An insured visits an independent insurance agent or broker to inquire about, and potentially procure, insurance for a business. Information, proposals, applications, confirmations, binders and other documents get exchanged. Representations and promises are made. The insurance is procured. Follow-up adjustments are made as business changes. Then a claim comes in and is denied because the agent/broker ostensibly did not have the “authority” to take some action or make some representation on the insurer’s behalf that is the linchpin for coverage. The insured sues the insurer for coverage, claiming that the agent/broker was acting on behalf of the insurer. Who wins?
As the Eighth District Court of Appeals recently concluded in Kaplan Trucking Co. v. Grizzly Falls Inc., 2017-Ohio-926, it’s all about timing and analyzing the facts within the contexts of Ohio statutory law and the common law of apparent authority. Ohio Rev. Code §3929.27 states that “a person who solicits insurance” becomes the agent of the insurer “upon such application” for insurance. According to the Ohio Supreme Court, this means an independent broker/agent becomes an agent for the insured when the broker/agent notifies the insured that he or she intends to place coverage with a particular insurer or when the broker accepts an insurance application from a customer. Damon’s Missouri, Inc. v. Davis, 63 Ohio St. 3d 605, 612 (1992).
But this provision relates only to the procurement process. What about post-procurement situations where an insured is making changes to a policy through a broker/agent, but that information never makes it to the insurer? That’s what happened in Kaplan, where an insured tried to add a new vehicle for coverage through a broker and that information was never communicated to the insurance company. The appellate court found that the insurer couldn’t automatically shield itself from coverage obligations because factual circumstances could show that, despite any limiting language in a contract between and insurer and a broker, an insurer is bound by the acts of the broker/agent through apparent authority, and forced to extend coverage on that basis. Read the court’s opinion