A fatal accident that left a trucking company paying $4.9 million out of pocket was the genesis for a lawsuit between the insured, its insurance agent, and a wholesale broker.
The insured was a trucking company headquartered in Missouri. The court’s opinion did not state how long the agency had been serving as the company’s agent. However, it appears to have been at least four years before the accident in question and possibly longer.
In 2013, the company’s long-time director of risk, who helped manage their insurance program, retired. They replaced him with someone who had relatively little experience in risk management. The company’s chief financial officer asked one of the agency’s producers to act as her mentor and consultant. He offered to pay the producer $50,000 for this service, but the producer declined. Instead, he asked that the insured name the agency as broker of record for some of the policies that they did not write. He later testified that the revenue from those policies would be sufficient.
The broker of record letter removed a sentence stating, “We are not responsible for product produced by agents prior to our involvement.” This deletion would become a point of contention later.
The producer did become a resource to answer the new risk director’s questions. In addition, the wholesale broker through whom the agency obtained the policies also had some direct contact with the insured. This is unusual; wholesalers ordinarily deal only with the retail agent.
The insured had a complex trucking liability insurance program involving multiple policies stacked in a tower. One of those policies was an umbrella that was part of the arrangement between the insured and the agency. As the judge wrote in the opinion, “Generally, an effective stack involves policies that interrelate seamlessly, creating neither gaps nor double coverage.” This stack was not effective.
In December 2015, one of the company’s trucks was involved in an accident in New Mexico that left two people dead. After the ensuing litigation settled, one of the insurers sued the insured for reimbursement of $4.9 million in defense costs and some undisclosed amount of the settlement. The opinion did not go into specifics, but it described the coverage gap as related “to the various ways in which the three policies at issue deal(t) with payment of defense costs.”
The insured sued both the agency and the wholesaler for failure to procure the correct coverage and give proper advice on what they needed. The agency and wholesaler asked the court to grant summary judgment. A court will grant summary judgment when the applicable law is clear and there is no meaningful dispute over the facts of the case.
In February 2024, the judge refused to grant summary judgment because the facts were actually in dispute. The two sides disagreed over whether the agency had a duty to obtain proper coverage. The judge found it possible that the agency was acting as the insured’s broker, and that would give them a legal duty to procure the coverage.
In addition, the two parties apparently never formalized the scope of the producer’s consulting duties in a contract, as they disagreed on what that scope was. The judge noted the removal of the “responsibility” wording from the broker of record letter, and verbal exchanges between the producer and the risk director. The evidence also showed an email exchange between the risk director and a broker with the wholesaler regarding “appropriate policy limits and coverage.”
With all this disagreement on the facts, the judge ordered further proceedings in the litigation. This decision was rendered only recently so it is unclear what its status is now.
The agency apparently made a verbal agreement to help an inexperienced employee of its insured. That was a mistake. The insured interpreted this conversation to mean the agency would provide professional advice. With no written documentation of the agreement, both parties had a version of events that supported their sides. This made summary judgment inappropriate.
The lesson: Document in specific terms the scope of work an agency may take on for an insured that goes beyond merely obtaining insurance.
