By: AgencyEquity.com
An independent insurance agency in Mississippi issued several certificates of insurance showing incorrect liability limits. The recipient of those certificates eventually sued the agency after a large underinsured loss.
The insured was a trucking company. They were hired by a concrete company to transport the company’s product. At the outset, the two companies signed an independent contractor agreement that included two significant insurance requirements under which the trucking company agreed to:
● Carry commercial auto liability insurance with a limit of at least $2 million.
● Cover the concrete company as an additional insured.
Between 2017 and 2021, the trucking company’s agent issued at least ten certificates of insurance that showed the auto liability combined single limit at $2 million. One of the ten indicated that the concrete company was an additional insured.
In May 2021, one of the trucking company’s vehicles was involved in a fatal accident while hauling for the concrete company. The victim’s surviving spouse sued both companies. Only then was it revealed that the trucking company had $750,000 in auto liability insurance, not $2 million. The concrete company had to pay around $100,000 out of pocket.
The insurance carrier asked a court to declare that its limit was $750,000. At the same time, the concrete company sued the agency for misrepresentation of the insurance policy. The court agreed that the carrier owed only $750,000, and the lawsuit against the agency proceeded.
Both the concrete company and the agency moved for a ruling in their favor based on the law since the facts were not in dispute. The agency argued that the company never relied on the certificates and, even if they had, they should not have relied on them alone. The agency further argued that their erroneous certificates were not the direct cause of the company’s loss.
In June 2024, the judge denied both sides’ motions and ruled that a jury must decide the case. She noted that the parties disagreed on whether the concrete company saw the certificates before the accident.
Regarding whether the company should have relied on them, she agreed that evidence showed that the company did not perform due diligence on the trucker’s insurance program. Specifically, she wrote that the company “never requested ‘a declaration of coverage or an additional insured endorsement or any other communication’ confirming that it was an additional insured under the policy.”
However, she also found support for the company’s argument that it had years’ worth of certificates showing the $2 million limit. Further, while the agency was contractually required to use the insurance carrier’s portal for issuing evidence of coverage, it instead used unauthorized ACORD certificates that could be edited. The carrier’s portal would have populated the form with the limits shown on the policy.
With the facts in dispute, she ruled that a jury had to sort out the truth.
Regarding the cause of damages, she found the evidence unclear about whether the concrete company would have hired the trucking company even without the desired insurance limits. Again, she held that a jury had to determine the facts.
There was also a dispute as to whether the agency knew the certificates were incorrect and intended to misrepresent the limit or whether the limit was a clerical error that was automatically repeated. A reasonable jury, she wrote, could reach either conclusion.
As the judge’s decision was made only recently, the ultimate outcome is unknown. Settlement negotiations may be occurring.
Certificates of insurance are an errors and omissions liability trap for agencies. With automation of processes, an initial error can be compounded for years. That may have been what happened here. The opinion does not state how an agency employee mistook a $750,000 limit for a $2 million limit. Given the fast pace of business, it is easy to imagine that happening. Issuing additional certificates on autopilot without comparing them to the policies just repeated the mistake.
Certificates of insurance must reflect a policy’s limits, terms, and conditions. When they do not, agencies like this one end up in court.
