New Case and Statute Affect Agent’s and Insured’s Duties

The Tennessee Supreme Court, in Allstate Insurance Co. v. Tarrant, recently discussed an insurance agent’s duties when obtaining coverage for a client. Allstate’s insured, Diana Tarrant, was involved in a collision while driving a van registered to Blue Ribbon Cleaning, Inc., a business owned by the Tarrants. Allstate contended that before the accident, Mr. Tarrant asked the Allstate agent to transfer the van from the Tarrants’ commercial policy to their personal policy The Tarrants denied that they made such a request, asserting that the agent mistakenly placed the van and that the commercial policy with significantly higher limits applied. The trial court reasoned that the Tarrants had ratified the change in coverage because they had received a letter and a premium bill that both showed the coverage change. The Court of Appeals reversed, finding that the letter and premium payments did not relieve Allstate of liability under the commercial policy. As an initial matter, the court found that Mr. Tarrant instructed the agent to place the van on the commercial policy and that she mistakenly failed to do so. Next, the court determined that the Tarrants did not ratify the agent’s action. For the Tarrants to have ratified the agent’s action, the agent must have been acting in the Tarrants’ stead and for their benefit. But in this case, the agent acted on Allstate’s behalf. Additionally, under Tennessee law, when a dispute occurs during the application for insurance, the insurance producer—here the agent—is the agent for the insurer, not the insured. Thus, not only did the agent not act on Mr. Tarrant’s behalf or for his benefit, she was statutorily precluded from doing so. Finally, the court concluded that Allstate was estopped from denying coverage. The court noted that an insurer is generally estopped from denying policy liability on a matter arising out of an agent’s negligence or mistake, and that if a party must suffer from an agent’s mistake, it must be the insurance company. Notably, the court rejected Allstate’s argument that the Tarrant’s failure to discover the erroneous change in coverage after receiving a letter and premium bills did not eliminate Allstate’s estoppel. The Tarrant decision continues a recent shift that subjects insurance agents to increased liability, and demonstrates agents’ need to specifically document insureds’ requests for policy changes. For instance, agents should consider specifically documenting a policy change request’s date and time, the identity of insured making the request, the exact change requested, and other contents of the conversation. It is also a good idea to have the insured acknowledge his or her request as well as the resulting change.