An insurance agent’s job goes beyond obtaining coverage for a client at a low price. Insurance policies are complex contracts. Many consumers find their array of terms and conditions to be confusing. They may not understand why they should consider buying a certain coverage.
Uninformed decisions can spell trouble for the agents who sold the policies. A client with an uncovered loss may look for someone to blame. The insurance agent is often the prime suspect.
A Mississippi man who was injured as a boy in a car accident argued that his parents’ insurance agent let him down. The state’s highest court agreed.
The boy was a passenger in a car that made a left turn at a flashing yellow light. His car collided with that of a state trooper. The injuries he suffered were severe enough that he sued the trooper and two insurance companies almost seven years later.
The trial court dismissed the case against the trooper, ruling that he was acting within the scope of his duties when the accident occurred. Mississippi law requires claimants to file legal actions in such cases within one year.
It also threw out the case against one of the insurers. This company was able to show that it had cancelled the policy purchased by the boy’s parents before the accident. However, the other insurer did have a policy in effect for the parents at the time.
This insurer argued that the case against it, too, should be dismissed. The boy, now grown, was seeking uninsured motorist coverage benefits. The insurer produced a document, signed by the man’s father, in which the parents waived the purchase of UM coverage. The father acknowledged signing the waiver. However, he claimed that the insurance agent did not explain to him what the coverage was. Therefore, he argued, he did not waive it knowingly. He contended that the insurance agent had a duty to explain the coverage to him.
The trial court and an appellate court both dismissed the man’s case. He then appealed to the state’s highest court. This court reached a different conclusion.
The judges explained that Mississippi law gives auto insurance buyers the right to purchase UM coverage. Any buyer who declines to buy it must do so in writing. In addition, previous state court decisions held that a waiver is not effective unless the insurer can demonstrate that the waiver was “knowing and informed.”
The insurer cited a court ruling that an insurance agent had no duty to inform an insured of the option to purchase higher limits of UM coverage. However, the high court found that this did not absolve the insurer of its duty to demonstrate that the insured made an informed decision. “(T)he insurance carrier,” the judges wrote, “may meet that burden of proof by establishing that it provided an explanation, appropriate to the client, of UM coverage.” A judge could consider a signed document stating that the insured received an explanation, but the document was not sufficient proof that it happened. A dispute over whether the insured made an informed decision to waive coverage must be resolved by a jury.
The court also noted that the waiver the insured signed did not explain the coverage: “(W)e find a genuine issue of material fact exists regarding whether the insurance agent explained the costs and benefits and whether the (insureds) gave a knowing and intelligent waiver of UM coverage.” Thus, the judges sent the case back to the trial court for further proceedings.
The waiver the insureds signed contained three sentences that were 76, 56 and 29 words long. Any ordinary person would have found it difficult to understand. The agent in this case should have provided a waiver, in easy-to-understand language, that explained:
- What UM coverage does
- The potential consequences of not buying it, and
- Mississippi legal requirements.
It should also have clearly stated that the insured was choosing not to buy it.
When state law places a duty on insurance providers to explain coverage, the agent must perform it. It is not enough to have a client sign a piece of paper. It is the agent’s job to ensure that the client understands the decision he is making.
