Evidence of Specialization Creates a Presumption that Clients will Rely on Insurance Agent/Broker’s Acknowledged Expertise

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In Murray v. UPS Capital Ins. Agency, Inc. (No. 20G058353, filed 9/11/20) a California appeals court held that summary judgment should not have been granted to an insurance agency since the policyholder had raised a sufficient factual question as to whether the brokers undertook a special duty of care by holding themselves out as having particular expertise in inland marine insurance.

In Murray, the insured was shipping $40,000 in used computer equipment via UPS from California to Texas. UPS advertised that its liability was limited but advised the insured to purchase insurance from its sister company, UPS Capital Insurance Agency. He did so, filling out the application for “house policy coverage,” describing the shipment as used computer equipment. He paid $350 and received a “Marine Certificate of Insurance” issued by Tokio Marine, which he believed fully insured his shipment in the event of any loss or damage by UPS.

The Certificate contained a “Free From Particular Average” (FPA) provision stating: “Warranted free from Particular Average unless the vessel or craft be stranded, sunk or burnt, but notwithstanding this warranty Underwriters are to pay any loss or damage to the interest insured which may reasonably be attributed to fire, collision or contact of the vessel and/or conveyance with any external substance (ice included) other than water, or to discharge of cargo at port of distress; and also to pay the insured value of any merchandise and/or goods jettisoned and/or washed or lost overboard, and the risks of theft of or non-delivery of an entire shipping package.”

UPS damaged the equipment and Murray submitted a $36,666 claim, but was informed that the policy “covered only catastrophic losses such as the entire destruction of the vehicle in which the shipment was carried by UPS and not damage caused by factors other than a catastrophic loss such as mishandling the freight or other causes.”

In the ensuing professional negligence lawsuit, UPS Capital presented evidence that the first page of the application stated: “Used items will not be insured ‘All-Risk.’” Instead, UPS Capital said that only FPA coverage applied to used goods, which it described as coverage that “insures cargo only for the risk of total loss (such as theft), thereby eliminating an insurer’s liability for partial losses except in the event of specifically named catastrophic perils.” UPS Capital asserted that Murray never gave it any indication that he did not understand the meaning or effect of the FPA coverage applicable to his shipment versus All-Risk coverage.

Murray argued that UPS Capital owed a duty to fully explain the Certificate’s FPA provision and a duty to disclose other available insurance for risks not covered in the insurance he had procured, but the trial court granted UPS Capital’s motion for summary judgment, stating that “California law is well settled as to the limited duty of insurance brokers, which is only to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.” (Citing Travelers v. Superior Court (2013) 215 Cal.App.4th 561.) The trial court held that UPS Capital “had no duty above and beyond those normally found in any agency relationship.” The court noted that Murray was advised “all-risk” protection was not available for used cargo; Murray did not seek additional information or ask about other insurance options; and although selling a specialized type of insurance, the court rejected Murray’s argument that UPS Capital had an independent, affirmative duty to advise him about the relevant FPA provision written in “archaic language,” as contrary to established case law.

The appeals court reversed, noting an exception to the general rule where the agent assumes an additional duty by “holding himself out” as having expertise in a given field of insurance being sought by the insured. (Citing Fitzpatrick v. Hayes (1997) 57 Cal.App.4th 916.) While finding no case law specifically defining the phrase “holding themselves out as having expertise,” the Murray court cited Jones v. Grewe (1987) 189 Cal.App.3d 950, as having “adopted a totality-of-circumstances analysis, leaving it to the fact finder to examine multiple factors to decide if the insurance broker/agent assumed a special duty by holding themselves out as having expertise.”

Citing a number of cases involving a variety of factual scenarios, the Murray court stated: “[T]he insurance industry has become more sophisticated and developed highly specialized policies…. There are countless industries that require specialized insurance coverage, and to meet these ever-changing needs, agents/brokers have developed expertise and skill sets tailored to their particular specialty. While general insurance brokers should continue to benefit from the public policy of protecting them from becoming ‘a blanket insurer for his principal’ [], the same cannot be said for this emerging group of highly specialized insurance brokers/agents. In light of all the above, we conclude evidence of specialization at a minimum creates a presumption the agent/broker anticipates their clients will rely on their acknowledged expertise and supports courts imposing an extended duty.”

The Murray court listed the evidence that was sufficient to defeat summary judgment because of a factual question whether UPS Capital held itself out as having expertise in inland marine insurance, including but not limited to: (1) a single type of policy offered to one-time shippers with limited coverage; (2) an endorsement limiting coverage to domestic inland truck shipments; (3) UPS Capital was a subsidiary of UPS and was the agent for only one insurer offering versions of only one type of policy; and (4) “abstruse” and indecipherable policy language which required some level of expertise to fully understand.

The appeals court identified further evidence presented by Murray “from which the trier of fact could reasonably infer UPS Capital was a highly specialized broker holding itself out as having expertise in inland marine insurance. As described in Murray’s declaration, a UPS agent recommended he call UPS Capital to secure the necessary insurance for his shipment of used computer equipment. UPS’s referral suggested UPS Capital was the industry’s acknowledged ‘go-to’ broker for inland marine shipping needs. UPS did not offer Murray a list of possible insurance brokers to choose from, suggesting only UPS Capital possessed the expertise to assist Murray with purchasing the correct policy for his UPS shipment.”

The Murray court further noted that additional facts distinguished the relationship between UPS Capital and Murray that made it unlike the customers described in Jones and Fitzpatrick because, among other things, UPS Capital had selected the policy for Murray, the application had the UPS logo on it with no further explanation of the policy other than as “House Policy Coverage” and the rest of the application required Murray to provide information unlike a general policy where the purchaser knows better than the agent about the risks of loss and insured assets.

Moreover, the Murray court found that there was further evidence of UPS Capital holding itself out as having expertise in this “niche market” by the disclaimer that the carrier would rely on the insured’s representations on the application when making a decision on a policy and the e-mail to Murray from UPS Capital “advising him to leave ‘any “Declared Value” fields blank’ on the UPS forms and to ‘not opt for additional package or freight liability coverage when shipping with UPS insurance.’” The court viewed UPS Capital’s “knowledge and advice about UPS’s shipping forms and whether it was necessary to purchase additional coverage in addition to its Tokio policy” as additional factors suggesting it was holding itself out as having expertise in inland marine shipping insurance.

“Looking at all of Murray’s evidence, we conclude he met his burden opposing the motion for summary judgment. ‘[L]iberally construing [Murray’s] evidentiary submission while strictly scrutinizing [UPS Capital’s] own showing and resolving any evidentiary doubts or ambiguities in [Murray’s] favor’ [], we conclude the evidence could allow a reasonable trier of fact to find [the “holding out” exception] applicable. Accordingly, the case must be remanded to permit a jury to resolve the triable issue of material fact as to whether UPS Capital was holding itself out as having expertise in a specialized area of insurance, and therefore, assumed a heightened duty of care.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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