Freeman Mathis & Gary LLP recently obtained a seven figure plus settlement on behalf of an insurer client in connection with a Negligence and Breach of Contract action against one of the Insurer’s Binding Agents. The Binding Agent was authorized to bind and write contracts of insurance for certain classes and lines of business and types of risks on behalf of the Insurer, including excess/umbrella coverage. The insurer retained FMG to file an action against the Binding Agent for improperly underwriting, processing, handling, and billing a request for umbrella/excess coverage and issuing an insurance policy that failed to include language limiting coverage to that which was requested and paid for by the insured.

In April 2014, the Binding Agent was approached by an insurance broker seeking a competitive quote with respect to an application for Umbrella/Excess Insurance for a transportation client (the “Insured”). Through aggressive discovery requests and detailed deposition questioning, we were able to elicit documentary evidence and testimony showing the broker indisputably sought umbrella/excess coverage for only eleven specific vehicles owned or operated by the Insured. However, throughout the underwriting process, including the quoting process, the binding process, and the policy issuing process, the Binding Agent negligently failed to include appropriate language to limit the subject policy to the eleven specific vehicles set forth on the vehicle list provided by the Insured.

Indeed, we obtained damaging testimony from the Binding Agent’s Underwriter that he could have included a Designated Operations Limitation provision into the policy, which would have limited the policy’s coverage to the intended eleven vehicles. Rather than include the Designated Operations Limitation, the Underwriter included a Follow Form provision, which incorporated the coverage from the underlying policy, which in this case, covered the Insured’s entire fleet of over 140 vehicles. The Binding Agent’s cumulative failures ultimately resulted in the issuance of a policy covering many more vehicles – over 140 vehicles – then the eleven specified by the Insured, even though the Binding Agent only assessed the Insured a premium for eleven vehicles and billed the insured for eleven vehicles.

Compounding the Binding Agent’s failures further, during the underwriting process, and before the insurance policy was issued by the Binding Agent, a vehicle operated by the Insured was involved in a serious accident resulting in several individuals being significantly injured and three others killed. Although the Binding Agent was aware the vehicle involved in the accident was not designated by the Insured as one of the eleven for which the Insured sought excess coverage, the Binding Agent failed to bring this to the attention of the Insurer for over two years.

As a result of the Binding Agent’s negligence, the Insurer was required to provide insurance coverage to the Insured for the losses arising out of the aforementioned fatal accident, and for the compensatory damages in the litigation filed as a result of the accident. When the Insurer demanded reimbursement from the Binding Agent, after tendering the policy limits of the Umbrella/Excess Insurance policy to the injured plaintiffs and the estates of the deceased plaintiffs, for the costs incurred as a result of the Binding Agent’s errors, the Binding Agent rejected the demand, causing the Insurer to seek redress through litigation.

At the Settlement Conference in federal court, facing the plethora of facts we elicited in discovery showing its failures in underwriting the subject policy, the Binding Agent acknowledged its errors and omissions, and agreed to offer a significant portion of the damages sought in order to resolve the matter.

Paul Piantino, Partner and Chair of the Newark Office and Zachary Danner, Senior Counsel from the Cherry Hill Office, handled the litigation for FMG.