Read The Policy

Arlington insurance law lawyers will tell you to read your insurance policy when you get it. The Insurance Journal published a story that illustrates why. The title of the article is, “Indiana Supreme Court Affirms Importance Of Reading Policy.” Here is what the article tells us.
Failure to procure insurance claims of agent malpractice typically involve agent conduct where the agent makes a promise of future activity and not representations about existing provisions related to actual coverages or limits in the issued policy.
In the former situation, the insured has an obligation to read the policy in many jurisdictions, including Indiana, and should be able to discover the procurement error especially when it relates to policy limits set forth in the Declarations page.
Although in some instances reasonable reliance upon an agent’s representations can override an insured’s duty to read the policy, such as when the agent makes representations regarding the contents of the existing policy.
In failure to procure cases, which involve future potential policies, the insured’s obligation to read the policy once acquired will typically start the statute of limitations running. This is different than those situations where the agent makes an express representation regarding the terms and conditions of the existing policy. In that situation, the trigger for the statute of limitations typically begins to run upon the discovery of the misrepresentation or when the insured should have reasonably discovered the misrepresentation.
Recently, the Indiana Supreme Court in Groce v. American Family Mut. Ins. Co., 5 N.E.3d 1154 (2014) considered the application of Indiana’s statute of limitation on an insured’s claim for an agent’s alleged negligent failure to obtain coverage.
In Groce, the insureds, Christopher and Tracey Groce, purchased a home in 1997 and obtained insurance coverage through American Family on the home. In 2007 there was a substantial fire loss which damaged the insured home. The Groces did not have enough insurance coverage to pay the restoration damages.
The Groces then sued their insurance agent, Michael Meek, alleging that Meek had negligently failed to obtain 100 percent replacement cost insurance for the property. The claim was predicated upon a verbal exchange between Meek and Tracey Groce which occurred more than four years before the fire loss.
During that verbal exchange, Tracey Groce alleged that she met with Meek at the property. During the conversation Meek stated: “I’m assuming you want replacement cost coverage … if anything ever happens — fire, tornado, wind … [the residence] will be replaced 100 percent?” Mrs. Groce responded “yes.” Meek then told Tracey: “I’ll get this written up.”
A renewal policy was then issued that was identical in all respects to the previously issued policy except for the initial effective date and Meek’s name as the replacement agent on the policy. The policy consisted of the same standard policy form although the policy limits and special endorsements did vary throughout the years.
The policy that was issued provided that American Family would pay “the full cost to repair or replace the damaged building, without deducting for depreciation, but not exceeding” repair cost and “the limit in this policy for the building, including any additional amount of insurance as provided by the Inflation Protection Coverage.”
American Family paid the full policy limits of $191,500 as a result of the loss, notwithstanding that the estimates to rebuild and repair the home totaled $225,245.
Under Indiana law, negligence actions against insurance agents are required to be commenced within two years “after the cause of action accrue[d].”
In general, in the context of claims of negligent procurement of insurance, under Indiana law, “the cause of action of a tort claim accrues and the statute of limitations begins to run when the plaintiff knew or, in the exercise of ordinary diligence, could have discovered that an injury had been sustained as a result of the tortious act of another.” Filip v. Block, 879 N.E.2d 1076, 1082 (Ind. 2008).
In determining when the cause of action accrued regarding the Groce lawsuit, the Indiana Supreme Court did not view the Groce claim as alleging that Meek had failed to procure replacement cost coverage. All of the policies issued by American Family before the fire loss had included replacement cost coverage.
The Court also noted that the Groces did not dispute that they were aware of their homeowners policy dwelling damage limits of $191,500. In fact, during the 10 years between 1997 to 2007 when the fire occurred, the Groces had received at least 14 notices from American Family when the policy was renewed or changed, advising them of the amount of their dwelling loss coverage limits and each notice reminded them also to “Please Read Your Policy.”
With that backdrop in mind, the Court found that the alleged 2003 failure of Meek to obtain 100 percent replacement cost coverage was a mistake that was easily “ascertainable from the policy itself.”
Without question, the Groces could have discovered that their dwelling loss replacement coverage did not exceed the applicable policy limits if they had reviewed the policy. Regarding the conversation Meek’s had with Tracey Groce, the Court noted that “the Groces’ factual claim here is not that Meek made a representation of existing coverage but rather that, perceiving that they wanted 100 percent replacement coverage, Meek assured them that he would ‘get this written up.'”
As such, Meek’s alleged comments dealt with his promise of future activity, and did not constitute any representation about existing provisions related to coverages or limits in the homeowners policy. Therefore, the Indiana Supreme Court held that the Groces, in the exercise of ordinary diligence in reviewing the policy, could have timely discovered that American Family’s replacement cost liability was capped at the dwelling loss coverage limit, contrary to their claim for negligent procurement of inadequate or wrong coverage.
For that reason, the statute of limitations began to run no later than the first policy renewal after the alleged statements of Meek were made to Tracey Groce in 2003. The statute of limitations had expired on the alleged negligence prior to the fire loss.
An agent can minimize failure to procure claims by personally delivering the insurance policy to the insured, at which time the agent can go over the express limits that have been acquired and what the limits mean. The agent should also have the insureds sign off on a simple statement form indicating that a copy of the policy has been delivered and that they have reviewed the policy and it complies with their requests for coverage. This is particularly important with respect to policy limits.
As an alternative, either the agent or customer service representative with the agency can call the insureds as a follow up to the mailing of the insurance policy to the insured. At that time the agent/CSR can ask the insureds to look at the policy and confirm that the coverage amounts are what they have requested or what they desire. This should then be documented in the file through a confirming letter sent to the insureds.
It is good business practice to send a follow up letter to the policy issuance to further cement the agent’s relationship with the insureds on the one hand, while confirming that the correct policy limits have been procured.

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