Double trouble: court sides with Missouri resort facility after its broker failed to explain his failure to obtain coverage.
If the insurance agent or broker cannot or does not obtain the requested insurance, the agent or broker has a duty to timely notify the insured. A failure to explain why insurance was not obtained is as damning, if not more so, than the failure to obtain insurance.
James Moritz purchased Bucksaw Resort on Oct. 31, 2006. Bucksaw, located in Clinton, Mo., produces income from fishing tournaments, family reunions, seasonal slip boat rentals, restaurant and marina sales, and rental of its 40-room lodge and six cabins. It also has a 100-site RV park on the premises.
Before the Oct. 31, 2006, closing, Moritz's lending bank required him to obtain property insurance for the premises. Eugene Mehrtens, an independent insurance broker who had sold insurance since 1985, had written insurance for Bucksaw's prior owner.
Moritz and Mehrtens first met at Bucksaw's restaurant prior to the closing. Mehrtens provided Moritz a copy of the prior owner's policy They discussed the coverage on the docks, marina, parking lot, fencing, riprap, all of Bucksaw's personal property, pavilions, rigging shop, 40-room lodge and six cabins.
Mortiz and Mehrtens also toured of the area, during which Moritz said that he wanted Bucksaw to have coverage for loss of business income and for everything to be covered from flood damage.
Mehrtens procured an insurance policy from both Federal Insurance Co. and XL Specialty Insurance.
In 2007, Bucksaw Resort experienced a flood. The water rose over the parking lot and up to a marina wall. The chairs in its pavilion were damaged. The rock covering the parking lot disappeared. The fencing and riprap washed away. As a result of the flood, Bucksaw lost business income.
After filing suit but before trial, Bucksaw Resort settled with both insurance companies: XL paid $24,000 and Federal paid $97,100. After the settlement, both insurance companies were dismissed with prejudice from the lawsuit. Bucksaw then continued its negligent failure to procure insurance suit against Mehrtens.
At trial, the court did not allow evidence of the settlement to be introduced to the jury. The court did allow Mehrtens to put on evidence to show that the two insurance companies had paid Bucksaw Resort for damages. The jury entered a verdict in favor of Bucksaw in the amount of $54,000. Mehrtens appealed the verdict in Bucksaw Resort LLC v. Mehrtens.
Mehrtens had a duty to procure the requested insurance or timely notify Moritz that the requested insurance was not obtained.
At trial, Bucksaw Resort presented sufficient evidence to show that the insurance that Mehrtens procured did not cover all of the requested property. Moritz presented evidence that in addition to his business interruption loss, he sustained damages of $32,990 to repair the fence, $7,046 to replace the chairs and $294,558 to replace the stone on the bank and repair the parking lot. Thus, Bucksaw put forth evidence that its failure to fully recover was due, in part, to Mehrtens not procuring the requested insurance, and as a result of his negligence, it was damaged.
The Missouri Court of Appeals concluded that the circuit court did not err in denying Mehrtens' motions for directed verdict and his motion for judgment notwithstanding the verdict. The appeals court affirmed the judgment but reversed and remanded the case to the trial court with directions that judgment be entered in accordance with the opinion.
Every insurance agent and broker should make it clear to each client that the insurance requested was acquired or, if not all coverages requested were not obtained, clearly advise the insured that the broker was unable to obtain the insurance required. Failure to do so will be expensive.
Barry Zalma, Esq., CFE
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage claims handling, bad faith and fraud. Contact him at zalma.com or firstname.lastname@example.org.
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|Title Annotation:||DOWN TO CASES|
|Publication:||Property Casualty 360-National Underwriter|
|Date:||Feb 1, 2014|
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