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COA: Insurance agent did not have duty to advise

October 31, 2014

The Indiana Court of Appeals affirmed summary judgment in favor of an agent and an insurance company after the owner of a pub sued them believing they owed a duty to advise that the policy the pub chose would be insufficient to cover the replacement cost of the building.

Cox’s Pub’s manager, Julie Burton, contacted Jeff Clute to get an insurance policy quote because the pub could no longer afford its current insurance policy due to higher premiums after settling a wrongful death lawsuit. Burton made clear she wanted to keep the pub’s premiums as low as possible and near what it paid before the settlement.

Clute provided two quotes: one which had building coverage limits at $265,000 and one that had building coverage limits of $354,000. Illinois Casualty Co. estimated the replacement cost for the pub building at $265,049.

Burton selected the one with the lower building coverage limit. Less than a month after the policy was in effect, a fire destroyed the pub. Eric Cox, owner of the pub, and the pub sued Clute and Mayerstein-Burnell Co. Inc., doing business as MBAH, alleging negligence and breach of contract claims based on allegations that the insurance proceeds were insufficient to cover the replacement cost of the building. Cox alleged the true replacement cost exceeded $500,000 and he was unable to rebuild.

The trial court granted Clute and MBAH’s motion for summary judgment.

In Eric Cox and Pea Cocks Corp. d/b/a Cox's Pub v. Mayerstein-Burnell Co., Inc. d/b/a MBAH Insurance and Jeff Clute, 79A05-1402-CT-75, the COA rejected the plaintiffs’ claims that by obtaining the building valuation, Clute counseled the pub regarding specialized insurance coverage and, thereby, held a special relationship with the pub. But they were unable to be sure that Clute ever counseled Burton on which insurance policy to select. The evidence shows that he did not personally give an opinion regarding either the value of the pub’s structure or which policy it should purchase.

The judges also rejected the plaintiffs’ claim that even if Clute did not have a special relationship and a duty to advise in the first instance, he nevertheless assumed a duty to advise the pub regarding the adequacy of its coverage by providing the valuation. But Clute did not create the valuation, the insurer did. He only acted as an intermediary between the pub and Illinois Casualty.

“Cox and the Pub’s argument boils down to a request to impose a duty on insurance agents to ‘identify the insured’s desires with regard to insurance and explain to the insureds various coverages available to meet those desires,’” Judge Edward Najam wrote. “Moreover, the preparation of a business valuation is a standard part of the insurer-insured relationship. Thus, to hold that an insurer assumes a duty to advise by preparing a valuation would create a duty in nearly every instance, and our supreme court has rejected such an expansive duty.”
 

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