Agent Does Not Have To Inform About Terms Of Coverage

Grand Prairie insurance lawyers will often run into situations where a person says, “My agent didn’t tell me about that.” A Houston Court of Appeals [1st Dist.] opinion discusses some of what an agent is responsible for telling a customer. The case is styled, North American Shipbuilding v. Southern Marine & Aviation Underwriting.
This case involves a builder’s risk insurance policy to insure the hull of a ship during construction. North American purchased the builder’s risk policy through the insurance brokerage firm of Adams & Porter. Adams & Porter purchased the policy through a wholesale broker, Southern Marine, from the Underwriters. The policy insured against “all risks of physical loss of or damage to the vessel occurring during the currency of this policy except: … in the event that faulty design of any part or parts should cause physical loss or damage to the vessel.”
North American tested the welds on the hull. Certain welds failed the test. The cause was improperly mixed welding gas that North American had received from Swisco. North American replaced all the welds. North American then demanded $1,056,795.00 from Underwriters. The Underwriters denied coverage. North American sued the Underwriters for breach of insurance contract, breach of duty of good faith and fair dealing, fraud, violations of the Texas Insurance Code, and punitive damages. North American sued Southern Marine for breach of duty of good faith and fair dealing, fraud and intentional misrepresentation, negligent misrepresentation, common law negligence, violations of the insurance code and punitive damages. Both the Underwriters and Southern Marine filed motions for summary judgment. The trial Court granted summary judgments for the Underwriters and Southern Marine on all claims. North American appealed.
Summary judgments for Underwriters and Southern Marine were affirmed. Although a builder’s risk policy may cover accidents caused by defective workmanship, the language “physical loss or damage to the vessel” does not cover cost of repairing faulty initial construction, mistakes in construction, or defective workmanship. The Underwriters did not breach the insurance contract and the Underwriters had a reasonable basis for denying the claim, thereby precluding recovery for bad faith. In addition, Southern Marines’s representation that the policy “insures against all risks of physical loss of or damage …” was not a misrepresentation. Southern Marine did not represent that the policy would cover faulty workmanship. Therefore, Southern Marine did not make actionable misrepresentations.
Finally, Southern Marine was not North American’s agent, it was the Underwriters agent. When North American’s agent (Adams & Porter) agreed to apply for insurance on behalf of the principle (North American) that agent had the duty to inform the principle what coverages were included. Southern Marine, the agent of the insurer (Underwriters) does not have a duty to the applicant to explain the terms of and coverage included in the application.