This is the third installment of my recent discussion of the Morrison v. Allen decision. Assume these facts (a skeletal version of the facts in Morrison): John Doe requests life insurance from his insurance agent in the amount of $1,000,000. A policy is issued, but a claim by John’s wife, Jane, for benefits under the policy is denied based on alleged misrepresentations in the insurance application. Jane claims that John’s insurance agent failed to do his job and is liable to her on a failure to procure theory for the face amount of the insurance policy. Jane then settles with insurance company for $900,000, but moves forward with her suit against the agent for the full amount of the insurance policy, i.e., $1,000,000. And then Jane actually wins her case, resulting in her receiving $1.9 million on a $1 million policy. Double recovery, right? Wrong.
In Morrison, the plaintiff sued the insurance company on multiple theories, including violations of the TN Consumer Protection Act, negligence, breach of contract, etc. She also sued the defendant insurance agents for failure to procure the appropriate insurance policy. To decide whether the defendant agents were entitled to an offset as a result of the $900,000 payment by the insurance carrier in settlement of Ms. Morrison’s claims against it, the Supremes were faced with the question of whether the claim against the insurance carrier was based in contract or some other theory. If liability was based in contract, then the agent would be entitled to an offset. But, if the claim was based in tort, then no offset is required.
The Morrison court ultimately found that the defendant agents were not entitled to an offset, which had the rather odd result that Ms. Morrison received $1.9 million on a $1 million policy. The key to this decision appears to be that the actual settlement documents between Ms. Morrison and the defendant insurance company did not specifically state that payment was being made on the breach of contract claim. On the contrary, the settlement settled all the claims, with no specific delineation as to what amount was being attributed to the various causes of action that had been alleged. Accordingly, no offset was required.
This is an extremely important part of this case that will come into play in almost every case in which the policyholder has sued both his insurance agent and his insurance company. It allows a plaintiff to settle with one, and still preserve his or her right to go after the other for the full amount of the alleged damages with no offset. All it requires is a little thought when drafting the settlement agreement.