Insurance coverage agent negligence circumstances are not often simple. A latest resolution presents invaluable perception into how insurance coverage agent negligence claims play out when organizations misunderstand the scope of their insurance coverage protection. 1
This lawsuit arose after the Piatt Lake Bible Convention Affiliation’s “Miracle Constructing,” a multipurpose construction at a distant youth camp in Michigan, collapsed underneath the burden of snow and ice. The nonprofit believed it was totally lined underneath its long-standing insurance coverage coverage with Church Mutual. Nonetheless, after the loss, the Affiliation found that essential parts of the reconstruction prices related to compliance with trendy constructing codes weren’t included within the substitute value protection.
These further “code improve” prices exceeded $1 million, however the coverage offered solely a $100,000 cap for code compliance bills. The Affiliation then sued Church Mutual in a negligence motion. It argued that it had relied on the Church Mutual agent’s representations and {that a} particular relationship existed, giving rise to a authorized responsibility to advise them extra totally concerning the protection being offered.
The policyholder’s argument centered on the notion that over time, Church Mutual had cultivated a trusted relationship by means of direct contact, insurance coverage critiques, and promotional supplies suggesting that the insurer was an professional in non secular establishment protection. The Affiliation claimed that Church Mutual assured them they had been “totally lined,” and that this language created an affordable perception amongst board members that they’d be capable of rebuild their constructions fully within the occasion of a loss.
The Affiliation additionally emphasised its repeated inquiries through the years concerning the adequacy of the coverage’s protection. Based on their argument, the insurer’s failure to elucidate the importance of the restricted ordinance or regulation protection and the sensible impact of that cap amounted to negligent misrepresentation.
The courtroom, nonetheless, discovered no authorized foundation for the negligence declare. Beneath Michigan regulation, insurance coverage brokers don’t owe a normal responsibility to advise policyholders concerning the sufficiency of their protection except a slim “particular relationship” exists. That particular relationship arises solely underneath particular circumstances, comparable to when an agent misrepresents protection, fails to make clear an ambiguous query, provides inaccurate recommendation, or expressly agrees to undertake an advisory function.
On this case, the courtroom concluded that no such “particular relationship” existed. The board members who interacted with the insurer understood that “substitute value” meant restoring what had existed, not upgrading to new code. One board member even testified that he acknowledged code upgrades, comparable to fireplace suppression methods, wouldn’t be included if the unique construction didn’t have them. In consequence, there was no proof of a misstatement, and positively no indication that Church Mutual had undertaken an obligation to advise the nonprofit about what forms of endorsements or increased limits it ought to take into account.
Even assuming an obligation may need existed, the courtroom additional dominated that the Affiliation did not show reliance. The board president couldn’t recall the specifics of the dialogue with the insurance coverage agent wherein she felt assured that the Affiliation was totally lined. Moreover, the document lacked any proof that the board took or shunned taking motion primarily based on a transparent, inaccurate illustration. Within the courtroom’s view, any misunderstanding stemmed not from a misrepresentation by the insurer however from assumptions made by the nonprofit’s management about what they believed “full protection” meant.
For officers and leaders of nonprofit organizations, this case carries a number of necessary classes. Initially, it’s essential to explicitly ask your insurance coverage agent not solely whether or not a coverage contains substitute value protection, but in addition whether or not it gives adequate protection to rebuild in compliance with present constructing codes. Many older buildings, significantly these constructed a long time in the past, won’t meet trendy code necessities, and the price of code compliance will be important. Asking clear, direct questions and requiring particular written explanations of what’s and isn’t lined may help keep away from surprises after a loss happens.
Second, organizations should be proactive in searching for protection that addresses recognized dangers. One important endorsement typically neglected is ordinance or regulation protection, which incorporates three elements: loss to the undamaged portion of a constructing, the price of demolition, and the elevated value of development because of code adjustments.
On this case, the Affiliation had solely $100,000 in ordinance protection. After the loss, when Church Mutual issued a renewal coverage, they elevated that restrict to $2 million. This was an implicit acknowledgment of the danger that had gone unaddressed. Nonprofit boards and policyholders typically ought to view that as a lesson and guarantee they consider the adequacy of such sublimits earlier than a loss, not after.
Leaders ought to keep in mind that the responsibility to establish protection gaps could in the end relaxation with the policyholder in lots of jurisdictions. Whereas insurers and brokers could supply recommendation, except they explicitly tackle the function of advisor, courts in lots of jurisdictions won’t impose an obligation upon them to fill within the blanks. Officers of boards and leaders of entities who assume they’re totally protected with out confirming the main points in writing achieve this on the group’s peril.
Board members ought to be certain that they or their designees rigorously evaluate coverage declarations, endorsements, and exclusions. When unsure, ask the insurance coverage skilled for particular suggestions and recommendation after which doc these conversations. I counsel that the agent be requested if they may present recommendation about the perfect protection that won’t go away safety gaps within the occasion of a disaster. If the agent refuses, go to a unique agent.
Hiring a reliable insurance coverage advisor who agrees in writing to be an insurance coverage advisor is a primary step. Asking the suitable questions, acquiring the proper endorsements, and documenting these discussions and choices are the perfect methods to guard the mission and operations earlier than a loss happens.
For these curious about Michigan insurance coverage agent negligence regulation, I counsel studying What Are the Duties of An Insurance coverage Agent to the Policyholder—A Michigan Case Instance. For these within the “particular relationship” commonplace, I counsel studying Florida Insurance coverage Agent Commonplace of Care and the “Particular Relationship” They Share with the Insured.
Thought For The Day
“The one greatest drawback in communication is the phantasm that it has taken place.”
— George Bernard Shaw
1 Piatt Lake Bible Convention Assoc. v. Church Mut. Ins. Co., No. 2:23-cv-73 (W.D. MI. July 11, 2025).
