We have pointed out in the past that many people don’t speak the language of “insurance”.
No different than medicine, the insurance industry has terms and words that have a specific meaning. If you don’t speak the language, then you don’t understand what was said.
An apartment complex owner learned this lesson the hard way. He trusted his agent to give him the coverage that he needed. The details in this Ohio case are below. We see mid-size businesses make this same mistake all the time.
The facts are simple. The apartment owner “owner” set up an LLC or limited liability company. The company purchased a $14 Million apartment complex. Owner signed a personal loan guarantee to obtain the loan. He relied upon his insurance agent to get him good coverage.
The winter brought heavy accumulations of snow and ice resulting in collapse of several roofs in the area. He assumed the insurance policy gave him coverage for the roof, interior property damage, and lost rental income. An insurance claim was reported to State Farm, the insurance company. State Farm denied payment due to an exclusion in the policy. Dissatisfied with State Farm’s decision, owner filed a bad faith lawsuit. He also sued his agent for negligence in not getting him the right kind of insurance. After a lot of lawyer expense, owner lost the case. Then he spent more time and expense, then lost the appeals.
The time to understand your insurance coverage is BEFORE a claim, not after. We stress this to businesses all the time. Have an insurance attorney look over your coverages. Learn what you purchased and what you didn’t. An insurance policy is a contract. It says what is covered and what isn’t. Waiting until there is a claim is like the ostrich sticking his head in the sand.
The agent selling the insurance makes his living selling insurance. He is not a specialist in your industry or your line of work. He’s also not a lawyer. While he may understand insurance concepts and coverages, his primary goal is college for his kids, soccer cleats, and the same comforts you want for your family. He has to sell insurance to put food on the table. Most importantly, the duty he owes to the customer is limited.
The court in Priore v. State Farm explained an insurance agent doesn’t have a duty to tell you all the coverages you could buy:
. . . although the law “recognizes a public interest in fostering certain professional relationships, such as the doctor-patient and attorney-client relationships,” courts have determined that the relationship between an insurance agent and client does not rise to the same level of importance. . . .
Although a fiduciary relationship may be created out of an informal relationship where both parties mutually understand that they have entered into a special trust or confidence . . . we concluded that the parties’ relationship amounted to “nothing more than an ordinary business relationship between insurance agent and client,” and that the insured “was in the best position to know how much coverage it needed.”
The court pointed out there is no duty for the insurance agent to contact the customer regarding deficiencies in the policy that only the policy holder contemplated as necessary and did not make this necessity known to the agent.
Apartment and commercial building owners should pay attention. Insurance coverage is essential. You want your business protected. Here’s the bottom line:
- Your Insurance Agent Is Not A Lawyer – your insurance agent is definitely a great guy, but he is just a salesman. He is not licensed to practice law. Sure he knows some things about insurance, but he stays in business only by selling insurance. He may not have a duty to tell you the deficiencies in the policy he is selling.
- Insurance Coverage Attorneys Exist For A Good Reason – competent coverage counsel understands insurance policies and can explain the coverage in the policy. In the case above, owner had $14 Million at risk. Spending a few thousand on a competent attorney with knowledge of insurance would have been wise investment.
- Knowing The Coverage You Don’t Have – the coverage in the insurance policy is not really what is important. The lack of coverage is what causes the problem. You shouldn’t blame the insurance company if it never agreed to provide the coverage.
- There’s Power In Knowledge – knowing the deficiency in the coverage let’s you plan ahead. You can shop for other coverage through another insurer. You can negotiate or ask for the coverage you want. Even if no insurer sells the coverage you need, alternatives exist such as setting up a captive insurance company or setting aside a special bank account with special funds.
- Your Insurance Agent Is Your Friend – he may even be your brother-in-law! He regularly takes you to lunch. He laughs at your jokes and sends you a birthday card every year. He got you that really nice sweater for Christmas! Enjoy the friendship! Make him buy you a really expensive lunch! Don’t use him as a coverage attorney! He’s not one!
Our law firm represents insurance companies as well as all types of medium size businesses concerning questions of insurance coverage. We recommend our business clients let us review their coverages on a yearly basis. No one likes litigation and especially over insurance coverage. Avoid the coverage lawsuit by retaining an Oklahoma insurance attorney to help you understand the coverage. Who knows, we might just buy you lunch, there’s a McDonald’s just down the road! Call Us!