Agents and Insurers Beware! Tennessee Law is Not Always on Your Side

In Morrison v. Allen, the Tennessee Supreme Court recently addressed several important issues related to an insurance agent’s duties and potential liabilities. Morrison obtained a term life insurance policy with a two-year incontestability clause, preventing the insurer from denying coverage because of any misrepresentations. Later, Morrison became concerned with his coverage level and met with his insurance agents, who recommended that he maintain his existing policy of $300,000 until acquiring a second policy with higher coverage. One agent prepared the applications and mailed them without further instructions to the insureds, who signed the applications without further review. The insurer issued a policy providing $1 million of coverage on Morrison, who later allowed his first policy to lapse. Two months later, he died from injuries sustained in a single-car accident. The insurer denied the claim because the application improperly failed to disclose Morrison’s conviction of an alcohol-related driving offense.

The plaintiff, Ms. Morrison, sued the insurer and the agents and eventually settled her case against the insurer for $900,000. However, plaintiff proceeded to trial against the agents asserting (1) breach of contract for failure to procure an enforceable policy, (2) negligence, negligent misrepresentation, and breach of fiduciary duty, and (3) violation of the Tennessee Consumer Protection Act (TCPA).The trial court found that the agents breached their contract with the Morrisons by failing to procure an enforceable life insurance policy and awarded damages of $1 million plus pre-judgment interest. The trial court also awarded $300,000 for tort damages, and then doubled the tort award to $600,000 under the TCPA. The Tennessee Supreme Court held:

● If an agent agrees to obtain a policy that becomes contestable due to the agent’s negligent acts or omissions, then the applicant has the same right to recover against the agent for failure to procure as if no policy had ever been issued. Because the agents’ failure to use reasonable diligence resulted in a policy subject to challenge, the court affirmed the breach of contract award of $1 million.

● Agents were not entitled to a $900,000 credit because they could not prove that plaintiff’s settlement with the insurer partially satisfied the breach of contract claim. Plaintiff’s settlement agreement with the insurer released all claims and did not specify that the settlement money was in satisfaction of the breach of contract claim. Additionally, plaintiff did not sue the insurer on breach of contract alone.

● The tort and TCPA awards were improper because plaintiff failed to demonstrate that the agents’ conduct caused the loss of the original $300,000 policy.

TheMorrison case contains several practical lessons for insurers and insurance agents. First, agents can be liable for the full amount of a requested insurance policy if they fail to properly procure it. Thus, agents should try to protect themselves through proper documentation showing compliance with the insured’s instructions and by taking every precaution to correctly and properly complete each application. Second, an insured’s failure to read an application will not automatically insulate agents from liability. Agents should not only instruct applicants to carefully review applications before signing, but also should not knowingly complete applications with incorrect information. Third, agents should always consider existing policies and should discuss the potential consequences of allowing an existing policy to lapse while a more recent policy remains in its contestability period. Finally, insurers and agents should work together when settling cases and drafting settlement agreements todecrease the likelihood of a plaintiff’s double recovery.

For additional information on this Tort & Insurance article, please contact:

Casey Smith

(731) 426-8122

csmith@raineykizer.com

Source: Rainey, Kizer, Reviere & Bell

Welcome

Tags: tort & insurance