Agent Should Explain Effect of Coinsurance

Promise of Coverage Without Explanation of Coinsurance Can Be Fatal To Insurance Agent

No one seems willing to read the insurance policy they purchased. When they have a loss and the failure to read the policy costs the insured money, he, she or it will always sue the insurance company and the insurance agent. Often, courts, feeling sorry for the person insured, will place the importance of the failure to read on the agent instead of the insured. In a case where the court is required to believe that all of the facts alleged in the complaint are true, a lifeline will usually be given to the insured even after it is given four tries to amend its complaint.

In Kendall South Medical Center, Inc. v. Consolidated Insurance Nation, Inc., d/b/a Insurance Nation, District Court of Appeal of Florida, 2017 WL 1908376, No. 3D16-926 (May 10, 2017), Kendall South Medical Center, Inc. (“Kendall South”), the plaintiff below, appealed a final order dismissing its Fourth Amended Complaint with prejudice for failure to state a cause of action against one of the defendants below, Consolidated Insurance Nation, Inc. d/b/a Insurance Nation (“Insurance Nation”).

UNDERLYING FACTS

Kendall South operates a medical center on leased premises located in North Miami Beach, Florida. On January 3, 2013, the sprinkler system on the leased premises was undergoing maintenance when a leak occurred, resulting in significant water damage to both the physical improvements (i.e., walls, flooring, baseboards) and to the contents (i.e., equipment and machinery). Kendall South had a commercial property insurance policy with Nation Insurance [sic]—issued in August 2011, and later renewed—which provided $100,000 of coverage for the physical improvements and contents of the subject property, and which contained a $1,000 deductible and a 90 percent coinsurance clause. As a result of the sprinkler leak, Kendall South suffered property damage totaling approximately $260,000. Kendall South made an insurance claim expecting to receive a $100,000 payout, but received only $16,562.67 due to the policy’s coinsurance clause because they failed to buy insurance with limits equal to the 90% of the value of the property, the risk of loss of which was insured.

In its pleading, Kendall South alleged that it had met with Insurance Nation’s agent, Humberto Torres, on or about August 10, 2011, in order to obtain “a commercial property coverage policy of insurance in the amount of $100,000[.]00 that would cover the property, equipment, supplies, and improvements” of Kendall South. At this meeting, after informing the agent that the subject premises had “office equipment, supplies and furnishings in excess of $100,000.00 and that [Kendall South] had spent in excess of $100,000.00 for the buildouts, betterments or improvements.”

Kendall South alleged it requested from agent Torres insurance coverage of $100,000.00 to cover the property, supplies, furnishings, betterments or improvements of Kendall South Medical Center, Inc. Thereupon, it alleged Torres informed Kendall South that Defendant Insurance Nation would procure a commercial policy of insurance that would cover and protect all the property, equipment, furnishings and improvements of the Plaintiff Kendall South Medical Center, Inc., and as specifically requested by Plaintiff.

After Kendall South paid the premium for a policy that provided property damage coverage of $100,000 with a $1,000 deductible and a 90 percent coinsurance clause, Kendall South renewed the policy under the same terms in August 2012. As a result of the sprinkler leak in January 2013, Kendall South’s premises purportedly suffered property damage in excess of $260,000. The subject policy, however, provided coverage in the amount of only $16,562.67 as a result of a penalty imposed by the coinsurance clause.

Kendall South specifically alleged that Insurance Nation “had the duty to procure the insurance coverage as requested,” as well as a “duty of reasonable care in…properly explaining the policy of insurance procured on [Kendall South’s] behalf.” This duty was allegedly breached when the agent “failed to advise and/or inform and/or adequately and/or properly explain to [Kendall South] the 90% coinsurance clause” where the agent “knew or should have known that the policy written by [Insurance Nation] with the 90% coinsurance clause would not cover and pay [Kendall South’s] property as requested by [Kendall South] in the event” of a covered claim.

Insurance Nation moved to dismiss the Fourth Amended Complaint, once again alleging that Kendall South had failed to allege a claim for negligent procurement of insurance. Insurance Nation asserted, in pertinent part that:

• it “explained this policy, including the coinsurance requirements, to Kendall South in the same way that Insurance Nation always explains similar policies to its customers as a matter of custom and practice”;
• “[b]y procuring and explaining the insurance requested by Kendall South, Insurance Nation met its duty”; and
• “Kendall South is attempting to manufacture a broker’s liability claim against Insurance Nation despite 1) receiving the insurance it requested; and 2) never specifically asking for a higher level of insurance given the value of its office equipment.”

This time the trial court dismissed the Fourth Amended Complaint with prejudice.

ANALYSIS

It is well settled that where an insurance agent or broker undertakes to obtain insurance coverage for another person and fails to do so, he may be held liable for resulting damages for negligence. An action charging insurance agents with negligence in failing to procure the proper coverage requested by the insured is a recognized cause of action.

More specifically an agent is required to use reasonable skill and diligence, and liability may result from a negligent failure to obtain coverage which is specifically requested or clearly warranted by the insured’s expressed needs.

Viewing the allegations of the Fourth Amended Complaint as true and in a light most favorable to Kendall South, the appellate court concluded that the allegations sufficiently stated a cause of action for negligent procurement of insurance. Kendall South asserts that, once it informed Insurance Nation’s agent:

• that both the physical contents of the subject premises and the improvements thereon were each valued in excess of $100,000, and
• that it wanted to procure just $100,000 of insurance with respect thereto, it was incumbent upon the agent to apprise Kendall South of the effect of the coinsurance clause, and to explain that different coverage was required to meet Kendall South’s expectations.

In short, Kendall South alleges, albeit somewhat inartfully, that liability arises here from the agent’s negligent failure to advise Kendall South at the August 10, 2011 meeting that the procured policy was inadequate to address Kendall South’s expressed insurance needs. At this stage of the proceedings, on these allegations, the appellate court agreed that Kendall South has stated a valid cause of action for negligent procurement of insurance.

In reaching this decision, given the current state of the pleadings, this is a case where it has been alleged by the plaintiff that an agent or broker has a general duty to explain a coinsurance clause to any insured before issuing such a policy. When an insured alleges that it specifically communicated its insurance needs to an agent who then undertook to procure a policy addressing such needs, the insured states a cause of action for negligent procurement where it also alleges that, without providing an explanation that different coverage was required, the agent procured a policy not meeting those expressed needs.

Accordingly the final order dismissing with prejudice Kendall South’s Fourth Amended Complaint against Insurance Nation was reversed and remanded to the trial court for further proceedings.

ZALMA OPINION

The insured received the limits it requested. It renewed the policy in identical wording and limits for a second year. Both years contained a 90% co-insurance clause that was written to make sure that the insured purchased insurance equal to 90% of the value at risk. They reduced the premium charged by keeping a low limit and by not insuring to value. When the case is tried, they will be faced with the fact that they knew the values at risk and insisted that the agent only buy $100,000 in coverage when they had almost three times that value at risk. In so doing, they cheated the insurer out of proper premium and now wants more coverage for free.