The fundamental piece of any submission to an insurance carrier is the application. The underwriters who receive them rely on the accuracy of information. Small mistakes can have big consequences. Major mistakes, such as the identity of a building owner, can loom even larger, as one Louisiana agency found out.
The agency insured a marine retailer that leased space in a building. The initial application mistakenly identified the insured as the building owner. The insurer issued a property insurance policy and a subsequent renewal that provided coverage on the building. During the second policy term, the building suffered extensive damage from a storm, and the insurer paid the insured $65,000.
The insurer later learned that the insured was not the building’s owner. A year after the storm, it sued the insured to recover the claim amount. At the same time, the building’s real owners sued the insured for allegedly not forwarding the insurance proceeds for the damage to their building.
The insured denied any fault in the matter and pointed to its insurance agent as the culprit in providing misinformation to the insurer. The insured sued the agent as part of the two lawsuits, seeking recovery for any liability it had to the insurer and landlords. The court eventually consolidated the two suits into a single case.
The agent did not contend that the information on the initial submission was correct. Rather, it argued that a representative of the insured signed the application more than three years before filing the suit against the agent. The agent also said the insured should have known when the application was signed that it contained an error. Louisiana law requires claims against insurance agents arising out of an engagement to provide insurance services to be filed within one year from the date the alleged error was committed or from the date the insured knew or should have known about the error. Even those claims filed within one year of discovery must be filed within three years of the date the mistake occurred. In essence, the agent argued that, even if it made an error, the insured missed the deadline for filing a lawsuit.
The insured responded that its representative signed the application the agent completed without reading it. They also contended that the actual date of the error was when the agent completed the application for the renewal policy with the same misinformation on it. If the three-year period for filing a suit began on that date, the insured’s action did not miss the deadline.
At trial, while the insured and agent both attached “exhibits” to the memoranda they filed with the court, neither of them formally entered these exhibits as evidence. The court relied on the filings and testimony and ruled in the agent’s favor. The insured appealed.
The appellate court noted that the rules of evidence prohibit considering documents attached to memoranda unless they are introduced as evidence. Without evidence, the court had to accept the allegations in the filings as true. However, neither side’s filings cited a date for the alleged errors or a date that the insured discovered them. The only date cited was the one the insurer provided in its suit — the date of the renewal application. Without contradictory evidence, the court felt bound to accept the renewal date as true and ruled that the error occurred less than three years before the suit was filed. The case was returned to the trial court for further proceedings.
Even granting that no one should sign an insurance application without reading it first, the agency made a key error in not determining who owned the building or who was responsible for insuring it. The agent could have asked whether the insured pays rent or asked to see a copy of the lease agreement or researched the property online. Also, the agent could have told the insured in writing to carefully review the application before signing. Any of these actions could have prevented this situation from occurring or given the agent a sound defense against the claim.
Insurance does not get written without an application being completed first. A careful agency will make sure the information on that application is accurate.
