Agent and Insurer Liability Post Procurement of Policy in Tennessee

The Court of Appeals recently had an opportunity to revisit the issue of agent negligence when procuring the wrong coverage for an insured.  In Steven Barrick and Janice Barrick v. State Farm Automobile Insurance Company and Thomas Harry Jones No. M2013-01773-COA-R3-CV, (Tenn. Ct. App. 2014), the Barricks initially obtained automobile insurance through State Farm with Thomas Jones as their agent from 1985 until 2009.  Id.  The Barricks’ lawsuit alleged both State Farm and Jones had a duty of care to advise the Barricks of their need for increased coverage after the initial procurement of the policy.

While operating an insured vehicle, Mr. Barrick struck a motorcyclist who died at the scene of the collision.  The motorcyclist’s survivors filed a complaint against him which subsequently settled for $200,000.00.  However, the Barricks’ policy with State Farm had limits of $100,000.00 per person and $300,000.00 per occurrence.  Thus, the Barricks paid $100,000.00 more than their coverage allowed out of their own pocket.  Id.

The Barricks claimed State Farm and Jones were negligent.  A second amended complaint alleged Jones (the agent) was negligent because he had a special relationship with the Barricks where he not only recommended but also selected liability coverage and limits for the Barricks’ policies.  The Barricks claimed this created additional duties beyond those of the ordinary insurance agent.  The Barricks also argued State Farm was vicariously liable for Mr. Jones’ negligence.

The trial court granted summary judgment for the defendants and found both State Farm and Mr. Jones affirmatively negated the element of duty within the Barricks’ claim or that the established element of duty could not be proved at trial.  Further, the trial court specifically found Mr. Jones’ duty to the Barricks ended once he obtained the initial insurance coverage, and owed no further duty to the Barricks to select appropriate coverages or limits thereafter.

This particular case was governed by the summary judgment standard referenced in Hannan, et al v. Alltel Publishing Company, 270 S.W.3d 1, 8 (Tenn. 2008).  Under Hannan, it is not enough for a moving party to challenge another party to “put up or shut up”.  The Barricks alleged Mr. Jones’ assumed duties beyond those of an ordinary insurance agent.  Relying upon Bennett v. Trevecca Nazarene Univ., 216 S.W.3d 293 (Tenn. 2007), the court decided it can apply the principle of assumption of duty to this case.  In other words, if Jones regularly recommended and selected coverage for the Barricks, he had a duty to do so with reasonable care.  The court determined that under the Hannan standard, summary judgment was not appropriate because there could be facts to establish in assumption of duty.  Further, the court determined that State Farm could not be granted summary judgment for the same reasons in that he could still be found vicariously liable for its agent’s acts.

This case reiterates that neither an agent nor the insurance carrier has a duty to the insureds after the initial policy or coverages had been procured.  However, such a duty might exist if the agent continues to select or recommend coverages for the insured after the initial procurement of the policy.  The insurance carrier can be found vicariously liable for an agent’s breach of duty under both situations.