By: AgencyEquity.com
What do you get when you have an insured, a lender, a retail agent, a wholesaler, a managing general agent (MGA,) a carrier, a mortgage closing that changed a few times, three sets of applications, a windstorm loss, and a foreclosed mortgage? A mess that landed in a federal court in Ohio.
The insured was purchasing a waterpark in Sandusky, a resort town on the shore of Lake Erie, in 2018. This was the timeline as explained in the judge’s opinion on the eventual lawsuit:
- July: The insured, a limited liability company (LLC) contacted an independent insurance agent to arrange coverage on the waterpark.
- August 1: The agent requested quotes from a wholesaler for a closing scheduled for August 3. He enclosed with the email an executive summary of the property, unsigned ACORD applications for commercial general liability (CGL,) property, and umbrella/excess insurance, plus a supplemental application. The applications did not request coverage for any additional interests.
- August 1: The wholesaler sent the applications to several carriers and the MGA.
- Sometime later: The closing date was postponed until August 10.
- August 20: The retail agent informed the wholesaler that they were obtaining the property coverage from another insurer, and they would need CGL, liquor liability, “lead” umbrella, business personal property, and business income insurance from them. He attached new ACORD applications which also did not request coverage for additional interests.
- Also on August 20: The insured emailed the retail agent to request that the liability insurance policies cover the mortgage lender as an additional insured. The agent asked if the policies should also list the lender as mortgagee, and the insured said no.
- August 21: The wholesaler sent the MGA’s quote to the retail agent. The retail agent responded by reporting on a conversation in which the insured asked for a reduced business income limit and the addition of two additional insureds.
- Also on August 21: The insured emailed the retail agent with the lender’s name and address. The email also said, “They also want the following: ‘additional insured’ on liability and ‘mortgagee’ on property is the norm in Ohio AI so (the second additional insured) use the hotel address for them.” The agent forwarded this email to an account manager in the agency working on the account.
- August 23: The account manager emailed the wholesaler to request that coverage be bound effective that date and that the two additional insureds be included. She attached signed copies of the new applications. The wholesaler forwarded the applications and instructions to the MGA. The MGA interpreted the instructions as meaning that the additional insureds were for the CGL policy only. The carrier issued policies effective on that date.
- September 14: The wholesaler informed the MGA that the closing had not occurred. The MGA answered that the policies would have to be canceled and rewritten.
- October 16: The retail agent asked the wholesaler for revised quotes for policies effective October 19. The new request included $6 million coverage on one of the buildings and reduced estimated exposures for rating the CGL coverage. It did not include new applications and did not mention adding coverage for a mortgagee.
- October 17: The MGA provided new quotes to the wholesaler, who forwarded them to the retail agent.
- October 19: The retail agent asked the wholesaler to bind coverage. The insured had signed the quotes.
- October 22: The MGA sent a binder to the wholesaler, who sent it to the retail agent. Both of them cautioned the retail agent to review the binder and policies for accuracy. The account manager sent new signed ACORD applications to the wholesaler. These requested coverage for the mortgage lender for the first time.
- October 30: The wholesaler asked the retail agent for information missing from the applications.
- November 6: The retail agent sent signed revised applications to the wholesaler.
- November 14 – 15: The wholesaler received the policies and forwarded them to the retail agent with instructions to review them for discrepancies. The CGL policy listed the lender as additional insured, but the property policy did not list them as mortgagee. The account manager did not review the policies, and the producer could not recall whether he did.
- January 2019: The property suffered wind and water damage and the insured submitted a claim.
- June: The carrier and the insured settled the claim.
- Sometime later: The insured defaulted on the mortgage and the lender foreclosed on the property. The lender discovered that it was not entitled to the proceeds from the settled claim. They sued all the agents, brokers, and carriers involved.
In March 2023, the judge threw out the claims against the carriers and the brokers. Notably, however, the claims against the retail agent stood. There is no further public record, so the agent’s errors and omissions liability insurance carrier may be attempting to settle the suit.
The handling of this matter was so convoluted and involved so many players that an error of some type was probably inevitable. However, the retail agent’s failure to review the issued policies after so much back and forth was a major error. Had they caught the absence of a mortgagee on the property policy, the entire suit could have been avoided. Policy review is an important part of E&O loss prevention. Agents should make this a regular part of their procedures.
