Insurance Brokers And Insurance Law

Many people get their insurance through a broker.  Can a broker be liable the same as an agent.  The short answer is “yes.”  A 1995, Houston Court of Appeals [1st Dist.] discusses an issue with a broker.  The opinion is styled, Seneca Resources Corp. v. Marsh & McLennan, Inc.

Marsh & McLennan (M&M) brokered insurance for Seneca, an oil and gas company.  As part of its services, M&M provided summaries of insurance policies.  Seneca suffered a loss when a hurricane toppled a submersible drilling rig in the Gulf of Mexico.

The insurance summaries provided by M&M to Seneca indicated that Seneca had purchased “operator’s extra expense” named peril coverage which would have covered the cost of re-drilling the well.  However, the applicable policy did not, in fact, include named peril re-drill coverage as indicated by the summaries.

An independent insurance adjuster estimated Seneca’s total claim for damages to be $4,709,532.54.  Seneca submitted the claim to Underwriters which refused to pay because Seneca did not have named peril re-drill coverage.  Seneca brought suit against Underwriters, M&M and other intermediate brokers.  The claims against M&M included negligence, breach of fiduciary duty, misrepresentation, breach of warranty, violations of the Insurance Code, and breach of good faith and fair dealing.  The dispute was submitted to arbitration under the policy’s arbitration agreement.  The arbitrators found that Underwriters owed Seneca $1.745 million for property damage, $1.8 million in attorney’s fees and prejudgment interest of $1.3 million.  Underwriter’s paid this amount.  Seneca then entered into agreements with Underwriters and the other carriers.  Before trial, Seneca amended its pleadings to name M&M as the sole defendant.  Seneca’s sole cause of action against M&M was misrepresentation regarding the extent of coverage which violated Section 541.051 of the Insurance Code.

The jury found that M&M’s summaries of insurance indicating named peril coverage were misrepresentations that violated the Texas Insurance Code, but these misrepresentations did not cause any damages to Seneca.  Seneca appealed.

This appeals court held that the jury verdict in favor of M&M was affirmed.  The evidence is undisputed that M&M’s insurance summaries represented that the named peril coverage was provided.  However, testimony by M&M’s account executive indicated that Seneca’s risk manager was immediately informed orally that named peril coverage was not included, but would cost an additional 10% to 20%.  The risk manager then declined to purchase the additional coverage.  Therefore, since the risk manager knew before the loss that the named peril coverage was not provided and declined to purchase it, the misrepresentation in the insurance summary could not have caused damages to Seneca.

This Court of Appeals rejected Seneca’s argument that under the 1998, Texas Supreme Court case, Vail v. Texas Farm Bureau, an insurer’s unfair refusal to pay the insured’s claim automatically causes damages as a matter of law in at least the amount of the policy benefits wrongfully withheld.  This appeals court looked at the 1995, Texas Supreme Court opinion in, Twin City Fire Insurance v. Davis, which reaffirmed that causation must be proved.