The Supreme Court of Arizona ruled that an insurance agent’s clients may assert claims for professional negligence against the client and may assign such claims to third parties.
According to D. Jere’ Webb v. Victoria Gittlen, in 2000, Neal and Gail Berliant bought a liquor store called The Liquor Vault and purchased a business and umbrella liability policy from Victoria Gittlen. Gittlen worked for G&G Insurance, and later moved to CDS Insurance Agency. The Berliants alleged that Gittlen did not advise them that they could also purchase liquor liability coverage.
In 2001, the store sold beer to a minor, who gave it to another youth who drove his car into a cement barrier, killing the passenger. The passenger’s father, D. Jere’ Webb, filed a wrongful death claim against the Berliants and The Liquor Vault. The Berliants tendered the claim to their insurance company, which refused to defend the Berliants because they lacked liquor liability coverage.
To settle the wrongful death claim, the Berliants stipulated to enter into a $3 million judgment. Webb agreed not to execute on the judgment and, in exchange, the Berliants assigned to Webb their rights to sue both their insurer and their insurance agent and her employees.
Webb then sued Gittlen, G&G and CDS, alleging negligence and breach of fiduciary duty. The trial court dismissed the claims, noting that claims against an insurance agent for professional negligence are not assignable. The court of appeals affirmed the decision.
Gittlen argued that claims against insurance agents for professional negligence cannot be assigned because claims against lawyers for legal malpractice are not assignable, and the court of appeals extended the rule to insurance agents, as their relationship is analogous to the attorney-client relationship, court documents indicate.
However, the Supreme Court said the relationship between an insurance agent and client differs from that between an attorney and client. “Insurance agents generally are not fiduciaries, but instead owe only a duty of ‘reasonable care, skill and diligence’ in dealing with clients,” the court wrote. “The relationship between insurance agents and their clients, while perhaps personal, is not ‘uniquely personal’ in a sense comparable to an attorney-client relationship. The differences are substantial and the similarities do not justify holding that claims against agents cannot be assigned. … In short, the policy concerns identified by Gittlen do not support a rule generally barring the assignment of professional negligence claims against insurance agents.”
The Supreme Court held that the Berliants may assign to Webb their claims for professional negligence and reversed the decision of the court of appeals and the judgment of the trial court. The Supreme Court remanded the case for further proceedings.
Lanny Hair, executive vice president of the Independent Insurance Agents and Brokers of Arizona Inc., said his association filed an amicus curiae brief in the case, and was unhappy with the overall Supreme Court decision. The court held that negligence claims against insurance producers are assignable under Arizona law.
“The Supreme Court decision will no doubt increase the number of errors and omissions claims to defend,” Hair said.
However, Hair added that two carve-outs to the Supreme Court decision helped to “save the day.” Instead of accepting the judgment between the policyholder and injured party, an insurance agent is entitled to go back to court to re-litigate:
- the liability and
- the amount of damages.
Without the carve-outs, the agent would have been stuck with the agreed judgment between the policyholder and injured third-party, and would not be allowed to challenge the agreement, Hair explained.
“This [carve-out] portion of the ruling should eliminate the ability of plaintiffs to threaten agents with large stipulated judgments (often in excess of the agent’s E&O limits), and will force them to prove actual liability and real damages against the insured. So no matter what judgment the policyholder is willing to agree to in order to escape liability, the agent, when sued, will always have the ability to contest liability and damages before a jury, without the jury being influenced by a large, “big stick” judgment concocted between the policyholder and the injured party,” he said. “Without the firewalls contained in the decision regarding invalidity of the judgment and the need to prove negligence, the impact of this decision would have been enormous with regard to insurance producer professional liability claims and the resulting E&O premiums. I am confident that this single action alone will likely prevent resulting increases in E&O premiums in Arizona.”
Nevertheless, the fact that agents must prove negligence, means there will be more lawsuits, Hair added.
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