An independent insurance agent is a carrier’s frontline underwriter. They are charged with finding out as much as they can about a risk before bringing it to the carrier. Sometimes, missing information can be key to whether a loss is or is not covered.
A Georgia man contacted an independent agency to purchase auto and umbrella insurance for his family. He worked with a producer within the agency to apply for coverage, which the producer quoted with a major carrier. She submitted an online application to the carrier, which responded with a checklist. Among the items on the checklist was a requirement for the agency to retain signed copies of the auto and umbrella applications. These were to be kept in the agency’s records and not sent to the carrier.
Neither the online application nor the “retained application” listed all of the drivers in the household. They listed only the spouses and their oldest child. However, a younger son had been licensed since July 2014 and the youngest child, a girl, obtained her license just a few days before the effective date of coverage. The son had what the court’s opinion described as a “minor violation” on his driving record.
Here is what happened next:
- The producer emailed the “retained application” to the client and asked him to sign all pages.
- The client signed all the pages except for page three.
- The producer retained the applications. Per the carrier’s instructions, she did not forward them to the carrier.
The carrier issued policies effective June 30, 2015. The policies provided the following limits of insurance:
- Auto – $250,000 per person/$500,000 per accident for bodily injury liability
- Umbrella – $2,000,000
Two months into the policy term and less than three months after receiving her license, the younger daughter ran a stop sign and collided with a car occupied by a married couple. The husband died at the scene and the wife suffered severe injuries.
Two days later, the carrier decided it needed a copy of the retained application. For some reason, the producer sent them unsigned copies. Regardless, the carrier found out about the younger son as well as the daughter who had the accident, and they had the agent add them to the policy effective September 4. The premium increased accordingly.
The carrier obtained copies of the children’s driving records in September and learned of the son’s minor violation. They made payments for property damage throughout the fall. In December, they retroactively covered the daughter effective on the policy inception date, again at an increased premium. In January, the producer sent them signed copies of the retained application.
The victims’ family sued for $2.5 million and eventually settled with the carrier for $2.275 million. In 2019, the carrier sued the agency, arguing that it would not have issued the policy if it had known about the son with the violation on his record. Because the facts were not in dispute, the agency asked the court to rule in its favor based only on the law.
The court did so, finding that the carrier had voluntarily made payments for the loss after it knew or should have known about the son’s checkered driving history. Therefore, they forfeited the right to claim that they were deceived.
The decision does not say why the two children were omitted from the applications. We don’t know whether the producer knew about them. It’s possible that the transaction was handled entirely by phone and email, and the insured deliberately concealed that information. Still, tools easily obtained online can uncover information about all residents of a household. Between the end of June and the end of August, someone should have found out that the household contained two inexperienced drivers.
This loss was no doubt traumatic for the producer and the agency. A fatality is every insurance professional’s worst nightmare. However, a thorough investigation of the risk might have at least avoided the litigation between carrier and agent. The carrier lost only because underwriting did not talk to claims after the driving records arrived. This is a small consolation for an agency whose relationship with a carrier was ruined and most likely lost their agency appointment with the them.
