Lawsuits Against Insurance Agents

Arizona Supreme Court Ruling May Expose Agents to Lawsuits

An Arizona Supreme Court ruling may expose agents who write auto policies to malpractice lawsuits if they are accused of failing to inform their customers about uninsured and underinsured motorists' coverage – even with a signed waiver acknowledging the customer is rejecting UM and UIM coverage. Click on the video below to watch court proceedings.

Lesley Wilks and her husband Paul Wilks filed a lawsuit in 2010 against John Manobianco at the Manobianco Insurance Agency after the Arizona woman got into an automobile crash with an uninsured driver. Court documents show she signed a waiver to inform her she was going without UIM coverage. Attorneys for Wilks argue she signed the release as part of a large package of insurance documents and relied on her agent, who she told to get a policy like her previous policy. Her previous policy included UIM coverage.

Manobianco's attorneys say the agent told her she wasn't getting UIM coverage. They contend that the woman was made aware she was going without the coverage by signing the waiver. The case was dismissed, heard, and overturned in the appellate court, then heard by the Supreme Court.

Arizona Supreme Court found:

The Supreme Court decision, which sends the case back to trial, states that the waiver provides a "safe harbor" for carriers but not agents who owe a duty of care to their clients. The Court's decision may reverberate throughout the state's agent community, said Lanny Hair, executive vice president of the Independent Insurance Agents & Brokers of Arizona Inc. Hair believes that without the protection of the waiver that agents writing auto may start declining to write policies to insureds who want lower or no UM or UIM coverage, and instead refer those leads to other agents. He plans to raise some alarms over the decision and said a "legislative fix" might be required to protect agents, but that process can't start until next year when bills are introduced. Hair said:

"The decision could also have a retroactive impact, prompting a rash of suits from insureds who settled for less or were awarded less in lawsuits over auto accidents with uninsured or underinsured motorists. ... We've got all these claims that happened that are sleeping in these files."

Mick Levin, with Tidmore Law Offices, LLP, in Phoenix, represented Wilks. He believes the case should have never been dismissed in the first place and was pleased with the Supreme Court decision. Levin said:

"Obviously, we thought the decision was well-reasoned. ... In Arizona, an insurance agent owes a duty of care to the insured. ... My client says she asked for the same coverage she had before, which includes uninsured and underinsured motorists."

Attorney Myles P. Hassett, with The Hassett Law Firm, PLC, in Phoenix, argued for Manobianco. He had little to say when contacted for this story except to express confidence the case would go his client's way. "I believe we'll be vindicated in the trial court," Hassett said.

State Farm, named in the superior court case but no longer involved in the suit, had even less to say. "State Farm rarely comments on pending litigation, and at this time, we have nothing to share on this lawsuit," Victor Hugo Rodriguez, a State Farm spokesman for Arizona, wrote in an email reply to a request for comment.

Wilks originally had a policy with State Farm Mutual Automobile Insurance Co., which she obtained through Manobianco. Her original policy included liability and both UM and UIM coverage. Wilks later replaced the State Farm policy with a policy from another carrier. A year later, she decided to switch back to State Farm. According to court documents, when making the switch, Wilks asked Manobianco to obtain the same coverage she had previously, which was full coverage.

Manobianco argues he initially got quotes for such a policy, but when his client sought a lower premium, he returned with a policy without UIM coverage. He said he told her that the new policy did not have UIM coverage. Among the numerous forms for a new policy that required Wilks' signature, she signed the waiver form to reject UIM coverage, which Manobianco had filled out, court documents state. The waiver is on a form approved by the Arizona Department of Insurance and is mandated by Arizona statute.

Two years later, Wilks was rear-ended by an uninsured driver, and State Farm denied her UIM claim. Wilks and her husband then sued Manobianco for malpractice for failing to procure the requested insurance coverage. Attorneys for Manobianco moved for summary judgment, and a superior court dismissed the case. In doing so, the court cited a prior appellate court decision that concluded the waiver was a safe harbor for the agent because the form is evidence that the agent offered the coverage.

Wilks' attorneys took the matter to an appeals court, which ruled the case should not have been dismissed. The appeals court found the agent owed his client a duty of care and sent it back to Superior Court for a trial.

In its decision the appellate court held that the form mandated by the statute – ARS § 20–259.01(B) – did not abolish the agent's duty of care because the statute does not apply to insurance agents, and it is not broad enough to bar common law negligence claims against them.

Manobianco's legal team appealed to Supreme Court, which issued its ruling on July 9, stating that only the carrier is protected by the waiver and not the agent. "The issue, in this case, is whether compliance with (the waiver form) bars a negligence claim alleging that the insurance agent failed to procure the UIM coverage requested by the insured," the court stated in its opinion. "We hold that it does not."

While before the Supreme Court, attorneys for Manobianco argued that the State Legislature modified insurance agents' common law duties to their clients by enacting § 20–259.01, which creates a "safe harbor" when an insured signs a DOI-approved form rejecting UM or UIM coverage. The statute in part reads:  

"Every insurer writing automobile liability or motor vehicle liability policies shall . . . make available to the named insured thereunder and shall by written notice offer the insured and at the request of the insured shall include within the policy underinsured motorist coverage which extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy."

The Supreme Court took it upon itself to decide whether the statute's term "insurer" also covers insurance agents, as well as whether the statute bars common-law negligence claims for an agent's failure to procure requested insurance coverage. The court ruled that the statute provides insurance companies with a method for proving they offered UM and UIM coverage to their insureds but does not purport to bar common law professional negligence claims. The absence of the word "agents" in the statute appears to have weighed heavily on the court's decision. "Indeed, the statute does not mention insurance agents or any common law cause of action," the court ruling stated.

Hair, with the Arizona brokers group, took issue with the ruling. He was an expert witness for the defense. He also helped write the statute in 1987 after a rash of lawsuits in Arizona in which insureds sued agents who allegedly failed to discuss UM and UIM coverage after being hit by drivers who were uninsured or underinsured. When the statute was drafted, "insurer" was included because the agent's role was to get the form signed on behalf of the insurer, and the agent is integral to the process, according to Hair. "The Supreme Court, in my opinion, misinterpreted the whole damned purpose of this thing," he said.

Stripped of the waiver as proof, Hair believes the deciding factor in the case may come down to the word of Wilks versus the word of Manobianco. At issue will be whether the court believes the agent when he claims to have explained to Wilks that she was not getting UIM coverage or whether she was not told her coverage had changed, and the agent did not carry out her wishes.

"I think when we go back to superior court, it's going to be a liars' contest," Hair said.

The case is Wilks v. Manobianco.