It’s the Insured’s Fault

The Duty of an Insurance Producer is Limited in Illinois

In the news today it appears clear that no one is willing to take responsibility for his or her own acts. If something goes wrong, if someone loses money, if a building is damaged, if insurance does not cover a loss, it’s someone else’s fault. No one seems willing to take responsibility for their own acts or errors.

In Office Furnishings, Ltd. v. A.F. Crissie & Co., Ltd., — N.E.3d —-, 2015 IL App (1st) 141724, 2015 WL 6939958 (Ill.App. 1 Dist., 11/9/2015), the plaintiff suffered serious damage to its inventory when the roof leaked and water rained into the building like its interior was a rain forest. It made a claim to its insurer only to have the claim denied because the loss was not fortuitous and because they misrepresented material facts in the application for insurance. Rather than accepting they did wrong the insureds sued their insurance producer for failing to obtain appropriate coverage. At trial the plaintiff won, only to have the court enter judgment for the defendant notwithstanding the jury’s verdict (“NOV”).

BACKGROUND

In 1993, plaintiff leased warehouse and office space in a building located at 725 South 25th Avenue in Bellwood, Illinois. Brathan Property LLC (Brathan) purchased the property in 2000, and plaintiff continued to lease space from the building. Ray Meyers holds controlling ownership in both Brathan and plaintiff Office Furnishings Ltd.

The building had two types of roofing. One section of roof was made of PVC membrane and the other was made of tar and gravel. When Brathan purchased the property, the building’s roofing was inspected by a roofing contractor. The report stated that the PVC membrane had shrunk and that “a substantial amount of water is trapped between the two layers of roofing.” It recommended that the roof be replaced within one or two years.

Jim Werner was the insurance producer for plaintiff doing business through his agency, A.F. Crissie & Company (Crissie). Up to December 2002, plaintiff and Brathan were insured by a policy from Meridian Insurance Company. In August 2002, Meridian informed Werner that it would not be renewing coverage for plaintiff. Meridian did not renew plaintiff’s policy because it had paid out more in claims than it received in premiums. Werner testified that he did not know the age of the building’s roof.

As plaintiff’s insurance producer, Werner sought replacement coverage from other insurance companies through the ACORD application. Werner sent the ACORD application to eight insurance companies in October 2002. After reviewing the application, the eight companies declined to offer insurance to plaintiff due to past loss experience. Acting as a broker Werner went to another broker who was able to place insurance with American Family.

American Family’s agent, had “his own application that needed to be—that he would ask questions and that had to be signed.” Werner was present at that meeting because they did not know Joe Kobel.

At the meeting, Kobel used the ACORD application to obtain some information he needed, and he asked more questions of Meyers and Johnson to complete the application. The American Family insurance application stated that the building’s roof was five years old. This information was not listed on the ACORD application. The application listed no problems with the roof.

The American Family policy provided insurance coverage to plaintiff from December 1, 2002, to December 1, 2003.

On January 31, 2003, when Meyers went to the warehouse he saw that “[i]t was raining like a rain forest” inside. He and his employees protected as much of the merchandise as they could, but the company sustained more than $1 million in damages.

Plaintiff submitted a claim to American Family. In investigating the claim, American Family discovered that plaintiff misrepresented the age and condition of the roof on their application. American Family denied the claim because “the alleged occurrence was not a fortuitous event.” It also pointed out other misrepresentations, including that plaintiff never made a claim for damages caused by wind to the roof, and that no contractors had ever examined the roof’s condition.

Plaintiff and Brathan filed this professional negligence claim against defendants, alleging damages of $1,349,872 for damage to the building, $759,259 for damage to business personal property, and $88,074 for expenses related to installing a temporary roof.

Three issues of negligence were presented to the jury: (1) Werner failed to ensure that plaintiff understood the questions on the American Family application; (2) Werner failed to ensure that plaintiff understood that coverage could be denied if the answers on the application are not correct; and (3) Werner failed to ensure that the information on the application accurately reflected the information provided. The jury found in favor of Office Furnishings for $467,721.50, but found against Brathan.

Defendants filed a motion for a judgment n.o.v. arguing that the verdict reflected an improper imposition of a duty upon Werner, and the manifest weight of the evidence warranted a new trial. The trial court granted the judgment n.o.v., finding that Werner had no duty “to verify the information on the application” or to review the application with Meyers. Werner’s duty was only to procure the insurance request of plaintiff, and since “[h]e did provide the coverage and everything that he was looking for,” Werner fulfilled his duty.

ANALYSIS

Generally, to state a cause of action for negligence, plaintiff must show that defendant owed plaintiff a duty, defendant breached that duty, and defendant’s breach was the proximate cause of plaintiff’s injury. In the context of an insurance broker procuring insurance on behalf of the plaintiff, the primary function of an insurance broker as it relates to an insured is to faithfully negotiate and procure an insurance policy according to the wishes and requirements of his client.

This common law duty of a broker is codified in section 2–2201(a) of the Code of Civil Procedure (Code) (735 ILCS 5/2–2201(a)), which requires an insurance producer to “exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.” Under this section, the duty to exercise ordinary care arises only after coverage is requested by the insured or proposed insured. Once such coverage is requested, insurance producers exercise ordinary care and skill in responding to the request, either by providing the desirable coverage or by notifying the applicant of the rejection of the risk.

The Illinois Supreme court in the past has determined that such a duty may not be imposed based on a vague request to make sure the insured is covered. Here, plaintiff contends that in finding that Werner had no duty to verify the information on the American Family insurance application, or to review the application with plaintiff, and granting the motion for judgment n.o.v., the trial court confused duty with evidence of conduct proving breach of a duty. In order to find a duty to provide specific coverage, the insured must make a request for that specific coverage; a general request to make sure the insured is covered is insufficient to create such a duty.

The evidence shows that Meyers did not make a specific request for coverage, only that it was assumed Werner would find replacement insurance for plaintiff. Werner, as the insurance producer, found an insurer, American Family, to provide a replacement policy as requested. Through Kobel, American Family’s agent, plaintiff was issued a replacement policy. This evidence is undisputed. Imposing a duty on Werner makes no sense here, where the evidence showed that Werner did not know the age of the roof and could not have known whether Meyers or Johnson answered that question accurately.

Where no duty is owed, there is no negligence, and the plaintiff is precluded from recovery as a matter of law.

ZALMA OPINION

When a business owner ignores the advice of professional roofers to replace a worn out and defective roof, when the business has its policy cancelled because of multiple claims resulting from leaks in the defective roof, and then allows a false application to be submitted to a new insurer, that business has no one to blame but itself for the loss of coverage. The agent and broker were not negligent, the insured was, and the court refused to allow the plaintiff to recover from the broker for the insured’s negligence and what was apparently intentional misrepresentations to get the insurance.