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Summary Judgment Reversed in Case Against Agent for Failure to Procure Adequate Insurance

In a recent case decided by the Court of Appeals of Tennessee in which an insurance agency was sued for failure to procure an adequate commercial general liability insurance policy, the court reversed some of the trial court’s rulings on expert testimony, which resulted in the summary judgment in favor of the defendant insurance agency also being reversed. Since, in almost all cases against insurance agents and agencies, a plaintiff must have expert testimony to establish the standard of care and a breach of it by the agent or broker, the court’s analysis and rulings related to the qualifications and areas of testimony of the plaintiff’s insurance expert are very helpful.

Here are the basic facts related to the procedural history of the case:

  • Merit Construction was sued for damages by JAG arising out of its work on a project
  • Merit agreed to settle the suit for over three million dollars
  • The insurance company which had insured Merit under a commercial general liability policy was placed in a receivership (meaning it could not pay claims of its insureds, like Merit)
  • Merit assigned its rights against its insurance agent (“Agent”) which had procured the policy at issue to JAG
  • JAG sued the Agent on the basis that it had been negligent with respect to obtaining coverage for Merit
  • To make its case, JAG employed an expert in the insurance industry named Bahr
  • The trial court made a ruling which excluded several of the opinions of Bahr which were necessary for JAG’s professional negligence claims against the Agent to survive
  • Without the expert testimony which supported that the Agent had breached the applicable standard of care for insurance brokers and insurance agents and which the trial court excluded, JAG was unable to defend a motion for summary judgment which the trial court granted

Here are the basic facts related to the alleged negligence of the Agent:

  • Merit asked the Agent to obtain a commercial general liability policy from a company with a rating from A.M. Best Company of at least “A”
  • A.M. Best Company is widely recognized as providing reliable ratings as to the financial stability of insurance companies
  • The Agent presented Merit with three policy options, one of which was from a company, Highlands Insurance, which had an A.M. Best Company rating of “B++”
  • The Agent represented to Merit that the coverage through Highlands would be “A” rated if a “cut-through” endorsement was obtained to go with it
  • A “cut-through” endorsement is essentially reinsurance
  • Merit understood that, with the cut-through endorsement, Highland’s rating would be raised to “A”
  • After Merit purchased the policy, Highland’s rating was downgraded to a “B” from “B++”
  • The Agent did not inform Merit of the downgrade or offer to move its coverage to another company with a higher rating
  • Highlands went into receivership

 

Bahr, the expert for JAG, offered three opinions which the trial court ruled he was not qualified to make, thereby effectively excluding them:

  1. That the Agent breached the standard of care when it offered a less than “A” rated policy and informed Merit that the cut-through endorsement raised the rating to “A”
  2. That the Agent breached the standard of care when it failed to explain thoroughly the cut-through endorsement, how it worked, and by not obtaining a signed letter from Merit that it understood the same
  3. That the Agent breached the standard of care when it failed to notify Merit that Highland’s rating had fallen by two grades (from “B++” to “B”)

After a thorough review of the law applicable to determining whether an expert’s proffered testimony should be admitted and whether the expert is qualified to testify, the court of appeals held that Bahr was not qualified to testify as to 2. above, but was qualified to testify as to 1. and 3.

Bahr had extensive experience in the insurance industry as well as impressive credentials, as the court recognized. However, it found that he was not qualified to testify as to the standard of care applicable to advising a client about cut-through insurance for several reasons, all of which arose out of Bahr’s lack of experience in doing the very thing he wanted to opine that the Agent should have done — explain cut-through insurance and obtain a writing signed by Merit stating that it understood cut-through insurance. Besides the fact that he had never sold a policy with a cut-through endorsement, Bahr conceded, in his deposition, that he lacked familiarity with the practice of obtaining a signed acknowledgement that cut-through insurance had been explained.  In effect, as happens sometimes with experts who are deposed, Bahr undercut his own proffered opinion as to 2. above.

The good news for JAG was that, because the trial court’s ruling as to the other two topics of Bahr’s testimony were reversed, so to was the summary judgment against it. For lawyers who handle cases against insurance agents and brokers, and who will almost certainly need to employ experts to establish the standard of care and breach thereof (or to defend against the plaintiff’s expert), this opinion is worth reviewing before you begin the process of retaining an expert.