Insured’s Duty to Read Policy May be Undercut by Agent’s Misrepresentations, Appeals Court Affirms

Insured’s Duty to Read Policy May be Undercut by Agent’s Misrepresentations, Appeals Court Affirms

By Katherine Hendler Fayne

Insurance policyholders should always read their policies, but a ruling in October 2016 out of Texas’ 14th Court of Appeals may provide support to those who rely on insurance agents for information regarding their policies.  

Insureds often misunderstand the terms of an insurance policy or argue that they have been misled by an insurer’s or an agent’s statements regarding a policy’s terms or coverage. In these disputes, defendants often raise as a defense the insured’s duty to read its policy. The court’s ruling in ruling in Wyly v. Integrity Insurance Solutions, No. 14-15-0042-CV, reiterated the rule under Texas law that this defense fails where an insured has alleged or shown that an insurance agent has made a specific, affirmative misrepresentation about the policy.

In Wyly, the plaintiff sought to recover damage to his aircraft sustained while it was in transit. The trial court granted summary judgment in favor of the defendant, the insured’s agent who procured the motor truck cargo policy at issue. The court found that a policy exclusion for “improper packing, preparation for shipment or loading by you or the shipper” precluded his claim. However, the appellate court reversed the summary judgment and held that the trial court erred in granting summary judgment in favor of the agent on the basis that there was no affirmative misrepresentation of insurance coverage and that the trial court could not have properly granted summary judgment on the basis that the plaintiff was deemed to know the contents of the policy.

‘A to Z’ Coverage

Before moving the aircraft, the plaintiff sought to insure the aircraft during transit. Plaintiff alleged that he asked his agent for coverage from “A to Z” to cover the aircraft from loading to unloading, and he provided specific examples of coverage he sought. The plaintiff’s agent contacted a broker, who obtained a policy from Essex Insurance Co. The agent asked the broker some questions about the policy but failed to read the policy himself. Nonetheless, the agent told the plaintiff that the policy “covers from loading through unloading,” without disclosing that he had failed to read the policy or that the policy was subject to its terms and conditions.

The plaintiff received a copy of the exclusion for “improper packing, preparation for shipment or loading” before the aircraft was damaged. However, he asked his agent again if he was covered “from A to Z,” and his agent said “yes.” The agent also told him that the coverage was “full coverage” and “100 percent.”

The plaintiff alleged that he relied upon his agent to provide the correct policy because the agent was an insurance professional, he was the plaintiff’s longtime friend, and it appeared that he had read the policy. The plaintiff further believed that his agent had read the policy because the agent had affirmatively stated that the policy covered various examples of coverage in response to plaintiff’s questions. The plaintiff further stated that he would have waited to transport the plane until he understood the terms of the policy if his agent had represented that he had not read the policy.

‘Vague Representations’

Before the appellate court were the plaintiff’s claims under the Texas Deceptive Trade Practices Act (“DTPA”) and section 541.061 of the Texas Insurance Code that included two issues: (1) was there an actionable misrepresentation, and (2) did the plaintiff’s failure to read the policy preclude his claims.

With respect to the first issue, the court noted that “general claims by the insurer about the adequacy or sufficiency of coverage, for instance, are not generally actionable under the DTPA.” Moreover, “absent some specific misrepresentationof its terms of coverage by the insurer that the insured’s mistaken belief that he is obtaining coverage under certain contingencies which are not in fact covered under an insurance policy are not generally grounds for a DTPA claim against the insurer.”

The court held that in this case, the agent did make specific representations about the policy when he said that the policy provided “full coverage.” The court noted that it was uncontested that the plaintiff did not read the policy because he relied upon his agent’s assurances and that the agent’s statements were more than “vague representations.” Accordingly, the court determined that the agent’s specific, affirmative misrepresentations were actionable.

The court then considered whether the plaintiff’s failure to read the policy precluded his claims. It concluded that it did not, stating, “we decline to hold the defense of ‘failure to read’ is applicable to alleged violations of the DTPA or the Insurance Code for an affirmative misrepresentation of coverage.” 

Our Take

Let us be very clear: It is still very important for policyholders to read their policies and ask for clarification if they have any questions about what it covers. However, even though the result in Wyly may be specific to its facts, it seems that Texas law still provides at least a modicum of a safety net for policyholders who may not have followed that rule.