Does An Insurance Agent Have To Discuss Exclusions In A Policy?

The above question comes up more often than it should.  The short answer is no.  A 2000, San Antonio Court of Appeals case styled, Nwaigwe v. Prudential Property & Casualty Insurance Company, discusses the agent’s responsibility.

Moses Nwaigwe sued Prudentail and its agent, William Eckert for failing to disclose a policy exclusion that the company used to deny a claim.  Prudential’s argument is that Eckert did not misrepresent the terms of the policy and that it had no duty to tell Moses about the exclusionary clause.  The court granted summary judgment in favor of Prudential and Eckert.

Moses purchased a fire insurance policy from Prudential to insure an occupied rental property.  The policy was renewed two times, but Moses never received a copy of the policy.

Moses evicted his tenants.  The property remained vacant for about a year and was destroyed by fire based on the policy’s vacancy clause, which excludes coverage for a building vacant for sixty consecutive days immediately before a loss.

Moses says he did not know about the vacancy clause because the agent never told him about it and because Prudential never delivered a copy of the policy so that he would know about the exclusion.  Moses sued for violations of the Texas Insurance Code, the DTPA, misrepresentation, and negligence.

Prudential says it is entitled to judgment because it did not misrepresent the scope of coverage because it did not make a specific misrepresentation.

The evidence in this case establishes that at the time Moses purchased the policy from Prudential, no specific misrepresentations were made concerning coverage, and no material information was withheld from Moses to induce him to enter the transaction.  To the extent that knowledge of the 60 day vacancy clause might have been material to Moses’s decision to purchase the policy, it lost its materiality when Moses represented to Prudential that his property would not be unoccupied for more than 30 consecutive days per year.  The Court ruled that Prudential had no duty to advise Moses that the policy included a vacancy exclusion.  Moses may have believed he was fully covered by the policy regardless of the property’s occupancy, but mistaken belief about the scope or availability of coverage is not actionable under the DTPA or the Texas Insurance Code.

The above scenario plays out quite often.  An insured needs to ask the agent specific questions about coverage and get specific answers.  It is when the agent misrepresents or gives inaccurate information about the scope of coverage provided in a policy that the agent and company can be liable.

One other caveat here is that when a misrepresentation is made, there is a two year limitation period within which to act on the misrepresentation in most cases.