It Must Be My Agent’s Fault (Anniversary Issue Litigation Quarterly March 2008)

In recent years, premiums for insurance agency Errors and Omissions policies have increased for more than three-quarters of insurance agencies across the United States. See Stephanie Jones, Insurance Journal, What Does the Future Hold for Insurance Agents’ E&O? (2006). This trend has been noticeable in South Florida, in which property owners have frequently attempted to hold their insurance brokers responsible for a lapse in coverage in their homeowner’s policies, or due to the insurer’s denial of coverage.  Some of these lawsuits have arisen when coverage has lapsed or been cancelled due to the failure of a property owner to pay the renewal premium for their homeowner’s policy in a timely manner before the arrival of one of the many destructive hurricanes that have blown through South Florida in recent years.

As a general rule, Florida law provides that an insurance broker or independent insurance agent acts as the agent of the insured. See Amstar Ins. Co. v. Cadet, 862 So. 2d 736, 740 (Fla. 5th DCA 2003).  An insurance broker differs from a captive agent because an insurance broker is not bound to work for or solicit insurance for any particular insurance company.  See Amstar, 862 So. 2d at 739. In Florida, a person’s acts, not words, determine whether they are deemed to be an insurance broker or an insurance agent. See Boulton Agency, Inc. v. Phoenix Worldwide Indus., 698 So. 2d 1248, 1250 (Fla. 3d DCA 1997).

The good news for insurance brokers is that Florida law has generally placed the responsibility to timely renew and pay premiums on the insurers and property owner themselves. Specifically, the Florida Supreme Court has held that an insurance broker’s employment is at an end when the agent procures insurance for the insured. See Cat’N Fiddle v. Century Ins. Co., 213 So. 2d 701, 704 (Fla. 1968). In Florida, an insurance broker is under a duty to notify the insured of a pending cancellation of a policy unless it is made to appear that the insured knew or reasonably should have known about the cancellation from sources other than the agent.  See Thal v. Shiman, 524 So. 2d 1156, 1156-7 (Fla. 3d DCA 1988).

Since Florida law requires an insurer to mail the notice of cancellation directly to the insured with an open copy to the broker, an insurance broker is generally under no further duty to inform the insured about the pending cancellation of the policy after receipt of the notice of cancellation. See Thal, 524 So. 2d at 1156-7; See also § 627.728(3) (a), Florida Statutes. Likewise, an insurance broker also owes no duty to the insurer to forward a defective notice of cancellation to the insured. See Don Slack Ins. Inc.v. Fidelity Cas. Co. of New York, 385 So. 2d 1061, 1064 (Fla. 5th DCA 1980).

Although some insurance brokers call their respective insured-clients after receipt of a cancellation notice from the insurance carrier, Florida courts have found that proof of mailing a notice of a cancellation to a named insured at the address stated in the policy constitutes sufficient compliance with policy provisions requiring notice of cancellation to the insured. Burgos v. Indep. Fire Ins. Co., 371 So. 2d 539, 541 (Fla. 3d DCA 1979). If a lawsuit does later arise, an insurer’s proof of mailing of a notice of cancellation to the insured prevails as a matter of law over the insured’s denial as to its receipt. Ruiz v. Fortune Ins. Co., 677 So. 2d 1336, 1338 (Fla. 3d DCA 1996).  If cancellation does occur, an insurance broker is generally not under a duty to obtain replacement insurance coverage for the insured unless there is an agreement to do so between the broker and the insured. See Burgos, 371 So. 2d at 541.

Despite these apparent protections for insurance brokers, there are still some steps that insurance brokers may wish to take in order to protect themselves against potential lawsuits arising from cancellation and an insurer’s denial of coverage, and in order to better serve their insured-clients. First, the broker should meet with and discuss with the insured the coverage requested. In this meeting, the broker should ensure that the insured completes a written insurance application in their own handwriting in order to avoid any transcription errors by the insurance broker.  Second, upon obtaining a proposal from prospective insurers, the broker should put forward a detailed insurance proposal for the insured’s review and approval, and explain all proposed coverage to the insured.  If the insured agrees with the proposed coverage, then the broker should request that the insured sign the proposal so that there will be no confusion regarding the coverage requested by the insured.

With respect to notices of cancellation, it may be advisable for the broker or customer service representative to verify the insured’s address on the notice in order to ensure that notice contains the insured’s correct mailing address, as stated in the policy. If the insured’s address is correct, the insurance broker can reasonably expect that the insured has received notice of the cancellation in accordance with Florida law. As a second step, it may be advisable for the broker to send an email or letter to the insured and attach a copy of the insurer’s notice of cancellation, although Florida law requires no such duty. However, this will enable the broker to prove their attempt to notify the insured about the notice of cancellation in the event that litigation later arises. As a final measure, the insurance broker should document all verbal decisions that the insured makes with respect to the continuance or cancellation of insurance coverage in a brief email or letter to the insured so that all parties will be clear with respect to the insured’s coverage decisions.

As hurricanes become more frequent in South Florida, insurance brokers can expect that unhappy homeowners may attempt to make them the scapegoat for the insurers’ denial of coverage or for the failure of the insured to timely renew their own policies. Although Florida law generally places the responsibility of these matters with the insurers and insureds, insurance brokers would be well advised to take some additional steps in order to protect themselves from E&O liability, litigation costs and increased E&O premiums, as well as to better serve their insured-clients.