Being an Agent is Sometimes Being Caught in the Middle

May 22, 2012

I recently read a case, Artisan and Truckers Casualty Co., et al. v. John Thorson, et al., Appeal No. 2011 AP 2, which was decided by the Wisconsin Court of Appeals on January 18, 2012. I found the case to be very interesting because of the involvement of the insurance agent in question. The facts were: Mr. Thorson carried primary and umbrella insurance policies with insurer A. A month before his policy was to expire, Insurer A notified Thorson he would not be receiving a renewal policy. Insurer A was making an “administrative change” and would instead, issue the policy through an affiliate company owned by Insurer A (i.e., Insurer B). Insurer A told Thorson he did not have to do anything because of the administrative change and also advised that the particular umbrella policy did not provide UM/UIM coverage, but that coverage could be purchased. Thorson was advised to contact the agent representing Insurer A. Thorson did that. He contacted the agent and purchased $500,000 of UM/UIM coverage. The agent received confirmation from Insurer A of the purchase; and when Thorson inquired as to when he was to pay the bill, he was simply told to wait until the carrier issued an invoice. Ten days later, Thorson’s daughter was seriously injured in a car accident caused by an uninsured motorist. Insurer B issued the umbrella policy with the $500,000 of UM/UIM coverage, but with an effective date that was two days after the date of the accident and 11 days after Insurer A had confirmed the additional coverages. Needless to say, a lawsuit developed.

Insurer A and Insurer B filed motions for declaratory judgment asserting that there was no coverage because the original policy issued by Insurer A had lapsed for non-payment. Thorson counterclaimed for breach of contract and cross-claimed against the agent for negligence and misrepresentation. The agent counterclaimed against Insurer A and Insurer B  to reform the policy to provide for UM/UIM coverage to Thorson.  The agent requested indemnification from Insurer A pursuant to the “Producer Agreement” in effect between them.  The circuit court dismissed Thorson’s claim against Insurer A and B ruling that the umbrella policy was not in effect at the time of the accident.  After that ruling, Thorson and the agent settled. Insurer A then moved for and was granted summary judgment against the agent based upon a doctrine of election of remedies. Thorson and the agent appealed the determinations of the circuit court.  On appeal, the trial court’s rulings were reversed.

The easy part of the decision was to basically reverse the trial court determination that Insurer A had no responsibility under the policy.  The fact of the matter is that Insurer A, through communications and conduct, had essentially issued Insurer A’s policy even though it had been issued through Insurer B. The communications that were given made reference to renewals, etc.  The Court of Appeals held that the $500,000 of UM/UIM coverage was contained in the umbrella policy issued by Insurer B and was in force on October 22, 2008, the date of  the accident.  No surprise here.

What I found to be really interesting were the claims that had been made against the agent. During the proceedings before the trial court, once the trial court dismissed Thorson’s claim against Insurer A on the basis that the policy was not in effect, the agent and its E&O carrier paid a settlement of $500,000 to Thorson in return for an assignment of Thorson’s claims against Insurers A and B, as well as for a release of Thorson’s claim against the agent for any alleged negligence.  The agent and its E&O carrier then asserted a claim against Insurer A for the recovery of the $500,000 that had been paid to Thorson. The trial court dismissed that claim on the theory that, since Thorson had determined to proceed with a claim against the agent for negligence and the settlement was based upon that claim, Thorson had elected remedies so that there was no claim remaining against Insurer A. Therefore, the agent as the assignee of Thorson’s claim against Insurer A could not proceed. The doctrine of election of remedies precluded such a claim.  The Court of Appeals was of the opinion that the election of remedies doctrine was simply not applicable to the facts of the case.

What I found interesting was the Court’s discussion concerning “indemnification.” The court held an election of remedies doctrine does not bar an agent from a right to seek contribution or indemnification from Insurer A.  The rationale behind indemnification is to insure that the losses are borne by the party who is responsible for the damages. The right to indemnification can be based either upon contract or by equitable principles of law.  The court noted that in a principal-agent relationship, where an agent who was acting within the scope of his or her duty suffers damages, the agent is entitled to indemnification. This is a matter of contract law. Moreover, the Producer’s Agreement between Insurer A and the agent specifically provided that Insurer A would indemnify the agent from losses occurring as a result of Insurer A’s negligence or any of its wrongful acts, errors or omissions.  In this particular case, the agent had not made any error. The error was made entirely by Insurer A, and it was Insurer A’s negligence that ultimately caused the agent to pay the sum of $500,000 to Thorson.  The court determined the matter should be resolved by a jury as to whether or not Insurer A’s negligence caused the $500,000 in damages as alleged by the agent.

As is evidenced by the foregoing case, the agent was clearly in the middle of a dispute between the insured and his Insurer.  This happens routinely when there are issues as to whether or not a carrier is going to provide coverage.  Unfortunately, because of the ruling of the trial court, the agent initially ended up settling for the amount of the insured’s claim under the policy.  Insurer A took the position that the agent should bear this loss.  Fortunately, the facts of the case, as well as the law of indemnification, presented an opportunity for the agent to push back the resulting damages upon the party causing the loss in the first instance, i.e., Insurer A.  (At least that is what I assumed the jury would so find.) This is a complicated case, but at the end of the day, represents a victory for agents!

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