigned comparative fault for failing to read the related paperwork are questions for the jury. The trial court therefore erred by granting summary judgment to Manobianco as a matter of law.
This is a situation where an insurance agents and his lawyers were too smart by half. Rather than arguing the straight-forward admitted fact that the plaintiff Wilks had rejected UM/UIM coverage in writing there was no reason to argue that the statute helped the agent. This is a straight factual issue that should have been found, as a matter of law. The insured, Wilks, admitted that the form was signed providing instructions to their insurance agent that UM/UIM coverage was rejected. It should overcome the oral claim that Wilks’ asked for UM/UIM coverage.
Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness 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 founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
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