Articles Posted in Insurance Agents

Insurance agent mistakes can be a big cause of litigation.

Everyone makes mistakes, and insurance agents are not immune. The very complexity of the insurance business creates numerous opportunities for errors and omissions to creep into an agency’s operation.

An insurance agent has / serves two masters – the insured, his customer and the insurance company.

Insurance agents who do not sell the insurance policy that was requested by their customer can be held liable for selling the wrong policy or misrepresenting the policy.  This is illustrated in the Northern District of Texas, Dallas Division, opinion styled, Steve and Ellen Malone v. Blue Cross and Blue Shield of Texas and Garrison & Associates.

Negligent procurement of an insurance policy is recognized as a legally cognizable claim against an insurance agent.  The Texas Supreme Court held that an insurance agent “owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so.”  In this case the Malones allege they informed the Agent of Steve Malone’s specific cancer diagnosis and his ongoing care and treatment.  More explicitly, the Malones allege they made known to that their health insurance policy under Humana, which was being discontinued covered Steve Malone’s ongoing cancer treatments and they “specifically requested” the insurance Agent furnish them with a health insurance policy that would “provide the same or better coverage as Humana, especially as it relates to Steve Malone’s cancer treatments.”  The insurance Agent allegedly agreed to procure the specific coverage requested and, thereafter, provided the Blue Cross Blue Shield (BCBS) Policy.  The Agent allegedly told Malones the BCBS Policy would provide the requested insurance coverage, specifically including Steve Malone’s ongoing cancer treatments and the Rituxan therapy.  The Agent also allegedly represented to Malones that “the BCBS Policy was as good as or better than the Humana plan, and would provide the same or better coverage.”  The Malones then enrolled in the BCBS Policy. However, shortly thereafter, the Malones’ claim submitted for Steve Malone’s ongoing Rituxan therapy “was denied on the basis that the BCBS Policy does not provide coverage for the needed medical care.”  The repeated denial of coverage for this cancer treatment claim spanned six months.  The Malones allege they were irreparably harmed because Steve Malone was taken out of the Rituxan therapy during this time period and prevented from re-entering, and any benefits he had received from it were nullified.

The Court stated this pleading is consistent with causes of action related to the Texas Insurance Code, Section 541.051 and the Texas Deceptive Trade Practices Act.

Here is a case where the insured’s are claiming the agent misrepresented a policy.  The style of the case is Frederic Muratore and Lillian Muratore v. Texas Farmers Insurance Company, and McKenzie Shoaf.  The case is from the Southern District of Texas, Houston Division.

The Muratore had purchased flood insurance from Farmers as was required by their mortgage lender.  When the mortgage was paid off they asked their agent, Shoaf, to get them a less expensive flood insurance policy and coverage with at least $265,000.  The agent represented he did as requested.

The Muratore’s home was damaged in Hurricane Harvey and a claim was made to Farmers.  At this time, the Muratore’s learned the flood policy they got from Shoaf only provided up to $400 of coverage.

As most insurance law attorneys can tell a prospective client: An insurance agent does not have a responsibility to explain the terms of the policy.

As in most laws, there are exceptions based on the facts of each given situation.  The Western District of Texas, Austin Division, issued an opinion in 2019 worth reading.  It is styled, Riojas v. Nationwide General Insurance Company, et al.

While in the process of selling the Riojases a home loan in 2015, DHI, through its employee Brittany Present, allegedly told the Riojases that DHI would secure homeowners’ insurance for their home.  Brittany asked Lezam to obtain a policy, which he did through Nationwide.  All of the defendants in this case, allegedly told the Riojases that the policy provided full coverage for their home including water damage.

Here is a list of responsibilities that insurance agents can be held responsible for failing to perform or performing incorrectly.

A.  From a 1948, El Paso Court of Appeals opinion styled, Burroughs v. Bunch, an insurance agent has a duty to procure the coverage entrusted to his care, or failing to do so, to immediately notify the insured of this fact.  A more recent opinion from the Tyler Court of Appeals, Critchfield v. Smith, which was issued in 2004, says this duty to procure is two distinct duties: (1) the duty to use reasonable diligence in attempting to place the requested insurance, and (2) the duty to inform the client promptly if unable to do so.

B.  From the 1992, Texas Supreme Court opinion styled, May v. United Services Association of American, requires that agents keep their insureds fully informed about the current status of a policy’s in force status.

In order to hold a person liable for his/her acts or omissions, the thing complained of must violate a duty which the law recognizes.  This is easily understandable in the case of a collision resulting from running a stop sign.  The law imposes a duty of drivers to stop at stop signs.  So, when a driver violates that duty by running a stop sign, he or she is liable for the damages caused.  So, too, with insurance agents.

Nationally there is a concept known as the “professional judgment rule” which holds that an agent in the business of selling insurance must act in a manner befitting a reasonable and prudent agent.  Accordingly, agents who do not utilize their skills in this way are subject to claims for damages.  Unfortunately, our Texas Supreme Court has rejected the “professional judgment rule” for use Texas.  Instead, in Texas, agents have a general duty to use reasonable care, skill and diligence in procuring insurance.  It even includes the duty of an agent to “keep his clients fully informed so that they can remain safely insured.”  This is according to the 1977, Beaumont Court of Appeals opinion, Trinity Universal Ins. Co. V. Burnette.  In the Burnette case the court upheld a jury finding that an insurance agent was negligent in failing to “thoroughly acquaint himself” with his client’s needs and in failing to produce the coverage for risks or perils the client faced.

On 1992, the Texas Supreme Court was faced with deciding if an insurance agent was negligent for failing to explore other health insurance coverage options beyond one with a tricky termination and deferral clause.  This was the opinion styled, May v. United Services Association of America.  In this case, the May wound up without coverage after buying the policy that the agent recommended.  The lawsuit claimed that the agent failed to investigate alternative policies which were easily obtainable.  This was factually true – the agent did not investigate any of the several other possible policies and instead settled on the first one he found.  Nevertheless, the Texas Supreme Court found that the agent did not “mislead” the May about the limits of the policy selected.  The May case dramatically changed the fact of insurance law in Texas.  In essence, it appears the the Court now requires there to be an actual misrepresentation in order for the Plaintiff to succeed.  However, the court did leave open the possibility that the Mays might have succeeded if they had an explicit agreement with the agent regarding what terms they required in the policy that the agent obtained.  Had the agent violated such an agreement, he might have been found liable.

Many times an insurance agent makes mistakes and those mistakes cost his customer, the insured.  An experienced Insurance Law Attorney should be able to recognize when an agent violates a duty he owes to his customer.

There are arguably several duties that exist for insurance agents in Texas, among them:

(1)  Duty to Procure, which requires an agent to actually obtain the coverage entrusted to his care, or failing to do so, to immediately notified the insured of this fact.  This includes leading a client to believe he has coverage for a particular peril which he in fact does not have.  This is discussed in the 1948, El Paso Court o f Appeals opinion, Burroughs v. Bunch.  More recently, one Texas appeals court articulated this as two distinct duties: (i) the duty to use reasonable diligence in attempting to place the requested insurance, and (ii) the duty to inform the client promptly if unable to do so.  This is from the 2004, Tyler Court of Appeals opinion, Critchfield v. Smith.

Here is a case where an insurance law lawyer sued an agent and was able to prevent the case from being held in Federal Court.  The case is from the Southern District of Texas, Houston Division, and is styled, Mary’z Mediterranean Cuisine, Inc. v. Blackboard Insurance Company f/k/a Hamilton Insurance  Company, Texas General Insurance, and Mir Khan.

This lawsuit was filed in State District Court and the defendants removed it to Federal Court based on their assertion that Texas General and Khan were improperly joined in an effort to defeat diversity jurisdiction.  Mary’z filed a motion to remand to State Court which the Court granted.   Here is why:

Mary’z alleges that Khan and Texas General sold a commercial policy to Mary’z with full knowledge of Mary’z business operations, building design, and Mary’z lack of an internal fire alarm by falsely representing to Mary’z that damages caused by a fire would be covered by the policy.  A fire occurred and Blackboard denied the claim based on Mary’z not having an internal fire alarm.

Any insurance lawyer who handles many cases will see situations where the insurance agent is simply a criminal.  The Insurance Journal has published two stories where an agent has been convicted for his actions.

The first one is from June 2016 and is titled, Texas Insurance Agent Arrested In Scam Targeting Elderly Clients.  The story tells us about a Lubbock based insurance agent being arrested and charged with defrauding elderly victims through an annuity scam.

The Texas Department of Insurance reported that Joseph Allen Gaines was arrested last month on charges that he kept clients’ money that was intended to be used to purchase annuities.