Agent Responsibility For Informing Of Policy Expiration

Fort Worth Insurance Law attorneys need to know the responsibilities of agents in order to know when an agent has violated duties it owes to its insureds.
A 1992, opinion issued by the Amarillo Court of Appeals is noteworthy for the guidance its gives on this matter. The style of the case is, Horn v. Hedgecoke Insurance Agency. Here is some of the relevant information.
This appeal presents the novel question whether an insurance agency, through which an insurance policy was issued naming a mortgagee to whom a loss was payable and who paid the premium, has a duty of reasonably informing the mortgagee of the expiration and non-renewal of the policy by the named insured.
A policy of fire insurance covering a residence was issued by North American Lloyds of Texas (NALOT) to Johnny London as the named insured. The policy was sold through Hedgecoke pursuant to its actual attorney-in-fact agreement with NALOT.
The term of the policy was from 21 August 1987 to 21 August 1988. The premium was paid by Harold H. Horn, who was the named mortgagee in the loss payable clause of the policy.
The policy contained a mortgage clause, which provided that:
This policy, as to the interest of the mortgagee only therein, shall not be invalidated by any act or neglect of the mortgagor or owner of the within described property….
* * * * * *
This policy may be cancelled as to the interest of any mortgagee named herein by giving such mortgagee ten days written notice.
The policy also contained Standard Texas Endorsements. As material to the appeal, endorsement no. 29 contained the following language:
At the option of the insured, this policy must be renewed at expiration unless this company has mailed written notice to the insured and to the mortgagee specifically named in the policy of its intention to decline renewal at least thirty days in advance of the expiration date of this policy.
And as pertinent, endorsement no. 133 was worded:
It is hereby understood and agreed that the Notice of Cancellation as contained in the Mortgage Clause of the above policies is amended as follows: “This policy may be cancelled as to the interest of any mortgagee named hereon by giving such mortgagee thirty days written notice except in the event cancellation is for non-payment of premium and then this policy may be cancelled as to the interest of any mortgagee named hereon by giving such mortgagee fourteen days written notice.”
The policy, according to Hedgecoke, was one requiring the insured’s order before its issuance, and Hedgecoke’s servicing included notifying the insured the policy was about to lapse and to make arrangements to renew it.
On 20 June 1988, Hedgecoke sent a notice to London, but not to Horn, that read:
Mr. London; The Fire and EC policy on your home comes up on 8-21-88, the renewal premium will be $336.00. I realize your mortgagee pays for this coverage; however I need your ok prior to ordering the policy. Please contact me prior to the expiration date to avoid a lapse in coverage.
Not having a response from London by 24 August 1988, Hedgecoke then advised him, but not Horn, that since he did not respond to the renewal notice, his policy expired on 21 August 1988, and his insurance was not renewed, but if he still desired coverage to contact the agency immediately. London did not contact Hedgecoke.
On 12 December 1988, the property was destroyed by fire and the loss was reported to Hedgecoke the next day. Coverage was denied by NALOT. Upon denial of coverage, Horn brought the action underlying this appeal against Hedgecoke.
Primarily, the Horns alleged that Hedgecoke failed in its duty to keep the mortgagee Horn fully informed of the expiration of the policy and the insured’s failure to pay the premium. In this regard, they claimed that by virtue of its endorsements, the policy was automatically renewed as to the mortgagee unless he was given notice of the intent not to renew, and that he was not contacted in any manner by Hedgecoke regarding expiration, non-renewal or cancellation of insurance coverage on the property.
Additionally, the Horns alleged that Hedgecoke had breached its duty of good faith and fair dealing, and had violated the DTPA and the Texas Insurance Code.
After answering, Hedgecoke moved for summary judgment on the entire cause.
By virtue of the new and independent contract, the Horns continue, the mortgagee was also an “insured,” and there is no question that Hedgecoke was the duly authorized agent for the insurer. Thus, Hedgecoke had the same duty to the mortgagee as if the mortgagee was his own customer.
An insurance agent, who receives commissions from a customer’s payment of insurance policy premiums, has a duty of reasonably attempting to keep that customer informed about the customer’s insurance policy expiration date when the agent receives information pertaining to the expiration date that is intended for the customer.
In this policy, the effect of the mortgage clause, operating in conjunction with the naming of Harold H. Horn as mortgagee to whom a loss was payable as his interest shall appear, was to make a new and independent contract between mortgagee Horn and the insurer. It is undisputed that mortgagee Horn paid, and Hedgecoke received, the premium for the policy; indeed, Hedgecoke acknowledged in its renewal notice to London that it “realize[s] your mortgagee pays for this coverage.” Also undisputed is Hedgecoke’s admission that its servicing includes notifying the insured of the expiration of the policy and the arrangements to renew it.
In holding in favor of the insured’s, this court stated, “An insurance agent who receives a commission from the payment of the insurance policy premium by the named mortgagee in the policy, knowing that the mortgagee pays for the coverage, and whose servicing of the policy includes notification to the insured of the expiration and non-renewal of the policy, has a duty of reasonably attempting to keep the mortgagee informed about the policy expiration date and non-renewal. Consequently, Hedgecoke’s summary judgment proof was insufficient as a matter of law to establish it had no duty to so notify mortgagee Horn, thereby negating its entitlement to summary judgment on that ground.”
Only someone well versed in insurance law would have been successful with this appeal.