A Michigan insurance agent left some insureds off an application for general liability coverage. A six-figure lawsuit resulted.
The case centered around a trip and fall accident at a shopping center. One limited liability company (LLC) owned the center; a separate one managed and operated it. The LLC that managed the property leased space in it in 2014 to a third company that operated a gym. Later that year, the owner and property manager contracted with a corporation to take over property management.
The new management company’s owner worked with a local insurance agent to obtain liability coverage. The agent ultimately obtained a policy from a regional carrier. However, the policy named only the new management company as an insured. The company’s owner had told the producer to name the other entities as either named or additional insureds. The policy did not name any of them.
In October 2016, the gym conducted an outdoor exercise class in the center’s parking lot. One of the women participating in the class tripped and fell, fracturing an ankle. In 2018, the woman and her husband sued the shopping center’s owner. Communications between their attorney and the attorney for the owner ensued, along with communications between the owner’s attorney, the property management company, and the insurance producer. However, for reasons the court opinion did not explain, the owner never responded in court to the lawsuit.
The couple’s attorney wrote to the owner’s attorney about the claim three times in 2017 and again in January 2018 with no response. In February 2018, the owner’s attorney finally wrote to the couple’s attorney and suggested he contact the claim adjuster. The insurer denied coverage because the owner was not an insured. The couple’s attorney forwarded the denial letter to the owner’s attorney, received no response, and filed for default judgment.
After the court entered the default judgment, the couple’s attorney wrote to the owner’s attorney twice, again with no response. Months after the motion for default damages was entered, the owner finally moved to have the default judgment set aside, a request the trial court denied.
In the absence of a formal response to the suit, the court entered a default judgment in the couple’s favor and awarded them $600,000 in damages.The owner and original property manager then sued the gym, the insurance company, the insurance agency, the producer, and the new property manager. The trial court dismissed all of the claims. The owner and original property manager then appealed one of the dismissals – the one for their claim of negligence against the insurance agency. The producer who handled the account passed away while proceedings were ongoing. The court dismissed the suit against him because the plaintiffs did not move to substitute another defendant for him.
In January 2024, the appellate court upheld the dismissal, reasoning that the plaintiffs’ failure to respond to the original lawsuit caused their loss, not the insurance agent’s omissions. The judges noted the multiple times the couple’s attorney contacted the owner’s attorney. “The failure of (the agency) to procure an insurance policy with plaintiffs as the named insureds or additional insureds was not the ‘but for’ cause of the entry of the default judgment,” they wrote. “Plaintiffs’ failure to respond or otherwise defend, through the actions or omissions of (their attorney,) was the reason why the default and default judgment were entered.”
The opinion does not state why the producer left the requested insureds off the application, and he cannot explain his actions from the grave. Regardless, he clearly made a mistake in failing to request coverage for all entities the insured wanted. The agency won this case only because the plaintiffs’ attorney mishandled it. Agencies must take care to request coverage for all entities that the applicant asks for. This lengthy litigation would not have happened if the producer had made the correct coverage request. Agencies will often lose errors and omissions claims for failing to procure requested coverage. They should take great care to attempt to obtain all the requested coverage.
