CALIFORNIA Insurance Agent and Agency Liable for WC Coverage Failure

How Would You Decide?

Here’s what Tom Robinson, J.D., writer for Lexis Nexis Workers Comp Law Center reports on a rare victory for the insured about lack of workers’ compensation coverage.

Here’s What Happened
Plaintiffs opened a new dealership, Rhino Linings of Santa Fe Springs, selling and installing spray-on linings onto the beds of pickup trucks and other vehicles. When plaintiffs inquired about insurance needs, Rhino USA, the company selling the dealerships, referred them to Robyn Thaw, an experienced insurance agent in California, who had handled the insurance programs for a number of the Rhino dealerships.

Plaintiffs indicated Thaw told the plaintiffs she was, indeed, knowledgeable about the specific needs of the new Rhino dealership and she had put together a specialized insurance program specifically designed for their business. Thaw had attended informational seminars for new dealers given by Rhino and at those meetings spoke to the groups about insurance needs and various insurance products tailored for Rhino dealerships.

When plaintiffs suggested they meet with Thaw to discuss their needs, they said Thaw indicated a meeting would not be necessary, and she would forward to them the necessary applications. Evidence suggested the plaintiffs filled out some portions of the forms but left the insurance portions of the forms blank, to be filed in later by Thaw. Various policies of insurance were subsequently delivered by Thaw to the plaintiffs.

Still later, an employee working for plaintiffs was severely injured in a fire at the dealership premises. It was then determined no workers’ compensation insurance had been procured. The injured worker sued plaintiffs and others, including Rhino USA, and obtained a verdict exceeding $11 million.

Plaintiffs then sued Thaw and her insurance agency, contending in pertinent part Thaw had negligently failed to secure necessary workers’ compensation coverage. Following a bench trial, the trial court found Thaw and the agency liable for negligently procuring insurance and the defendants appealed.

How the Court Ruled
In Williams v. Hilb, Rogal & Hobbs Ins. Servs., 2009 Cal. App. LEXIS 1496 (Sept. 9, 2009), the Court of Appeal of California (Second Appellate District, Division Eight), affirmed the entry of the judgment against the defendants. Initially, the appellate court acknowledged that generally an insurance agent does not have a duty to volunteer to an insured that the insured should procure additional or different insurance coverage. According to the court, ordinarily the insurance agent’s duty is to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.

The court noted, however, the rule changes when any of the following factors was present: (a) the agent misrepresented the nature, extent or scope of the coverage being offered or provided; (b) there was a request or inquiry by the insured for a particular type or extent of coverage; or (c) the agent assumed an additional duty by either express agreement or by holding himself or herself out as having expertise in a given field of insurance being sought by the insured. The court continued that an agent assumes additional duties by holding herself out as having expertise in the insurance being sought by the insured and may be liable to the insured for losses which resulted as a breach of that special duty. (workersxzcompxzkit)

While the court acknowledged that ordinarily an insured has a duty to read and understand the policy of insurance, the court added that the language of the policy might not control because of an insurer’s conduct extrinsic to the contract. Moreover, an insured’s failure to read the policy did not always render the insured’s reliance on the agent’s advice unjustifiable as a matter of law. The court concluded that the evidence amply supported the court’s finding that Thaw failed to use the skill and care a reasonably careful insurance professional would have used in similar circumstances and that Thaw had held herself out as an expert. There was no error.

See generally Larson’s Workers’ Compensation Law, § 150.02, 152.02, 152.05.

Tom Robinson, J.D. is the primary upkeep writer for Larson’s Workers’ Compensation Law (LexisNexis) and Larson’s Workers’ Compensation, Desk Edition (LexisNexis). He is a contributing writer for California Compensation Cases (LexisNexis) and Benefits Review Board – Longshore Reporter(LexisNexis), and is a contributing author to New York Workers’ Compensation Handbook(LexisNexis). Robinson is an authority in the area of workers’ compensation and we are happy to have him as a Guest Contributor to Workers’ Comp Kit Blog. Tom can be reached at: compwriter@gmail.com.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker about workers’ comp issues.