Claim Lost Because Insured Failed to Order Insurance

Agent or Broker Not Liable for Failing to Force Insured to Order Workers’ Comp

Assignment of Bad Faith Case to Plaintiff Worthless

Whenever an insurer refuses to defend or indemnify an insured because of clear and unambiguous exclusions – or an agent fails to acquire needed insurance – even if not requested, they will invariably be sued. The insured, without coverage, will deal with the plaintiff and assign its rights against its insurer in exchange for a covenant not to execute on a judgment. The value of such an assignment is often minimal but the only possible means of collecting on the judgment from a judgment proof defendant.

In Jerald Merrick, As Assignee Of Western Hay Services, Inc. v.  Fischer, Rounds & Associates, Inc., Doing Business As Quality Truck Insurance, and Great West Casualty Company, No. S-18-1173, 305 Neb. 230, Supreme Court Of Nebraska (March 13, 2020) Jerald Merrick tried to collect for his injuries against the defendant’s insurers because the possibility of collecting from the defendant was minimal.

Merrick was injured in a truck accident in the course and scope of his employment.

BACKGROUND

Western Hay Services, Inc. (Western Hay), a company located in Morrill, Nebraska, buys and sells hay and alfalfa and delivers the hay and alfalfa to feedlots and dairies in Colorado and Texas. During Western Hay’s first 4 years, owner Johnny Hill drove one truck and did not have employees. Hill subsequently added a second truck and, in 2009, hired Merrick as a truck driver.

Since its inception, Western Hay has purchased insurance through an insurance broker, Fischer, Rounds & Associates, Inc., doing business as Quality Truck Insurance (Fischer). Great West Casualty Company (Great West) issued Western Hay a commercial lines insurance policy which provided three different forms of coverage: commercial auto coverage, commercial inland marine coverage, and commercial general liability coverage. Western Hay did not have workers’ compensation insurance.

The commercial auto policy excluded  “[a]ny obligation for which any ‘insured’ or any ‘insured’s’ insurer may be held liable under any workers compensation . . . law or any similar law.” The policy also excluded “Employee Indemnification and Employer’s Liability.”

Western Hay had elected not to purchase workers’ compensation insurance when it had no employees. In February 2009, Margheim contacted Fischer and requested that workers’ compensation coverage be added to Western Hay’s insurance. Fischer’s agent asked Margheim to provide Western Hay’s payroll records in order to obtain a quote for the new workers’ compensation coverage. Margheim provided Fischer with Western Hay’s payroll information on April 1. The day prior, March 31, 2009, Merrick was injured in a truck accident while in the course and scope of his employment with Western Hay.

Merrick sued Western Hay alleging he was injured in the truck accident and had incurred $309,154.10 in medical expenses as a result of his injuries. Merrick claimed that Western Hay was negligent for requiring him to drive during a high-wind warning and failing to carry workers’ compensation insurance. Merrick alleged that Western Hay was required to carry workers’ compensation insurance and that such insurance would have provided coverage for his injuries.

Eventually, the district court entered a stipulated judgment in favor of Merrick and against Western Hay in the amount of $800,000. As part of the settlement, Western Hay assigned its claims against Fischer and Great West to Merrick.  Thereafter, Merrick, as the assignee of Western Hay, sued Fischer and Great West.

Each defendant moved for summary judgment. Following a hearing, the district court issued an order sustaining both motions and dismissing Merrick’s complaint with prejudice.

ANALYSIS

In considering Merrick’s claim against Fischer, the trial court found the undisputed evidence showed that on February 2, 2009, Western Hay called Fischer to request workers’ compensation insurance, but did not provide the payroll information necessary for Fischer to complete the quote until April 1, the day after Merrick’s accident. The court concluded that Fischer had no duty to secure workers’ compensation insurance for Western Hay until after the payroll records were provided on April 1. The court further concluded that there was no evidence showing that Fischer breached a duty to obtain workers’ compensation insurance for Western Hay, failed to advise Western Hay regarding workers’ compensation insurance prior to its request for a quote, or failed to warn Western Hay that its insurance policy did not cover injuries to employees in the course and scope of their employment. The court concluded that Fischer was entitled to judgment as a matter of law.

As to Merrick’s claim against Great West, the court determined that the policy at issue contained exclusions for claims based on workers’ compensation liability. Great West was not required to defend Western Hay in the underlying lawsuit and Great West was entitled to judgment as a matter of law.

FISCHER NOT NEGLIGENT

To prevail in any negligence action, a plaintiff must show a legal duty owed by the defendant to the plaintiff, a breach of such duty, causation, and resulting damages.  An insurance agent has no duty to anticipate what coverage an insured should have. It is the duty of an insured to advise the agent as to the insurance he wants, including the limits of the policy to be issued.

Fischer had no duty to obtain workers’ compensation insurance for Western Hay and advise Western Hay regarding such insurance until Western Hay’s request. The trial court found that it was the actions of Western Hay which delayed the insurance quote and that Fischer had not provided Western Hay with any false information regarding the commercial line policy’s coverage or the need for workers’ compensation coverage.

The Nebraska Workers’ Compensation Act governs employers, not insurance agents.

An insurance intermediary owes a duty of reasonable care, whether the intermediary is an agent or broker. Absent evidence that an insurance agent or broker has agreed to provide advice or the insured was reasonably led by the agent to believe he would receive advice, the failure to volunteer information does not constitute either negligence or breach of contract for which an insurance agent or broker must answer in damages.

The failure in this case was on the part of the insured for failing to request workers’ compensation insurance and failing to timely provide payroll information. As a result, Fischer had no duty to advise Western Hay of its obligations under the Nebraska Workers’ Compensation Act and Fischer is entitled to judgment as a matter of law.

GREAT WEST OWED NO DUTY TO DEFEND

The commercial lines policy clearly excluded coverage for workers’ compensation liability and that as a result, Great West was not required to defend Western Hay.

The Supreme Court concluded that the language of the employer’s liability exclusion is clear and unambiguous and a reasonable person in the insured’s position would understand that the policy does not cover injuries to employees occurring in the course and scope of their employment.

Based on the employer’s liability exclusion, Great West had no contractual obligation to defend or indemnify Western Hay in the lawsuit brought by Merrick. The decision of the District Court was affirmed.

ZALMA OPINION

Assignments of cases against insurers and insurance brokers should never be attempted without first reading and analyzing the insurance policies. When an insurance policy has a clear and unambiguous exclusion the person seeking an assignment should understand that the potential for success is small and probably will cost more in the attempt than the potential for receiving a favorable judgment. Similarly, when suing an insurance agent or broker it is imperative, before taking an assignment against the agent, to obtain evidence that the agent had a duty, breached that duty and caused the insured damages. In this case the assignee was unable to find evidence sufficient to prove a duty, let alone, a breach of duty.


© 2020 – 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 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the Insurance Claims Library 

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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