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Legal Updates for Insurance Agents & Brokers

Top Ten Ways an Insurance Broker Can Avoid Liability

Legal Update for Insurance Agents & Brokers – December 2022

December 20, 2022

by Estelle Kokales McGrath

How does an Insurance Broker avoid liability? My husband, who is a broker, would say it is having an attorney for a wife, but all brokers cannot be that lucky. Seriously, here are a few tips that can keep a broker out of hot water:

  1. Document Conversations. Brokers, like many professionals, speak to multiple clients a day, and certainly as time passes, memories fade. Even if you have a mind like a steel trap, it is better to have contemporaneous documentation that memorializes a transaction, including what insurance was offered and declined. Brokers should make it a practice to document conversations with clients, whether it is through an agency database or even something as simple as an email or letter.
  1. Do Not Interpret Coverage. Brokers should resist interpreting whether an insurance policy covers a particular claim. It is better to encourage a client to promptly report a claim to the insurance company and let them interpret the policy provisions. A broker should not be giving advice on whether a particular or anticipated claim is or would be covered.
  2. Do Not Advocate for Coverage. Of course, brokers want the best for their clients, but advocating for coverage is simply outside of the job duties. It is commonly argued that such advocating can blur the lines of a broker’s duties and responsibilities to the client. Brokers should stay in their lane.
  1. Check Your Website. Most professionals like to brag that they have expertise in a certain area or that they specialize in a particular line of business. Brokers should check their website, their social media content and marketing materials to ensure they are not holding themselves out as experts or specialists. These statements are commonly used against a broker in litigation.
  1. Direct Billing Preferred. If possible, the best practice is to have the insurance company bill the client directly versus agency billing. If the broker is taken out as the middle man, there can be no argument that the broker failed to properly or timely process such payment or premium.
  1. Require Clients to Complete Insurance Application. Brokers should have their clients review and complete all insurance applications. The client should sign the application on their own behalf as they are in the best situation to provide a proper history. Further, the broker should counsel their client to be honest and to disclose all information requested in any such application. The broker should refrain from completing the application or making any changes or additions.
  2. Responding to Insurance Company’s Request for Additional Information. If the insurance company requests additional information for an application or in response to a claim, the broker is encouraged to secure that information from the client in writing so there are no miscommunications.
  3. Notice of Cancellation Practice. Brokers should advise their clients that if a policy is cancelled, such notice will come directly from the insurance company. In Pennsylvania, the insurance company (not broker) has the responsibility to advise of a cancellation or refusal to renew. In a perfect world, a client would acknowledge that the broker has no responsibility or duty to give them notice of cancellation before any cancellation occurs. If a broker sends a courtesy copy of the notice of cancellation on one occasion but then fails to do so thereafter, the client may improperly think that the broker had some duty to provide such notice.
  4. Renewal Practice. Brokers should confirm current coverages are accurate with their client and should also carefully check renewal policies for any differences, including new exclusions or restrictions. The broker should also inform the client of the changes in writing and confirm the client’s approval.
  1. Inform Client of All Available Products. Brokers should inform their clients of all available products, including cyber, pandemic and employment coverage to maximize their protection. A best practice is to include a checklist of all available products offered to the client and document what products were rejected.

A broker should advise their Errors & Omissions carrier immediately when it is made aware of a claim or a potential claim. It is better to err on the side of caution and let the insurance company determine when a defense is triggered under the policy. The earlier the broker secures legal counsel, the better chances it has to reach an early, amicable resolution of such a claim.

Estelle Kokales McGrath is a shareholder in the Professional Liability Department in the Pittsburgh office of Marshall Dennehey. She primarily concentrates her practice in the areas of employment law, public entity/civil rights, real estate, and insurance agent errors & omissions litigation in both the state and federal courts of Pennsylvania and West Virginia. She may be reached at ekmcgrath@mdwcg.com.

 

 

Legal Update for Insurance Agents & Brokers – December 2022, has been prepared for our readers by Marshall Dennehey. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note tgventura@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2022 Marshall Dennehey. All Rights Reserved.

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Florida Supreme Court Rules Florida Statute §627.70152 Does not Apply Retroactively

In a decision that resolves years of appellate uncertainty and confirms that insurers and insureds alike can rely on the legal framework in place when a policy is issued, the Supreme Court of Florida last week found that Florida Statute §627.70152, which involves an insured’s requirement to provide an insurer with pre-suit notice before filing a suit, cannot be applied retroactively. In Universal Property & Casualty Insurance Company v. Hughes, the Court was presented with the issue of whether the statutory pre-suit notice requirement applied retroactively and whether it would apply to a breach of contract of an insurance policy that was issued before the statute went into effect. Before the Court was an appeal from a homeowner, Ms. Hughes, who sued her insurance carrier, Universal Property & Casualty Insurance Company (Universal) for breach of contract under an insurance policy that was in effect from April 24, 2019 through April 24, 2020. During the policy period, Ms. Hughes suffered a loss and, on May 29, 2019, made a claim for water damage. The carrier investigated the loss and issued payment; Ms. Hughes disputed the payment, finding the amount insufficient for repairs. On July 1, 2021, Florida Statute §627.70152 went into effect, which required insureds to provide notice of intent to initiate litigation against the carrier prior to filing a lawsuit; if an insured filed the lawsuit without complying with §627.70152, a court must dismiss the case without prejudice. On August 4, 2021, Ms. Hughes filed her lawsuit against Universal for breach of contract. Universal moved to dismiss based on her failure to comply with §627.70152. Ms. Hughes contended the notice requirement could not be applied retroactively. The trial court disagreed and dismissed the lawsuit without prejudice, and Ms. Hughes appealed. During the appeal, the Fourth District Court of Appeal, in Cole v. Universal Property & Casualty, 363 So. 3d 1089 (Fla. 4th DCA 2023), ruled that Florida Statute §627.70152 did apply retroactively to policies issued before the effective date of §627.70152. However, the Sixth District Court agreed with Ms. Hughes and overturned the trial court’s ruling, finding the statute could not retroactively apply to policies issued prior to the statute effective date. Thereafter, the other district courts weighed in, with the Third District Court agreeing with the Fourth District Court, and the First, Second and Fifth District Courts agreeing with the Sixth District Court. In resolving the conflict amongst the district courts, the Supreme Court advised “as a general rule, ‘the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.’ Hassen v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 106, 108 (Fla. 1996). The Court applied the two-step test when deciding whether a statute has retroactive application: “First, the Court must ascertain whether the Legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the Court must determine whether retroactive application would violate any constitutional principles.” Menendez v. Progressive Exp. Ins. Co., 35 So. 3d 873, 877 (Fla. 2010). In analyzing the Legislature’s intent, the Court must determine whether the Legislature has manifested a clear command for retroactivity in the statutory text.  In review of the statutory text, the Court found nothing in the language of the statute to indicate that the phrase “all suits” was serving another purpose of expanding its reach to suits based on policies that both predate and postdate the enactment of the statute. Buis v. Universal Prop. & Cas. Ins. Co., 394 So. 3d 738, 741 (Fla. 2d DCA 2024). Further, the Court noted the statute has an effective date, which has long been considered to be evidence against retroactive application of a statute. The Court concluded that, on its face, no provision of §627.70152 speaks to application of the statute to insurance policies issued before the statute’s effective date and therefore, the Legislature did not clearly command retroactivity of the statute to include insurance policies issued prior to the enactment of the statute. The Court briefly reviewed Universal’s argument that the presuit notice requirement was procedural, not substantive, and therefore should be applied retroactively; however, the Court agreed with the Sixth District Court’s finding that, in its entirety, §627.70152 transformed an insured’s ability to sue an insurance company under a property insurance policy and an insurer’s obligations to respond to and pay insurance claims, thus making the requirement a substantive change. The Court thereby upheld the decision of the Sixth District and disapproved the decision of the Fourth District in Cole.

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The Tolling Trap: Filing Alone Will Not Toll the Statute Without Good-Faith Service

The Eastern District of Pennsylvania recently reinforced a critical limitation on bad faith claims, holding that a timely filing alone will not preserve a cause of action absent a good-faith effort to serve the original process. The plaintiff had presented a claim for underinsured motorist benefits to his auto insurer. The insurer evaluated the claim and determined that the plaintiff’s accident-related damages did not exceed the bodily injury liability insurance limits of the at-fault driver and denied his claim. Among other claims, the plaintiff sought to present a claim for insurance bad faith under 42 Pa. C.S.A. § 8371, to which a two year statute of limitation applies. He first filed a praecipe for writ of summons before the expiration of the statute of limitation. However, the plaintiff did not attempt to serve the praecipe or writ until after the statute of limitations had expired. Additionally, the service failed as the plaintiff had mailed the original process to an incorrect address. Despite receipt of the Postal Service’s failure to deliver the original process, the plaintiff did not attempt to re-serve the writ. Two months later, the plaintiff filed a complaint and then successfully served that complaint. The insurer sought to dismiss the plaintiff’s bad faith claim as time-barred by the statute of limitations. The district court agreed. Though the plaintiff had filed a praecipe for a writ of summons prior to the expiration of the statute of limitations, the statute is only tolled if there is a good faith effort to serve that original process. In this case, the court determined that the plaintiff had failed to perform a “good faith effort to serve the original process”. Additionally, though the filing and service of a complaint can serve as alternative original process when the lawsuit is commenced by the filing of a praecipe for a writ of summons, the plaintiff filed his complaint after the statute of limitations had expired. The plaintiff’s bad faith claim was therefore determined to be barred by the statute of limitations and dismissed by the court, with prejudice. A key takeaway for the defense is not to assume that the statute of limitations has been successfully tolled by a plaintiff merely because a praecipe for a writ of summons or complaint has been filed prior to the expiration of the statute. A filed complaint or writ is only part of the equation. The defense should carefully review the docket and filings to confirm that the plaintiff also performed the requisite good faith effort to serve that original process. A thorough review of the docket may reveal that the plaintiff failed to make the good-faith service efforts necessary to toll the statute of limitations.