By: AgencyEquity.com
The experts on preventing insurance agents errors and omissions liability claims have said it repeatedly: Always get signed applications from the insured. A Kentucky agency learned how important that advice is.
The insured had suffered fire damage to her home in 1994. Her insurance company paid $90,000 for the loss, and she rebuilt the home with the proceeds.
In 2012, she purchased a homeowners insurance policy from a local independent agent. She had a relationship with the brother of one of the partners, and she contacted him for insurance. The producer performed an inspection of the home and obtained coverage. The coverage remained with this insurance company until November 2017.
That year, she asked her agent to find her a less expensive policy. The agent did not reinspect the home or ask her any additional questions for the applications. However, on November 21 an agency account manager called her and asked her to visit the agency’s office to sign the application. The receptionist had the application waiting for her when she arrived. The receptionist indicated where she should sign. Though the insured had the opportunity to review the application, she signed it without doing so.
The application contained two erroneous statements:
- That the insured did not own a German shepherd dog (she did)
- That she had never had a prior fire loss.
The agency obtained replacement homeowners coverage for her based on the application. Less than two years later, a fire burned the house down. The replacement carrier denied coverage for the loss.
In March 2020, the carrier sued for a declaration that it did not owe coverage and for damages arising from the fire. Later that month, she responded and filed her own suits against the carrier and the agency.
The carrier accused her of making material misrepresentations on the application. The insured blamed the misrepresentations on the agency who, she said, completed the application for her to sign. Her agent, she claimed, knew about her previous fire loss and her dog but answered “no” to the questions on the application anyway.
In June 2022, the trial court ruled that she should have known what she was signing. Judgment was entered in the carrier’s and agency’s favor based on the law since the facts were not in dispute. The court also awarded the carrier “costs, fees, expenses and attorney’s fees.” The insured appealed to the state Court of Appeals, arguing that the trial court’s decision was mistaken.
In January 2024, the Court of Appeals also ruled in the carrier’s and agency’s favor. “… (A)n applicant is, as a matter of law,” they wrote, “responsible for the answers, correct or incorrect, in an insurance application when he or she signs their name. … It matters not whether the applicant or the insurance agent filled out the application.” The carrier’s filed underwriting guidelines showed that they would have rejected the application had they known about the earlier fire loss. Lastly, they said that the agency was not responsible for the incorrect answers without evidence of fraud.
However, the court did reverse the decision to award the carrier the amount of its expenses.
The agency won because it had the insured sign the application. This illustrates just how important getting a signature can be. Had she not signed the application, the outcome could have been much different.
Still, this situation could have been avoided if the agency had taken better care to prepare an accurate application. It appears that the previous insurer was still willing to provide coverage; it was the insured who was looking for a replacement. Had the new insurer declined to quote because of the prior loss, the worst that would have happened is she would have stayed with the first company and paid more than she wanted.
The lessons for all agencies: Prepare an accurate work product, and always get the insured’s signature on the application.
