Commentary: Notifying Excess Insurers for Additional Insureds

An interesting case was recently decided by the Georgia Court of Appeals. In Garner and Glover Co. v. Barrett, 738 S.E.2d 721 (Ga. App. 2013), the issue was the duty of an insurance producer to notify an excess insurer when placed on notice by an additional insured of a claim or lawsuit. The Georgia Court of Appeals held that the producer owed no duty to the additional insured to notify the excess insurer of a claim.

The facts before the Court indicated that the insurance producer, Garner and Glover Co. (Garner), had assisted its client Coosa Valley Contractors Inc. with the procurement of two insurance policies, which named Atlanta Gas Light Co. (AGL) as an additional insured. The first policy was a $1,000,000 primary general liability policy with Valley Forge (CNA) and a $1,000,000 commercial umbrella excess liability policy with National Union.

On July 19, 2003, AGL’s claims administrator, Strickland, sent a Garner employee, Chambley, a fax attaching a complaint filed against AGL seeking $10,000,000 in damages. The letter referenced the CGL policy but did not reference the excess policy. AGL asked Strickland to notify CNA, the general liability carrier regarding the lawsuit. However, the certificate of insurance that was also attached to the AGL letter referenced the umbrella policy number as well. Prior to notifying Garner, Strickland had no prior dealings with Garner or its employees. Strickland did not read the complaint before she forwarded it to Garner. Similarly, Chambley, the Garner employee, did not read the complaint attached to Strickland’s letter. Chambley thought that CNA would have to makes its own decision on the complaint as to whether it should be sent to the excess carrier.

The Garner agency did not have an automatic practice of notifying excess insurance carriers in all cases. To their experience, the adjuster handling the underlying policy would typically make the decision about whether the excess insurer should be notified after investigating the facts of a particular claim submission. Additionally, the principals of Garner explained that notifying the excess insurance carrier of any and all claims could actually harm the interest of the named insured who was the agency’s client during policy renewal with regard to premiums. Consistent with the known practice, the CNA adjuster handling the claim requested Garner to notify the excess carrier. The excess carrier, National Union, was notified but then denied coverage, in part, based upon AGL’s failure to notify it “as soon as practiceable” after a suit had been brought against it that was “reasonably likely to involve” the excess policy. 738 S.E.2d at 722.

The Court in Barrett began its analysis by discussing a prior Georgia case, Workman v. McNeal Agency, 217 Ga.App. 686, 458 S.E.2d 707 (1995). The Court in Barrett noted that in the Workman case the Court had held that an additional insured could not assert claims for breach of contract and negligence when the insurance agent did not procure insurance continuing the insured’s coverage on the property leased by the named insured and client of the insurance agency. To support the Court’s finding, the Workman Court reasoned that because the defendant “was not [the plaintiff’s] insurance agent, it had no duty to obtain insurance for her property, list her as an additional named insured, or to advise her that it had not done so.” Barrett, 738 S.E.2d at 723 citing, Workman, 217 Ga.App. at 688 (2), 458 S.E.2d 707 (1995).

Based upon the Court’s prior decision in Workman, the Barrett Court concluded that the same reasoning should apply to a claim that an insurance producer owed any duty to notify an excess insurer on behalf of an additional insured based solely upon its status as an additional insured under the policy and not as a client of the producing agency.

The Court in Barrett recognized that a duty could arise through a voluntary undertaking by the insurance producer, the record did not support a conclusion that Garner undertook any duty to notify excess carriers on behalf of AGL. As requested by CGL, Garner notified the insurance carrier of the policy identified in Strickland’s letter. Although Strickland had subjectively believed that AGL would notify the excess insurance carrier, the Court found that belief was not communicated to Garner. There had been no prior conduct by Garner that could have created a reasonable expectation that it would notify the excess carrier inasmuch as neither Strickland nor AGL dealt with Garner on any prior claim. Under the facts presented, Garner undertook a duty to notify the general liability insurance carrier, a duty the Court found that Garner had performed without negligence. Barrett, 738 S.E.2d at 724.

The Barrett case highlights the dilemma that most insurance agents are placed in when an additional insured, that is not an agency client, requests the agency to notify insurers of either a potential claim or a lawsuit.

Typically, the insurance agency owes no duty or obligation to this non-client. With some insurers, the agent is authorized to receive lawsuits on behalf of the insurer and therefore the agency’s contract with the insurer may generally apply to additional insureds. However, in most situations, the agency agreement does not authorize the insurance agency to receive lawsuits on behalf of the insurer. In the latter situation where the insurance agency puts itself in the role of notifying the insurer, the agency may be creating potential liability for itself where otherwise no liability would exist.

This additional potential liability can be avoided by an immediate response to the additional insured advising that the agency does not represent the additional insured and that the additional insured should notify the insurer directly. This may require the agency to provide a declarations page identifying the insurers or a certificate of insurance. This approach also removes the agency from the dilemma of reporting potential claims which may have an adverse impact upon the named insured and agency client’s future premiums.

How the agency proceeds forward in this situation depends in part on how much risk the agency wants to assume where otherwise it would not bear that risk to the non-client additional insured.

Topics Carriers Excess Surplus Georgia