Insurance coverage agent negligence circumstances are hardly ever simple. A current determination provides beneficial 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 beneath the burden of snow and ice. The nonprofit believed it was absolutely lined beneath its long-standing insurance coverage coverage with Church Mutual. Nevertheless, after the loss, the Affiliation found that vital parts of the reconstruction prices related to compliance with fashionable constructing codes weren’t included within the substitute value protection.
These further “code improve” prices exceeded $1 million, however the coverage supplied 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 absolutely concerning the protection being supplied.
The policyholder’s argument centered on the notion that over time, Church Mutual had cultivated a trusted relationship via direct contact, insurance coverage critiques, and promotional supplies suggesting that the insurer was an knowledgeable in non secular establishment protection. The Affiliation claimed that Church Mutual assured them they had been “absolutely lined,” and that this language created an inexpensive perception amongst board members that they’d have the ability to rebuild their buildings fully within the occasion of a loss.
The Affiliation additionally emphasised its repeated inquiries over time concerning the adequacy of the coverage’s protection. In keeping with their argument, the insurer’s failure to clarify the importance of the restricted ordinance or regulation protection and the sensible impact of that cap amounted to negligent misrepresentation.
The courtroom, nevertheless, 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 beneath particular circumstances, equivalent to when an agent misrepresents protection, fails to make clear an ambiguous query, offers 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, equivalent to hearth suppression programs, wouldn’t be included if the unique construction didn’t have them. Consequently, there was no proof of a misstatement, and positively no indication that Church Mutual had undertaken an obligation to advise the nonprofit about what varieties of endorsements or greater limits it ought to contemplate.
Even assuming an obligation might need existed, the courtroom additional dominated that the Affiliation didn’t 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 absolutely lined. Moreover, the document lacked any proof that the board took or avoided 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 vital classes. Before everything, 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 offers ample protection to rebuild in compliance with present constructing codes. Many older buildings, significantly these constructed a long time in the past, won’t meet fashionable code necessities, and the price of code compliance could be vital. 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 have to be proactive in in search of protection that addresses recognized dangers. One important endorsement usually ignored is ordinance or regulation protection, which incorporates three components: loss to the undamaged portion of a constructing, the price of demolition, and the elevated value of building as a consequence 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 usually 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 do not forget that the responsibility to determine protection gaps might in the end relaxation with the policyholder in lots of jurisdictions. Whereas insurers and brokers might 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 absolutely protected with out confirming the small print in writing accomplish that on the group’s peril.
Board members ought to make sure that they or their designees fastidiously overview 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’ll present recommendation about the most effective protection that won’t depart 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 precise questions, acquiring the right endorsements, and documenting these discussions and selections are the most effective methods to guard the mission and operations earlier than a loss happens.
For these all in favour of 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” customary, I counsel studying Florida Insurance coverage Agent Commonplace of Care and the “Particular Relationship” They Share with the Insured.
Thought For The Day
“The only largest 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).