Tag Archives: negligent procurement

MEASURE OF DAMAGES IN NEGLIGENT PROCUREMENT OF SURETY BONDS / INSURANCE

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shutterstock_675053740My broker procured the wrong insurance and I am exposed to a loss.  My broker failed to procure proper insurance and I am exposed to a loss.  “Where the parties enter into an agreement to procure insurance and there is a negligent failure to do so, an insurance broker may be liable for damages.”  The Lexington Club Community Association, Inc. v. Love Madison, Inc., 43 Fla.L.Weekly D1860a (Fla. 4th DCA 2018).  The proper measure of damages in a negligent procurement of insurance claim is “what would have been covered had the insurance been properly obtained.”   Id. quoting Gelsomino v. ACE Am. Ins. Co., 207 So.3d 288, 292 (Fla. 4th DCA 2016).  This measure of damages  in a negligent procurement of insurance claim is important because it is the measure of damages that dictates recoverable damages under this claim.

 

In Lexington Club Community Association, Inc., condominium associations hired a contractor to perform post-hurricane repairs.  The contractor was required to obtain a performance and payment bond.  The contractor obtained bonds from a non-Florida surety (insurance) company that was not authorized to do business in Florida.  In doing so, the association paid the contractor’s surety agent $327,915 in premium, of which 10% of this amount went to the agent as commission.  The associations thereafter learned the surety was located in Barbados and not licensed in Florida, which raised a red flag, as it should.  The associations then sued, among others, the surety agent that procured the bonds and received the commission for negligent procurement of insurance, a declaration that the bond was unenforceable, and unjust enrichment.  (Notably, although the surety was sued, it did not respond to the complaint and a default was entered against it.). Ultimately, the associations paid a huge premium for a valueless product, i.e., surety bonds backed by a foreign entity that had no incentive to honor the bonds, particularly since it was not licensed to do business in Florida.

 

Of importance, the association had no cause to rely on the bonds because it did not incur any damage or issue to actually trigger the application of the bonds, other than wanting a refund in its premium.  This meant it was suing the surety agent for the $327,915 in premium that was paid to the surety not licensed to do business in Florida.  But, the lack of an actual loss under the bonds is an important consideration when it comes to proving damages.  A jury found that any negligence of the surety agent was not a cause of damage to the associations, presumably because the associations had no proven damage under the bonds.  Instead, the jury awarded the associations the 10% commission the agent received in procuring the bonds, approximately $32,000, through an unjust enrichment claim.  (An analogy would be procuring insurance from a non-Florida entity but not actually having a claim to trigger the insurance coverage.  The same rationale would apply.). 

 

Florida Statute s. 626.901 applies when dealing with an unauthorized insurer, which is an insurer not authorized to transact insurance in Florida, such as the surety in this case.  Section 626.901(2) provides:

 

If an unauthorized insurer fails to pay in full or in part any claim or loss within the provisions of any insurance contract which is entered into in violation of this section, any person who knew or reasonably should have known that such contract was entered into in violation of this section and who solicited, negotiated, took application for, or effectuated such insurance contract is liable to the insured for the full amount of the claim or loss not paid.

 

However, even under s. 626.901, an insurer’s unauthorized policy would still be deemed enforceable in Florida; however, the insurance broker could still be liable for amounts or loss not paid by the insurer.  Fla. Stat. s. 626.901.  Applied here, the bonds would still be enforceable (irrespective of the surety that actually issued the bonds).  But, again, the associations here did not actually incur a loss that would trigger the application of the bonds.

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

NEGLIGENT PROCUREMENT OF INSURANCE

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shutterstock_540587629As you know, insurance is an important part of risk assessment for many, many business needs.  Oftentimes, an insured relies on an insurance broker or agent to procure specific insurance to meet its express business objectives and risks.  Notably, there is a potential negligence claim associated with an insurance agent or broker’s negligent procurement of insurance for an insured.  While this is not the easiest claim to prove, a recent Third District case explained this standard:

 

It is well settled that “where an insurance agent or broker undertakes to obtain insurance coverage for another person and fails to do so, he may be held liable for resulting damages for . . . negligence.  More specifically, and as applicable here, “[a]n agent is required to use reasonable skill and diligence, and liability may result from a negligent failure to obtain coverage which is specifically requested or clearly warranted by the insured’s expressed needs.”  As explained by our sister court, “[t]his general duty requires the agent to exercise due care in correctly advising the insured of the existence and availability of particular insurance, including the availability and desirability of obtaining higher limits, depending on the scope of the agents undertaking.” 

Kendall South Medical Center, Inc. v. Consolidated Ins. Nation, Inc., 42 Fla. L. Weekly D1071a (Fla. 3d DCA 2017) (internal quotations omitted).

 

 

In this case, a leak occurred on commercial leased premises.  The commercial tenant had a property insurance policy that provided $100,000 of coverage for the physical improvements and contents of the property.  However, there was a 90% coinsurance provision.  A coinsurance provision shifts risk to the insured when the insured purchases less coverage than the value of the property. 

 

As a result of the coinsurance provision, the insured only received a fraction of its damages, and less than the $100,000 in coverage.    The insured, however, claimed it was under the belief it would recover $100,000 in insurance proceeds as that was what it told its agent it needed.  The insured sued its insurance agent claiming the agent’s failure to advise it that the procured policy did not address its expressed insurance needs. “[W]hen an insured alleges that it specifically communicated its insurance needs to an agent who then undertook to procure a policy addressing such needs, the insured states a cause of action for negligent procurement where it also alleges that, without providing an explanation that different coverage was required, the agent procured a policy not meeting those expressed needs.”  Kendall South Medical Center, supra.

 

Perhaps this could have been avoided had the insured reviewed the specific terms of the insurance policy.  Perhaps there are e-mails or other records where the insurance agent explained that the coverage the insured was seeking could not be procured without a coinsurance provision that shifted the risk to the insured.  Know your insurance and know the risks and coverage afforded to you!

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.