Do You Have a Duty to Read Your Insurance Policies?
When your company’s insurance policies arrive in the mail, do you or someone responsible for your company’s risk management read them to make sure that each policy includes the insurance coverage your company thinks it purchased? Do you skim the first few pages, looking to make sure the names, projects, and property addresses are accurate? Or do you file the policies without reviewing them and assume that your insurance agent knew to get the “right” insurance for your company’s needs?
Now imagine that your company is sued for something that you believe your agent told you would be covered in the event of a claim. You promptly send the claim to your insurance agent and insurance carrier only to have the carrier deny coverage, leaving you to pay for any damages, settlement, and attorney fees out of your pocket—not the insurance company’s. You can bring a lawsuit against the insurance company to try and get the denial of coverage reversed, but if a judge agrees that the policy does not, in fact, cover the claim, then your only other option may be to bring a malpractice claim against the insurance agent for negligence, breach of contract, or misrepresentation.
Once you sue your insurance agent for malpractice, however, the agent will likely argue that you caused your own damages because you did not read the insurance policy and catch the mistake. Will this defense hold up in court? Will it sway the jury if they hear evidence that you did not read your insurance policies to catch the mistake or the missing coverage?
As with so many other legal questions, the answer is: it depends. Although a business entity’s failure to read its policy does not bar all claims against the insurance agent, a judge will consider a number a factors in deciding such a case, including the specific claims being brought against the agent, the complexity of the insurance policy, the insurance customer’s level of sophistication, and the nature and extent of the insurance customer’s relationship with its insurance agent. Further, if the case manages to go all the way to a jury trial, what do juries expect of businesses when it comes to whether or not they read their insurance policies?
The issue has come up in several Massachusetts cases involving claims by businesses against their insurance agents. In those cases, the businesses claimed that the coverages that the insurance agent promised to get them were not in the actual policy. In each of those cases, however, the Massachusetts Supreme Judicial Court (“SJC”) held that even in cases where an insurance agent makes a misrepresentation to its customer about the insurance coverage, the insurance customer still has a duty to read the insurance policy and check for itself if the promised coverage is actually in the policy.
Specifically, the SJC held that “a business entity . . . should read its policies rather than rely on representations by an agent.” Sarnafil v. Peerless Insurance Co., 418 Mass. 295, 307 (1994). The SJC has also found that while an insurance agency customer may rely on its insurance agent’s promises to a degree, the customer “cannot abandon all responsibility for ascertaining the terms of the coverage that his broker obtained.” Campione v. Wilson, 422 Mass. 185, 196 (1996). In each of those cases the SJC reasoned that the customer’s reliance on the agent’s oral promises (which differed from what was in the actual policy) was unreasonable because the customer did not read its policy.
When it comes to jury trials, it seems Massachusetts juries tend to be a bit more understanding of an individual layperson who does not read his or her insurance policy cover to cover. But juries are much less sympathetic when it comes to businesses that do not bother to read their insurance policies and later try and blame the agent if something is missing.
For example, in a recent trial I represented an insurance agent whose customer was sued for antitrust violations. The agency customer notified its insurance carrier of the claim, but the carrier denied coverage and refused to pay for legal fees, citing to a specific antitrust exclusion in the policy that the policy would not provide coverage for actual or even alleged antitrust violations. The customer then sued my client for malpractice, alleging that the agent had orally promised to get them antitrust insurance. We argued on behalf of the client that, had the customer simply read its policy, it would have seen the antitrust exclusion long before the uninsured loss occurred. The customer was a sophisticated business and used its in-house attorney and a CFO to manage its insurance program. Both the lawyer and the CFO, however, testified that they never bothered to review their company’s insurance policies despite being responsible for them. We argued that had the lawyer or CFO read the policy, they would have easily discovered that the antitrust coverage they were claiming they had asked for was clearly excluded in the policy itself.
The jury agreed. During cross-examination, the in-house attorney admitted he never read the insurance policy because he assumed that his insurance agent would do it for him. When he was asked why, as a lawyer, he did not bother to read the insurance policy (which he acknowledged is a legal contract to which his employer/client was a party), he tried to blame his insurance agent. Several members of the jury actually rolled their eyes at the idea that this lawyer had not bothered to read his insurance policy himself because he assumed the agent would do so for him.
In sum, whether you are purchasing insurance as an individual or for your company, the failure to read your insurance policies is probably not a complete bar to bringing a malpractice claim against your insurance agent, but it may make your case harder to win. The best practice is to review your insurance policies at the time you receive them. If something is missing, or you just do not understand what you are reading, use that review as an opportunity to contact your insurance agent or your own attorney to discuss questions you may have about how to read the policies and to determine, before there’s been a loss, whether you have the insurance you think you do.
Nathan Cole is a Director at Kenney & Sams and has been representing insurance agents, brokers, and insurance customers for over a decade.