Lessons From an Oklahoma Court of Civil Appeals Decision
The original lawsuit underlying a 2016 Oklahoma Civil Court of Appeals decision provides some lessons in how to administer your insurance program. (http://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=477426) It illustrates the need for properly communicating with your agent or insurer when changes to your insurance are needed. The underlying lawsuit alleged that the insured’s agent failed to obtain coverage for a newly acquired automobile that was later involved in an accident.
The insured asserted that they had called the insurance agent to inform the agent that the vehicle had been acquired. In October of 2008, the vehicle was involved in an accident resulting in the insured being sued for negligence. The insured tendered the lawsuit to its automobile liability insurer for defense. The insurer subsequently informed the insured that the vehicle involved in the accident was not covered. A jury trial in Federal Court ruled in favor of the insurance company that the vehicle was not covered.
The insured also sued the insurance agent for failure to procure insurance. The insured lost and the case was appealed. The insured also lost the appeal. The details of the appeal are not particularly relevant to risk management because the appeal was based on court rules and procedures.
What is relevant to risk management is this extract from the underlying lawsuit as cited in the appeal decision:
“Second, the issue subject to preclusion or "notification," i.e., whether [the insured’s] employee notified Agency's employee it needed to add the subject vehicle to the policy and gave the required information to accomplish that goal during a 47-second phone call on February 20, 2008, was actually adjudicated in the prior case. Importantly here, there was no dispute over the length of the phone call or the date, and as the accelerated record demonstrates the jury heard conflicting testimony from two witnesses, who each testified about what was discussed during that phone call. Thus, the notification issue was essentially decided based on which of the two witnesses the federal jury found to be most credible.”
The lessons to be learned from this are, make your instructions clear and then follow up to make sure that your instructions have been carried out. If the insured had, after a reasonable length of time, confirmed with the agent that the policy endorsement had been issued, the claim might have been covered and the series of lawsuits could have been avoided.
There is one other thing that would have prevented these lawsuits. Commercial automobile insurance policies use numeric symbols to indicate what automobiles are covered for each coverage section. The symbol 1 indicates that “Any Auto” is covered. That means that the insured is covered for claims brought against it for accidents caused by an automobile regardless of who owns the vehicle. There is no requirement to report vehicles as they are acquired. Newly acquired vehicles are often reported to the insurance company as courtesy. But if not reported as acquired, any additional premium for automobiles acquired during the policy period is collected by audit after the policy expires.
We don’t know if the agent asked the insurer to use Symbol 1 for the policy’s Liability coverage. The agent may have asked for “Any Auto” to be covered and the insurer refused to do it. Or perhaps the agent failed to ask.
A risk management consultant can help avoid situations like this in ways such as training staff in administering the insurance program, acting as in house staff and administering the insurance program including communicating with the agent, or reviewing the insurance portfolio and recommending any needed improvements.