An insurance agent has a duty to obtain the coverage the insured requests. The insured has a duty to learn the contents of the issued policy. A Texas agency partially fulfilled the first duty and prevailed in a lawsuit because the insured did not fulfill the second.
Judging from the description in the appellate court’s opinion, the insureds were a relatively affluent couple who had been spending more than they wanted on insurance from a captive agency insurer. They had a family friend who worked for an independent agency. Looking for better coverage at a lower cost, they contacted him about obtaining competing quotes.
The agent asked for copies of their current policies, including the flood insurance policy. The wife provided a copy of the homeowners policy. As she was under the impression that the homeowners policy covered flood damage, she did not provide a copy of a flood policy. The agent informed her that flood insurance would have been billed separately from the homeowners policy. She replied that she could find no such bills. The conversations left her believing that he would obtain flood insurance in addition to the other requested coverages.
The agent asked her if she wanted “flood extension coverage.” He explained that, if she bought this coverage, “‘if anything happens, then [the insurer] handles everything. You don’t have to deal with flood insurance at all. [The insurer] handles everything.’” In fact, the extension coverage expands on existing National Flood Insurance Program coverage. It adds coverages unavailable under an NFIP policy such as replacement cost, additional living expenses, and damage to contents in basements.
The agent gave her quotes for home, auto, jewelry, flood, and umbrella coverage, and she ordered the policies. He then asked for underwriting information including a copy of a flood policy. She replied that she could not find one.
In March 2017, the policies were issued. The homeowners policy included flood extension coverage. The agent asked again for a copy of a flood policy, saying he would need it to process a new flood quote. However, the insured believed that flood extension coverage gave her flood coverage, so she did not respond. The policies took effect in April. The agent never followed up on the missing flood policy.
In August, Hurricane Harvey caused flooding that damaged the home. When the insured called to report the loss, the agent told her that “he thought they still had flood coverage under an earlier policy and that he had not procured a new flood policy for them.” They spent $700,000 out of pocket on repairs and sued the agency to recover.
The case went before a jury which ruled that, if anyone was negligent, it was the insured. The couple appealed.
The appellate judge affirmed the jury’s decision and the trial court’s handling of the case. The insureds had argued that the agency had five legal duties to them, but the judge found no legal support for their arguments. She also agreed with the conclusion about the wife’s comparative negligence. “The jury received evidence that (the wife) did not read the homeowner’s policy that (the agent) procured as (an agency) agent,” she wrote. “The policy stated that it did not include flood coverage.”
The appellate judge rightly concluded that the insureds had plenty of time to review their policy and discover that it did not provide flood insurance. Their failure to meet their duty to read saved the agency. However, it also appears that the description the agent gave of flood extension coverage was incomplete. Had he said, “You have to buy a regular flood policy and the flood extension improves on it,” there would have been little room for misunderstanding. His actual statement made it sound as if the flood extension took care of everything. He did repeatedly request a copy of their existing flood policy, but sometimes insureds hear what they want to hear. A written communication stating that the flood extension was worthless without a flood policy might have kept this case from going through trial and an appeal.
This is another example of why clear, accurate communication with clients is so important.
