The Difference Between Insurance Agents and the Insurers They Represent
Hurricane season 2014 had barely begun when Hurricane Arthur formed and wreaked havoc along the East Coast during the 4th of July weekend. Whether the 2014 hurricane season proves to be highly active or normal remains to be seen, but there can be little doubt that insurers and insurance agents will once again be fielding numerous claims for losses.
In addition to causing damage to property, hurricanes can put a strain on the insurer-insured relationship. Insurers can expect that some percentage of their insureds will be unhappy with the claims process and coverage decisions following the adjustment of their losses.
The insured’s unhappiness is not always focused just on the insurer, however. As was widely seen after Hurricane Katrina in 2005, the insured’s ire may also end up directed toward his or her insurance agent.
Typically, the claims against insurance agents consist of some variation of the allegation that the agent failed to follow orders to procure particular insurance or coverage limits or failed to inform the insured of needed or available coverage.
In Louisiana, unlike many other states, insurance agents have some protection against such claims by a statute that sets strict limits on the time in which suits against insurance agents must be filed. Specifically, L.R.S. 9:5606 provides in pertinent part:
No action for damages against any insurance agent, broker, solicitor or other similar licensee under this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide insurance services shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered. However, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.
While one year to file suit may be a shorter time period than other states might allow, it is the standard time period for tort claims in Louisiana. The real protection for insurance agents comes from the peremptive period, which bars all actions against an insurance agent three years after the date of the alleged wrongful act or omission. The reason for its effectiveness, as many insureds learned following Hurricane Katrina, is that typically the alleged wrongful act or omission occurs when the insured first obtains insurance coverage from an insurance agent, which can be many years before a claim is made.
Louisiana courts have generally held that the mere act of renewing a policy does not extend the time for filing suit or create a new cause of action against the insurance agent. Indeed, many insureds who filed claims against their insurance agents after Hurricane Katrina found that those claims had been perempted years, literally, before Hurricane Katrina came into existence. This result is not considered unfair because insureds have a duty under Louisiana law to read their insurance policies.
Agents and Brokers Only?
Claims may also be brought against an insurance company based upon an insurance agent who is an employee of the company or a representative for whom the insurance company may be held vicariously liable for the agent’s failure to procure requested coverage or inform the insured about available coverage. One would expect that in that circumstance, the insurance company could avail itself of the protective peremptive periods contained in L.R.S. 9:5606.
While such an expectation may be reasonable, doubt has been cast on that conclusion by at least one recent case.
As an initial matter, Louisiana courts have clearly held that an insurance company may not take direct advantage of the peremptive periods in L.R.S. 9:5606, noting that this statute applies only to insurance agents and brokers and not to insurance companies. The courts have reasoned that if the legislature intended the statute to cover insurance companies, they could have easily been included in the statute’s list of covered parties.
However, courts in several Louisiana cases have suggested that the peremptive period of L.R.S. 9:5606 could “arguably” be applied to a derivative claim in which the insurer’s liability arises solely from a wrongful act or omission of the insurer’s agent. Indeed, this possibility was suggested in the recent case of Sibley v. Blue Cross Blue Shield of Louisiana.
But one of the judges in that case wrote a concurring opinion, in which he stated:
“Although I agree with the result reached in this appeal, I disagree with the majority’s position that the peremptive periods provided in La. R.S. 9:5606 can arguably be extended to apply to insurers. The statute by its specific terms does not provide that claims against an insurer are derivative through the insurer’s agents. Its peremptive provisions are explicit and clear, therefore, not subject to expansion of its well stated terms. Suggestions that the statute’s terms could arguably be expanded lacks both statutory and/or jurisprudential support. Cases suggesting otherwise propose judicial expansion of the legislative pronouncement contained in La. R.S. 9:5606 and should be rejected. … Therefore, under the plain terms of La. R.S. 9:5606, insurers are not entitled to assert the peremptive periods set forth in that provision.”
Sibley was a case out of the Louisiana First Circuit, decided in March 2014. In June 2014, the Louisiana Fourth Circuit was faced with claims by an insured against his insurance agent and company in Chapital v. Harry Kelleher & Co., Inc. The court cited the earlier 4th Circuit decision of Halmekngas v. ANPAC Louisiana Insurance Co. as holding “that when an insurer’s errors are derivative of claims against its insurance agent, the insurer receives the benefit of peremption under La. R.S. 9:5606.”
The Chapital court did not need to address the issue because it determined that there was no agency relationship between the agent and the insurer, thus, the insurer could not be held liable for the agent’s alleged wrongs in any event. Nonetheless, it appeared to approve of the assumption that L.R.S. 9:5606’s peremptive periods could apply to claim against an insurer based upon its insurance agent’s wrongful acts without any discussion and without noting the concurring opinion in Sibley.
To a large degree, the statements by courts that L.R.S. 9:5606 could apply to claims brought against an insurance company by an insured are easy to make since the courts have not been directly confronted with the issue, and, as noted, the proposition, on its face, seems reasonable.
However, the concurring opinion in Sibley makes a valid point in opposing this view. If Louisiana courts are ever forced to confront this issue, it will be interesting to see how the matter is decided and the answer does not appear to be a foregone conclusion.
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