June 18, 2012

From, June 18, 2012

Civil-trial attorney Stacy A. Carpenter, shareholder at Polsinelli Shughart’s Denver office, provides some advice for insurance agencies—which she says are facing an increasing number of lawsuits as they get dragged into policyholder coverage disputes with insurance carriers.

What are some of the biggest or newest legal risks facing insurance agencies today?

Increasingly, alternative claims are being filed against agencies. In this situation, the insured sues the carrier for breach of contract and bad faith and argues the claim should be covered. The insured simultaneously sues the insurance agent and argues that if there is no coverage, the agent failed to procure the proper insurance.

Lawsuits that include both the agency and the insurance company as defendants can present difficult strategic decisions for the agency. The agency may choose to argue for coverage as a defense to a failure-to-procure claim. However, this strategy often puts the agency in the position of having to support the plaintiff’s case and arguing against the insurance company—and it is never ideal for defendants in a lawsuit to point the finger at each other.

Alternatively, the agency may align itself with the co-defendant insurance company, arguing there is no coverage and the agency did not err when it failed to obtain the coverage. This defense also presents risks because the insurance company may be able to obtain a legal ruling that there is no coverage by way of a dispositive motion. If that happens, the insurance company is dismissed from the lawsuit and the agency may be left as the sole defendant. 

To read the full report, click here