03 Aug Friends Don’t Sue Friends, Do They?
The answer to this commonly asked question is yes, they will, especially if the loss is big enough.
Unfortunately, this scenario has played out numerous times. Consider the scenario below that turned into an E&O claim.
The background involves a doctor working with a non-profit group. He was sent oversees to help establish a medical clinic. This doctor (the agency’s client) owned a very large home. The agent, who was part of this same non-profit group, suggested an alternative to the client’s homeowners’ coverage. The agent advised the doctor that he should purchase a vacant home policy which would provide him full coverage in the event of a loss while the home was unoccupied. The agent procured a DP-1 dwelling policy for the doctor.
During the winter while the doctor was out of the country, his home was subject to a significant freeze causing the water pipes to freeze resulting in over $200,000 in damages. Upon being notified of the loss, the doctor was subsequently advised that he did not have coverage under the dwelling policy. He referred to the conversation with the agent where he was advised that he would have full coverage in the event of a loss. He was not aware that the DP-1 was more limited coverage, essentially only covering damage caused by fire and lightning.
The doctor proceeded to sue his long-time agent and friend for the uncovered loss. The case went to a jury trial where the doctor argued that the agent failed to procure the proper coverage, contending that the agent advised him that the DP-1 would provide all the coverage he would need. He also argued that broader coverage was available, and had he known of this coverage, he would have purchased it.
In his defense, the agent argued the doctor was “cheap” and that if offered the DP-2 or DP-3 policy form, the doctor would have rejected those proposals. The agent also argued the doctor should have read his policy.
The verdict was in favor of the doctor awarding him $150,000 in damages. The jury was polled and based their decision on the premise that even though the agent didn’t think the doctor would buy the higher priced product (the premium was not substantially higher), the agent should have offered those proposals and forced the doctor to make a decision. The verdict was slightly less than the damages with the issue of the doctor not reading the policy factored in.
Some take-aways from this claim:
- Before the pandemic, vacant properties were a common issue with E&O property claims. This is sure to increase with a predicted increase in vacancies.
- Know your product. Did the agent know the limitations of a DP-1? I sure hope so, but this is questionable. Not all policies for vacant property are the same, especially if alternative markets are needed.
- Watch your communication with the client. The doctor remembered the discussion that he would have full coverage. Agents can be held responsible for what they say and what they put in writing. Avoid use of the phrase “full coverage” as every policy has limitations and exclusions.
- Don’t make decisions for the clients. By providing them with options, clients are forced to decide.
- Request that the client read the policy. If they have any questions, they should contact the agency as soon as possible.
- Document, document, document – not only in the agency file, but also in a communication back to the client which memorializes the discussion.
- And last but not least: yes, friends will sue friends!