By: AgencyEquity.com
Does an insurance agency owe its clients a duty to open and investigate claims? A Maryland man sued his agent because he believed they did.
He purchased a home in New Hampshire as rental property in 2002. Sometime between 2002 and 2015, he bought a commercial insurance policy on the house from a New Hampshire independent agency.
In the fall of 2015, he hired a plumber to “winterize” the house. He did not visit it again until August 2016 and found that the water did not work. Suspecting that a pipe had burst during the previous winter, he reported the matter to his insurance agent. They corresponded and spoke about it in August and September. According to the property owner, however, the agency did not respond to his request to open a claim or take steps to investigate the loss.
He sold the house in October 2016 for $145,000. The sale was contingent on him repairing the “known plumbing issues” within a reasonable amount of time. In his court filing, he claimed that he needed the insurance proceeds to make the repairs. It took a letter from his lawyer to the insurance agency in early 2017 to get action initiated. Even then, the claim was not opened until May, and an investigation did not commence until October.
In the meantime, the buyer backed out of the home purchase, citing the unrepaired plumbing problems. The owner resumed ownership in early October and refunded $12,400 to the former buyer.
The insurance carrier assigned a claim adjuster to investigate the loss late that month. It would be another six months before the adjuster would visit the property and inspect. In late August 2018, two years after discovery of the water problem, the carrier denied coverage, saying that the exclusions for loss caused by backup or overflow of water from a sewer, drain, sump pump or sump, and for loss caused by wear and tear applied.
Two years later, he sold the house to new buyers for $85,000. In late July 2021, he sued the carrier, another carrier in the same group, and the agency for $75,000, claiming that the carriers breached the terms of the policy and that all parties were negligent. Specifically, he argued that they all owed him “a duty of care to promptly and adequately investigate, adjust and pay” his claims. Their failure to do so promptly, he argued, “caused and contributed to the denial of [his] proper claim.”
The carriers and the agency asked the court to dismiss the cases against them. In October 2022, the judge agreed, though he did not dismiss the breach of contract claim against one of the carriers.
With regard to the claim against the agency, the judge said the agency’s role was only to facilitate the sale of the insurance policy, not to investigate claims. He noted that the insured was not arguing that there was anything wrong with the policy the agency obtained: “Indeed, his breach of contract claim against (the carrier) is based on the assertion that the policy did cover the property damage at issue.” Because there was no basis in law for holding the agency responsible for a delayed claim investigation, he dismissed the case against them.
The judge’s opinion does not explain what caused the hold up between the first contact with the agency in 2016 and the inspection of the home 21 months later. We do not know why the agency did not submit a loss report to the carrier right away. The carrier may well have denied coverage anyway. However, this insured apparently felt that his loss was not being taken seriously, and he ended up going to court.
There may be reasons we are not privy to for the late report of this loss to the insurer. In general, though, agencies should promptly report losses to all carriers who might provide coverage. Even without a legal duty to investigate, the agency should at least monitor the situation and keep the insured informed. A client who does not feel neglected will be less likely to sue.
