Yesterday I wrote about the February 2011 landmark decision of the Tennessee Supreme Court in Morrison v. Allen. There was one relatively minor point concerning an alleged misrepresentation in an application that grabbed my attention. In Morrison, the insurance company denied Ms. Morrison's claim for life insurance benefits based on alleged misrepresentations of her husband in his application for insurance. Specifically, the application asked, "In the past five years, have any proposed insureds been charged with or convicted of driving under the influence of alcohol or drugs or had any driving violations?" The insured answered, "No."
The alleged misrepresentation arose from the insured's conviction for driving while impaired ("DWI") a couple of years prior to the submission of the application. On first glance, it might appear clear that failure to disclose the DWI would constitute a material misrepresentation based on the language of the question in the application. But not so fast. The Supreme Court affirmed that the insured's response was technically correct because he was convicted of DWI, which is a separate offense from driving under the influence.
Although this particular issue was literally just a footnote in the very lengthy opinion, it might come in handy one of these days for the unfortunate soul who finds his claim denied as a result of an undisclosed DWI.
On February 16, 2011, the Tennessee Supreme Court rendered a landmark decision concerning insured's rights to pursue claims against their insurance agents for failure to procure appropriate insurance. The case is Morrison v. Allen, and can be found here.
In Morrison, the basic facts were that Mr. and Mrs. Morrison obtained life insurance policies on each of their lives from their insurance agents, Roberts and Allen. The agents filled out the applications, and sent them to the Morrisons to sign with instructions on where to sign, which they did. Although the applications contained the typical warnings regarding misrepresentations and contained an affirmation that the statements therein had been read, neither of the Morrisons read the applications before signing them. Two months later, Mr. Morrison died. The insurance company then denied Ms. Morrison's claim for benefits under the policy, alleging misrepresentations in the application (failure to disclose a DWI). After filing suit, Ms. Morrison ultimately settled her claim with the insurance carrier for $900,000 ($100,000 less than policy limits), but proceeded to trial against the insurance agents, Roberts and Allen. After a bench trial, the trial court awarded a judgment to Ms. Morrison against the defendant agents for breach of contract and negligence and further found the defendants violated the Tennessee Consumer Protection Act.
The Supremes then totally revamped and redefined the law of agent liability in the State of Tennessee. A few broad principles emerge:
First, the Court adopted the following elements for a cause of action for failure to procure: (1) an undertaking or agreement by the agent or broker to procure insurance; (2) the agent's or broker's failure to use reasonable diligence in attempting to place the insurance and failure to notify the client promptly of any such failure; and (3) that the agent's or broker's actions warranted the client's assumption that he or she was properly insured.
Second, the Supreme Court held "that if an agent undertakes to obtain an insurance policy for an insured, and the policy obtained is contestable due to the acts or omissions of the agent, then the applicant has the same right to recover for failure to procure as he or she would have had if no policy had issued at all."
Third, a finding of liability does not require evidence that an insured specifically request an "immediate incontestability clause" or a promise by the agent that the policy would be incontestable. On the contrary, all that is required is that the insured show that he contracted with the agent to procure an insurance policy and then reasonably rely on the agent "to successfully complete the groundwork for procuring the policy." Accordingly, a cause of action arises "where coverage is denied by the insurer on a policy that is contestable as a result of the acts or omissions of the agent.
Fourth, and here's where it gets interesting, the Court held that an applicant's failure to read an application does not insulate agents from liability. "When an applicant applies for an insurance policy and the agent undertakes to fill out the application on his or her behalf, the applicant should be able to trust that the agent will ask the important questions and accurately record the answers to them so that the policy cannot later be successfully contested based on inaccuracies." Put simply, an insured's failure to proofread an application is inconsequential in a failure to procure case, and the signature of the applicant does not shield the agent from liability.
And that just covers 15 pages of the 27 page opinion. More to follow in the coming days on this case that is a huge win for policyholders in the State of Tennessee.