A split decision by the New Hampshire Supreme Court released Friday offers a lesson to insurance agents about the importance of checklists.
Three justices overruled two dissenters to affirm a Superior Court jury’s verdict that Foy Insurance Group was negligent for failing to advise a hotel owner to buy sufficient insurance to rebuild before his property was severely damaged by a 2015 fire.
The plaintiff, 101 Ocean Blvd. LLC, argued that use of a simple checklist would have revealed that the $10,000 limit on law and ordinance costs was not enough coverage for a building constructed in the 1920s with an overall policy limit of $2 million.
“Use your voice and tell the insurance industry not to sell these policies under the name of replacement costs if they have co-insurance in them,” plaintiff’s attorney John G. Cronin told the jury during closing arguments. “Tell them not to sell them as replacement costs if they don’t provide adequate coverage for law and ordinance.”
Foy appealed the verdict on the grounds that Cronin’s closing statements were prejudicial and that the jury instructions and verdict form were flawed. The defense attorney also said the court improperly admitted as evidence a checklist that some agents use to insure properties have adequate coverage.
Two justices agreed with some of those points, but the majority decided to let the jury’s judgment stand.
“Although we do not condone the challenged portions of Ocean’s closing argument, under the circumstances of this case, we cannot conclude that the trial court’s failure to interrupt Ocean’s closing and/or immediately provide additional instructions amounted to a plain error that affected Foy’s substantial rights,” the majority opinion says.
Albert J. Bellemore Jr. has relied on Foy, an agency with several New Hampshire offices, to find insurance for his properties since the early 2000s, according to the opinion. After he purchased the hotel on Ocean Boulevard he bought $1 million in coverage for the building.
In 2011, agent Heidi SansSouci urged him to increase that coverage to $2 million. Bellemore refused at first because of the recession, but in 2013 he took SanSouci’s advice and purchased a $2 million policy with Lloyd’s of London. The insurer declined to renew the policy, so Bellemore bought a $2 million policy with AIX Specialty Insurance Co., a unit of The Hanover.
Bellemore testified that he relied on the Foy agency’s advice on insurance matters. He purchased flood insurance when SanSouci suggested it and added liquor liability coverage based on her advice. The law and ordinance limit, however, remained at $10,000.
After the hotel was severely damaged in the 2015 fire, Bellemore hired an engineering firm and discovered that it would cost approximately $1.1 million to rebuild, but an additional $905,070 to comply with the current building code. He decided to demolish the structure instead of rebuilding it. AIX paid $910,141.
Bellemore’s business sued Foy for the difference. A Hillsborough County jury found that Foy was indeed negligent and responsible for 75% of the fault. The opinion does not state the amount of damages awarded.
Reached by telephone on Friday, Cronin said he makes no apology for his “passionate” closing arguments. He said Bellemore is not a big-league developer, he’s a “working man” who makes a living by buying properties and fixing them up.
Cronin said while researching the case, he learned that some agents use a checklist to make sure the coverage on a property is adequate. He said they are not required, but a checklist would certainly have been useful in Bellemore’s situation.
He said in 2002 the New Hampshire Supreme Court ruled in Sintros v. Harmon that if insureds have a “special relationship” with their insurance agents, the agent has a duty to provide advice about the availability or sufficiency of insurance coverage.
HAMPTON, NH – OCT 3: Hampton Beach State Park in Hampton, New Hampshire, as seen on Oct 3, 2020.
The Supreme Court opinion says that the existence of a special relationship is decided case by case, but generally can be established by showing that both parties understood that the policyholder relied on the agent for advice about coverage decisions.
Cronin said his client certainly relied on SanSouci for sound advice. He said an expert testified at trial that for only $500, Ocean’s policy could have been structured to provide $700,000 to $900,000 in additional law and ordinance coverage but with a lower replacement cost limit. That would provide the full $2 million in coverage that Bellemore thought he was buying, he said.
“How insurance is sold and delivered, it’s not like you can got to the lot, open the hood and kick the tires. You go in the office and somebody tells you to fill out a form, they give you a binder and six weeks later you get a thick envelope in the mail and you’re expected to read it and understand it.”
The two dissenters wrote in their separate decision that they would have reversed the jury verdict because the hotel owner did not show that any damages were suffered. While a higher policy limit for law and ordinance chances may have solved the problem, no evidence was presented to show that such coverage was actually available, they said.
(Jim Sams from Insurance Journal)