An exclusion in a professional liability insurance policy led to a claim denial and litigation between the insured and his independent agent.
The insured was a two-person corporation consisting of a consultant and his wife. He provided agricultural pest control consulting and recommendation services to farmers and aerial pesticide applicators in the Yuma, Arizona region. The relationship between the insured and the agency dated back to 1997.
The insured testified that he had originally requested errors and omissions (E&O) liability insurance to cover any damages he may owe as a result of errors and omissions he might make in his recommendations. The insured testified that “he relied entirely on (the agency) to provide him with his insurance needs because the ‘insurance stuff’ was ‘way over [his] head.’” The agency’s expert witness supported that reliance and testified that it was reasonable.
Starting in March 2010 and every year thereafter, the agency recommended that he purchase miscellaneous E&O coverage, a professional liability policy suitable when no policy specific to the profession exists. Every one of those policies contained a property damage liability exclusion The 2019 and 2020 renewals also contained an endorsement that replaced the property damage exclusion. It applied only if the insured did not carry commercial general liability (CGL) insurance with a limit of at least $1 million each occurrence.
The insured later testified that the agency never explained the property damage exclusion to him, never explained the endorsement added in 2019 and 2020, and never discussed with him the option of purchasing CGL coverage. Also, there was no record of the agency asking the insurer to remove the exclusion or seeking alternative coverage that would fill the gap.
In 2015, an agricultural company began development of a high fiber wheat product. In October 2019, it planted the seeds in two fields. Meanwhile, the insured advised a farmer who operated an adjoining field to aerial spray his crops with a certain pesticide. The company claimed that the pesticides drifted through the air and destroyed parts of the wheat crops in its two fields. The company later demanded a $1 million settlement.
The company sued the insured and others in June 2020, and the insured submitted a claim to the E&O insurer a week later. The insurer denied coverage in July 2020 and again the following spring after the agricultural company amended its complaint. That May, the insurer asked a court to declare that it owed the insured no coverage. The insured contested the suit and countersued the agency. The agency asked for a judgment in its favor based on the law.
In March 2024, the court ruled that the facts were in dispute and the case had to go to trial. While it found that the property damage exclusions were clear, “it is less clear that a reasonably intelligent customer checking on his policy rights would understand that claims for property damage sustained because of his advice would initially be excluded from coverage but could be covered if he maintained other insurance.” Because there was a question of whether the insured could reasonably expect coverage, the court ruled that a jury must hear the case.
The court also ruled that, since the insured’s reasonable expectations were in doubt, it could not grant the agency’s request for judgment in its favor. The questions of whether the agency caused the insured’s injury and breached a duty to him by not explaining the exclusion also had to be resolved by a jury.
Since the court’s decision is only four months old, we do not yet know how this case will be resolved.
The questions about the agency’s handling of this account are:
- Did the agency know and understand that the exclusion might apply to this type of loss?
- Why did the agency not sell the insured a CGL policy?
The insured operated out of his home; a businessowners policy that included CGL coverage would seem a natural fit. That might have prevented the claim denial since the exclusion in 2020 depended on the absence of CGL coverage.
In this case, failure to sell a BOP for a few hundred dollars in premium has the agency tied up in ongoing litigation.
