Negligence of an Insurance Agent is a CPA Violation
The Petersons purchased a home owner’s insurance policy after being assured the agent would cover the full replacement value of their home. The home burned and the coverage proved to be woefully short.
Negligence. An insured may bring an action against his insurance agent in negligence as well as contract. Anderson Feed & Produce Co. v. Moore, 66 Wn.2d 237, 242, 401 P.2d 964 (1965). To recover against an insurance agent based on negligence, the insured must prove: (1) that the agent had a duty of care to protect the insured against a certain risk, (2) a breach of that duty, (3) that the breach was the proximate cause, (4) of the insured’s damages. Doty-Fielding v. Town of S. Prairie, 143 Wn.App. 559, 563, 178 P.3d 1054, review denied, 165 Wn.2d 1004 (2008); see Sheikh v. Choe, 156 Wn.2d 441, 128 P.3d 574 (2006).
An insurance agent assumes only the duties found in an agency relationship unless the agent assumes additional duties by contract or by holding himself or herself out as possessing an extraordinary skill. Hardt v. Brink, 192 F.Supp. 879, 880-81 (W.D.Wash.1961) (applying Washington law). Generally, the duty of care that an insurance agent owes his or her client does not include the obligation to procure a policy affording the client complete liability protection. Suter v. Virgil R. Lee & Son, Inc., 51 Wn.App. 524, 528, 754 P.2d 155 (1988) (quoting Jones v. Grewe, 189 Cal.App.3d 950, 956, 234 Cal.Rptr. 717 (1987)).
The Petersons informed their agent that they wanted replacement coverage but that they did not know how to obtain that figure. In response, their agent told the Petersons that he would run the cost guide formula and provide them with an estimate.
The agent assumed only the duty to provide an estimate based on the cost guide. The agent breached his duties to the Petersons by (1) not utilizing the standard cost guide questionnaire to obtain accurate, detailed information from the Petersons, (2) not entering complete information about the home into the cost guide software, (3) not utilizing the formula to calculate replacement value limits on the home, and (4) not informing the Petersons that the cost guide formula was not used to estimate the home’s replacement value for the policy.
Negligent misrepresentation. A person who commits the tort of negligent misrepresentation is:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 545, 55 P.3d 619 (2002) (emphasis added) (quoting ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 820, 826, 959 P.2d 651 (1998)). Significantly, liability may be imposed on an insurance agent for making negligent misrepresentations as to how policy limits are to be determined where the client justifiably relies on the representations. Shah v. Allstate Ins. Co., 130 Wn.App. 74, 84-85, 121 P.3d 1204 (2005).
CPA violation. To prevail on a claim under the CPA, chapter 19.86 RCW, a plaintiff must show that the defendant engaged in “(1) an unfair or deceptive act or practice (2) in trade or commerce (3) that impacts the public interest, (4) which causes injury to the party in his business or property, and (5) which injury is causally linked to the unfair or deceptive act.” St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 134, 196 P.3d 664 (2008) (citing Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 784-85, 719 P.2d 531 (1986)). RCW 48.30.010 prohibits those engaged in the business of insurance from engaging in unfair trade practices.
The Petersons contended Big Bend engaged in an unfair or deceptive practice by violating RCW 48.30.090, which states, in part, that no person shall “make, issue or circulate, or cause to be made, issued or circulated any misrepresentation of the terms of any policy.” The trial court determined that Big Bend did not misrepresent the limits of the Petersons’ replacement value coverage for purposes of a CPA claim. The court concluded that Big Bend’s negligent misrepresentation did not fall within the prohibitions of RCW 48.30.090 because Big Bend’s negligent misrepresentation did not relate to the limits of the replacement coverage or any other term in the policy, but, instead, related to how this particular term was determined. The court explained that Big Bend did not misrepresent the limits of the policy because the insurance summary clearly stated the limit as $193,000.
The Petersons argued that they requested coverage sufficient to replace their home and that Big Bend represented that this would be done. The Petersons rely on Shah. The Shahs bought a house for $760,000 to use as a rental property. A bank lent them $400,000, and required them to purchase insurance. The Shahs contacted an insurance agent and told him to send the bank whatever was needed. An appraisal estimated the total value of the building at $760,995. However, when the agent entered the information from the appraisal into a cost estimator program, he made a mistake when entering the square footage. The estimator program generated an insurance value of $307,000. Later, Mr. Shah asked the agent why the amount on the policy was low when another company gave him a quote based on $700,000. The agent assured Mr. Shah that he had replacement value. When the building burned in a fire, Allstate paid $330,000. The Shahs filed suit, alleging negligent misrepresentation, violation of the CPA, and other claims. On summary judgment, the court found the Shahs did not rely on the agent with respect to the misrepresentation claim. The appellate court reversed, concluding that there was a genuine issue of material fact as to whether the Shahs’ reliance on the agent was justified and whether the agent violated the CPA. Specifically, there were questions whether the agent’s assurances to Mr. Shah caused the Shahs not to raise their limit and whether the agent caused damages by not communicating with the bank about its minimums.
In Shah, the agent assured the Shahs that the policy provided replacement value for the building. In the Peterson case, the agent undertook to provide the Petersons with an estimate of replacement value based on the cost guide formula. But the agent did not do so. He sent the Petersons false information, the $193,000 term, that they relied on in making their decision to insure. By providing the $193,000 figure to the Petersons, Big Bend misrepresented the terms of the policy to the Petersons and violated RCW 48.30.090.
To establish a violation of the CPA, the Petersons must also prove a public interest. The public interest prong is satisfied by “a showing that a statute has been violated which contains a specific legislative declaration of public interest impact.” Hangman Ridge, 105 Wn.2d at 791. RCW 48.01.030 states that the business of insurance is affected by the public interest. Thus, a misrepresentation about the Petersons’ coverage was a matter impacting the public interest.