Dig a Little Deeper
By Bruce D. Hicks, CPCU, CLU
HANDYMAN OR AGENT?
Can repair persons be considered “agents”?
The Court Decisions is a popular Rough Notes magazine column. One reason is that the courtroom is where the promises made in an insurance contract often become real. All insurance professionals can develop “what if” scenarios, but until those scenarios are tested with an actual loss and a court decision, they remain mere mental exercises.
Dig a Little Deeper is produced by the editors of Policy Forms & Manual Analysis (PF&M), who dig a little deeper into a court decision to identify a coverage problem, provide possible solutions, or offer broader perspectives.
This case involved a couple’s home that was damaged by water that leaked from a pipe. They hired a handyman and a water restoration company to make repairs and dry out their home. The couple then filed a claim with their homeowners insurer.
As part of its loss investigation, the insurer requested the insureds to submit to examinations under oath, which is common. The insurer, however, also extended its request to the handyman and the water restoration firm. The insureds filed a lawsuit in which they and the insurer argued about whether loss-remediation and repair workers had to comply with the examination request.
Insurance agents are commonly deemed to be an insurer’s representative, but they are also in prime position to act in a claims advocacy role.
The court was not persuaded that workers could be considered an insured’s agents or representatives, and thus they would not be subject to the applicable policy’s “post-loss duty to cooperate” condition. The court ruled in favor of the insureds, and the insurer appealed. On appeal, the court affirmed the judgment of the trial court.
So lets consider this situation. It came down to a disagreement about a policy condition interpretation. It was not resolved until not one but two different courts reviewed the dispute and held the same understanding as the policyholders. This was an expensive exercise and, in my opinion, poor use of everyone’s time and resources. What caused a claim that should have been straightforward to become complex and costly? The insurer sought to develop more information concerning the scope of a water loss. In doing so, it attempted to stretch the language regarding persons who could be treated as policyholder stand-ins to apply to parties whose only responsibility was to restore a home to its pre-loss condition.
Ironically, a solution to this situation could have involved a legitimate representative: the insurance agent. In many instances, agents become aware when a claim goes sideways. Yes, agents are commonly deemed to be an insurer’s representative, but they are also in prime position to act in a claims-advocacy role. The water loss described above ended up with two separate courts agreeing with the insured’s interpretation. What if that third voice instead had been an agent’s?
Litigated claims can be complex, but they also can be simple. An agent could have stepped up and pointed out that the insurer’s position did not align with the policy language. A simple action, taken long before litigation arose, could have been the impetus for the insurer to explore more reasonable, legitimate avenues to resolve a coverage dispute.
Bruce D. Hicks, CPCU, CLU, is senior vice president, Technical & Educational Products Division, at The Rough Notes Company, Inc. He has more than 30 years of property/casualty insurance experience, including personal and small business underwriting as well as compliance duties for several national and regional insurers. Active in the CPCU Society, Bruce served as a governor of the organization from 2007 through 2010 and currently serves on its international interest group committee.