The CEO of a hotel management company is now sadder but wiser. The company bought a Marriott hotel in Knoxville, Tenn., and undertook significant renovations. During construction, fixtures, furniture and equipment were stored at an off-site warehouse.
Unfortunately, a large rainstorm occurred that caused flooding in the warehouse and damage to the stored items. Who you gonna call? The insurance agent. Alas, that was a bust. Turns out the goods were not insured. Next step: a lawsuit against the agent for professional negligence (malpractice). For our hotel owner, however, success was but an apparition.
Two years before the flood, a then-new investor in the hotel convinced the CEO to patronize the investor’s close friend in the insurance business. The hotelier met with the insurance agent several times concerning numerous hotel construction projects in progress, including the Knoxville hotel. During the discussions, the CEO referenced the warehoused goods. The insurance agent recommended a combined policy to cover all his hotel operations. The hotelier accepted the advice and purchased the policy. Unfortunately, coverage for the goods in storage was not included.
The relevant law is well established but vexing. In most states, an insurance agent or broker has no duty to advise the insured about various coverages available or to investigate the insurance needs of the customer. Instead, courts have imposed on the insured the responsibility of determining insurance needs, available coverages and adequacy of insurance purchased. The fact that the agent knew that the hotel utilized offsite storage did not shift the responsibility to the agent to verify coverage of those goods.
Oh my!
A very limited exception exists where there is a special relationship between the agent and the insured. To qualify, typically a long, established relationship is required during which the agent is actively involved in the client’s business affairs and regularly gives advice and assistance in maintaining proper insurance coverage. In addition to longevity, the following circumstances help prove the necessary relationship: a) compensation of the agent in addition to premium payments; and b) the agent holds him/herself out as a highly skilled expert coupled with reliance on the agent’s advice by the insured.
In the Knoxville hotel case, the court rejected the hotel owner’s claim of a special relationship. Although a long-time close relationship existed between the agent and the hotel’s investor, that affiliation was not credited to the hotel owner, whose relationship with the agent existed for only two years at the time of the loss. Judgment for the insurance agent; case dismissed.
The lesson is clear. Take an active role in the purchase of insurance. Know what you need, and carefully verify that your coverage is sufficient.