Policyholders do not study all the forms available for coverage, nor do they typically understand how policies can be tailored to provide better coverage through endorsements. In a recent blog about soft costs under a builders risk policy, Builders Risk Insurance and Soft Costs Claims, I noted the importance of selecting an experienced insurance agent that knows the builders risk area with great expertise:
[T]he agent must access each type of project to tailor a product with that project’s particular risks:
Keep in mind that a major catastrophe could have a detrimental impact to the construction project, in addition to the delay in construction. For example, a construction project expected to be complete during a robust economy may suffer additional losses if the delay results in opening after the economy has slipped into a recession. Also, the stigma associated with occupying a property where a catastrophic loss occurred may make it difficult to find tenants. Your broker can help you design a policy that meets your specific needs and risk exposures.
The selection of the agent putting together the builders risk coverage is important.
This was highlighted in an errors and omission case against an insurance agent that advised a policyholder about available coverages under a builders risk policy where soft costs were not insured.1 The court noted the relevant facts:
APM, a property management company, sought a builders risk insurance policy from TCI to cover an apartment building under construction…Jay Alsop, APM’s president, discussed insurance policies with TCI’s agent Devin Gaard. One policy in particular, from Philadelphia Insurance Company (‘Philadelphia’), covered lost rent and other “soft costs,” such as interest.
Alsop also received a quote from a different insurance agency for another policy from Travelers Insurance Company (‘Travelers’), which was cheaper than the Philadelphia policy. The Travelers policy did not have coverage for lost rent and soft costs. Alsop informed Gaard about the Travelers policy and requested Gaard to procure the policy as it was quoted by the other agency, without change.
[A] fire at the construction site delayed the opening of the apartment building for five months. APM filed a claim under the insurance policy for damages caused by the fire, including lost rent and interest charges. Travelers paid part of the claim, but denied the claim for lost rent and interest because the policy did not provide coverage for those costs.
APM sued TCI, alleging TCI and Gaard were negligent for failing to offer APM a policy endorsement that provided additional coverage for lost rent and soft costs. TCI denied liability and moved for summary judgment, claiming that APM did not request the additional coverage for lost rent and soft costs and that TCI and Gaard were not required to offer the additional coverage to APM. The district court granted TCI’s motion, determining only one conclusion could be drawn from the facts. The court concluded APM failed to raise a genuine issue of material fact as to whether Gaard breached his duty to APM.
Insurance negligence cases against agents are complex. In this case, because the court found there was no “special relationship” between the agent and the policyholder, the court held that the failure to explain that the Travelers policy could have been endorsed to include soft costs and lost rents was fatal to the case against the insurance agent.
The case is also a lesson about buying “cheap” insurance based on price. Soft costs and lost rents are just as important as the direct costs to reconstruct. Do not buy cheap insurance. Instead, seek out great insurance professionals to provide better insurance at a fair price.
Thought For The Day
Talent is cheaper than table salt. What separates the talented individual from the successful one is a lot of hard work.
1APM v. TCI Ins. Agency, 877 N.W.2d 34 (N.D. 2016).