Insurer and Broker Hit for $1 Million, “Policyholder” is Lucky

August 6, 2009

The problem of policyholders continuing to rely on documents other than the actual policy continues to confound coverage attorneys. In a recent example, however, the policyholder lucked out when a jury awarded it $1 million.

Over the years, a bank-financed Atlanta apartment complex changed hands several times. Ultimately, Regency Savings Bank purchased the mortgage, and Pacific Insurance Company insured the property at the same time. No surprise that Regency asked the insurance broker to provide proof that it had been added to the policy.

Here is where the twist arises — as is so common in these scenarios. The broker sent proof of insurance to Regency, but never actually informed the insurer to add the bank as an insured. It is common for brokers or agents to issue proof of insurance, but that doesn’t make one an insured.

The story continues with the apartment complex sustaining severe fire damage. Regency ultimately took over the property due to a default on the mortgage, and asked Pacific Insurance to cover the fire loss. The insurer denied the claim and litigation ensued, including a claim for bad faith. After a three-day jury trial, the insurer and broker were ordered to pay Regency approximately $1.1 million, including $400,000 in attorneys’ fees.

The moral of the story is that policyholders rely on a proof of insurance at their own risk. The safest course of action is to demand to see the policy (or at least the endorsement) that shows the addition to the policy as an insured. Had this not been a mortgage holder, this case could have been much more difficult to recover against the insurer, and an E&O claim against a broker is never easy. The insurer has indicated it intends to appeal.

Regency Savings Bank v. Pacific Insurance Co., Case No. 2006-CV-123845 (Fulton County, Georgia Superior Court, July 6, 2009).

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