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Statehouse trumps court: Iowa legislature changes law, overruling decision on agent duty.

Sometimes courts--trying to protect the consumer against insurance agents, brokers and insurers--change the law to favor the consumer without considering the law of unintended consequences, when helping one consumer can cause severe damage to all the consumers in the state.

Because judicial and legislative branches of government are equal, the state legislature has the right and duty to enact a statute that reverses a harmful action. The Iowa state legislature did just that with regard to the duties of insurance agents to their clients.

In the U.S., insurance agents--whose sole source of income is a commission paid as a percentage of the premium paid by the insured--transact insurance with and on behalf of insurers. Agents do not generally hold themselves out as insurance specialists, consultants or counselors and do not receive compensation for consultation and advice apart from commissions paid by an insurer. The agent's duty is to obtain the insurance that the insured asks. The agent is not required to suggest different coverages nor do they have a duty to provide coverages the agent believes the insured needs but is not requested. The Iowa Supreme Court attempted to change that duty.

Dennis and Ben Langwith appealed the second grant of summary judgment in favor of their insurer and its agents. After the first order granting summary judgment, the Iowa Supreme Court issued a ruling that expanded the potential liability of the agents and remanded to the district court for trial in Langwith v. Am. Natl Gen. Ins. Co. 793 N.W.2d 215, 217 (Iowa 2010). Before trial, the legislature enacted a statute abrogating Langwith, and the insurers filed a second motion for summary judgment. The district court again granted summary judgment. The Langwiths' appeal was transferred by the Iowa Supreme Court to the Court of Appeal to review the grant of summary judgment for correction of errors of law, which was accomplished in Dennis Langwith and Ben v. American National General Insurance Company, A Corporation, American, No. 2-712 / 11-1924 (Iowa App. 10/03/2012).

Janet Fitzgerald is a self-employed captive agent for American National, doing business under the name American National Janet Fitzgerald Insurance Services. Prior to the events giving rise to this lawsuit, Dennis and his wife, Susan Langwith, had purchased nearly all of their insurance through Fitzgerald. During this time, they consistently carried an automobile liability insurance policy with limits of $250,000 and an umbrella policy with $3 million limits, both issued by American National. These policies also covered the Langwiths' two children.

In December 2003, the Langwiths' son, Ben, had his driver's license suspended, which prompted American National to cancel Ben's coverage under the automobile liability policy. American National also sought to cancel the umbrella policy, but did not do so after Dennis and Susan signed a form agreeing to a driver exclusion for Ben. The exclusion precluded coverage under the umbrella policy for any insured for any loss sustained while the vehicle was being operated by Ben.

After the state reinstated Ben's driver's license, Susan spoke with Fitzgerald regarding insurance coverage for Ben. As a result of that conversation, Fitzgerald procured a high-risk policy from American National that covered Ben when driving the Langwiths' vehicles. This policy had limits of $250,000. The Langwiths claimed that they assumed Ben was once again covered by the umbrella policy because Ben's driver's license had been reinstated and he had obtained the required underlying liability coverage. Contrary to this understanding, the driver exclusion for Ben remained on the Langwiths' umbrella policy.

On July 16, 2006, Ben was in an accident when driving a Chevrolet Suburban titled in Dennis's name. Corey Shannon, a passenger in Ben's vehicle, was severely injured. Shannon sued Ben based on Ben's alleged negligent operation of the Suburban, and he sued Dennis under the owner-liability statute that imposes liability on the owner of a vehicle for damages caused by a consent driver. American National acknowledged coverage for these claims under the automobile liability policy issued to the Langwiths and has provided a defense to Dennis and Ben in the Shannon lawsuit pursuant to its obligations under this policy.

American National denied any liability under the umbrella policy based on the driver exclusion for Ben.

TRIAL JUDGMENT FOR THE AGENT

The district court granted Janet Fitzgerald's motion for summary judgment on the ground that Fitzgerald had no duty to advise Dennis and Susan Langwith with respect to umbrella coverage on their son, Ben, or with respect to avoiding Dennis's vicarious liability for Ben's negligent driving. In reaching this conclusion, the court relied on settled Iowa law restricting the obligation of insurance agents to their clients.

The Langwiths appealed and, in that first appeal, the Iowa Supreme Court recognized an expanded duty for insurance agents. In response to the expansion of potential liability for insurance companies, and before the trial on remand took place, the Iowa legislature added a new subsection to Iowa statutes. The new subsection provides: "the holding of Langwith is abrogated to the extent that it ... imposes higher or greater duties and responsibilities on insurance producers than those set forth in ..." an earlier decision.

The subsection also states that "[u]nless an insurance producer holds oneself out as an insurance specialist, consultant, or counselor and receives compensation for consultation and advice apart from commissions paid by an insurer, the duties and responsibilities of an insurance producer are limited to those duties and responsibilities set ..." in earlier decisions.

Fitzgerald filed a second motion for summary judgment. The district court again granted the defendants summary judgment and the Langwiths appealed again. The duty an insurance agent owes to her client was governed by Iowa state law when the Langwiths' petition was filed. The statute did not take away substantive rights previously possessed and the cases relied upon by the appellants are inapplicable.

In the earlier decision, following the majority of states, an insurance agent's general duty is the duty to use reasonable care, diligence and judgment in procuring the insurance requested by an insured. This duty could only be expanded when the agent holds himself out as an insurance specialist, consultant or counselor and is receiving compensation for consultation and advice apart from premiums paid by the insured. This is the standard applied by the district court in granting summary judgment in favor of the defendants and, therefore, the grant of summary judgment was affirmed.

The problem the Langwiths tried to resolve with litigation and multiple appeals is that they "assumed" that when their son was again licensed and obtained a primary insurance policy with a high-risk insurer, he would be automatically covered by an umbrella policy that specifically excluded the son as an insured. They tried to put their error on their agent and although the Supreme Court of Iowa tried to help them by changing the law of the state, the legislature changed the statute.

More on the Web:

* Giving notice

* No Harm, no Foul

* Strictly Business

Read these related articles at PropertyCasualty360.com

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. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. His ebook, "Heads I Win, Tails You Lose" and others are available at zalma.com/ zalmabooks.htm. Contact him at zalma.com or zalma@zalma.com.
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Title Annotation:Down to Cases
Author:Zalma, Barry
Publication:American Agent & Broker
Geographic Code:1U4IA
Date:Feb 1, 2013
Words:1229
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