Presented by the Insurance Agents & Brokers Liability Practice Group

Key Defenses to E&O Claims That Really Aren’t

March 1, 2018

By David W. Henry, Esq.

One of the most important defenses in a failure to procure claim against an insurance agent is not technically a defense—it is something a little different. Attorneys often rely on the “defense” that the coverage the agent allegedly failed to procure or which was not provided (but should have been) is or was not procurable or available in the marketplace. We argue that, even if available, the customer would not have been eligible for this coverage due to underwriting constraints. An example might be a failure to procure ordinance and law coverage for a coastal condominium complex where the claimant argues that the agent should have secured ordinance and law coverage payable for a hurricane or coastal wind exposure. In some coastal areas, there may be no market for that coverage or due to the age, construction or building type, the insured would be ineligible for this coverage extension.

When we discuss the “availability” and “eligibility” defenses we have to be careful. In truth, these are not affirmative defenses upon which the agency bears the burden of proof. The better reasoned law (in almost all states) recognizes that the plaintiff must plead and prove these elements as part of his or her prima facie case. The argument goes that the defense cannot be asked to prove a negative (i.e., that coverage was not available), and if the plaintiff cannot prove the insured was eligible for the coverage, then the agent’s negligence cannot be the proximate or logical cause of any insurable loss. Burden of proof principles soundly support the notion that claims of “availability” and “eligibility” of coverage are the plaintiff’s to allege and ultimately prove.

Unfortunately, these two issues are often framed as defenses because the agency defendant wants to raise them in a defensive posture to avoid liability. Also, they are easy to talk about as if they were legal defenses. The case law does not always make this clear, but the availability and eligibility requirements must be alleged and proven by the plaintiff. Defense counsel must raise the absence of these allegations in a motion to dismiss. We want to require the plaintiff to plead these elements of the case-in-chief. If the defense pleads these issues, the court may wrongfully conclude the pleader bears the burden of proof. The motion to dismiss or pre-answer objections are the only effective ways to challenge the absence of these allegations and to argue that, absent allegations of availability and eligibility, there are fatal defects in the plaintiff’s complaint and causes of action. One must carefully scrutinize the allegations to ensure that the allegedly missing coverage is alleged to be available, that the insured was eligible and, of course, would have paid any premium attributable to the desired coverage that was not provided. The Florida case of Neida’s Boutique v. Gabor & Co., 348 So.2d 1196 (Fla 3d DCA 1977) is illustrative as the court dismissed this suit for failure to allege these elements. However, case law from other jurisdictions can likewise be argued in support. Making availability and eligibility the plaintiff’s burden to prove can be hugely beneficial in failure to procure claims.

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