Claims Against Insurance Agents

Dallas insurance lawyers will occasionally have a claim against an agent. With that in mind, a Houston Court of Appeals [1st Dist.], opinion is worth reading. The opinion is styled Houston v. Escalante. Here is some of the relevant case information.
Escalante’s Comida Fina, Inc. sued its former insurance agent, Houstoun, Woodard, Eason, Gentle, Tomforde and Anderson, Inc., d/b/a Insurance Alliance for breach of contract and violations of the Deceptive Trade Practices Act and the Texas Insurance Code. The breach of contract claim was based on the failure to procure an insurance policy with coverages requested by Escalante’s, and the DTPA and Insurance Code claims were for misrepresentations and non-disclosure of information about the policy and the coverage afforded thereunder. The jury returned a verdict in favor of Escalante’s, and the trial court signed a final judgment awarding $56,835 in actual damages, $75,780 in additional damages for Insurance Alliance’s “knowing” violation of the DTPA and the Insurance Code, attorney’s fees, costs, and pre- and post-judgment interest.
Between 2003 and 2008, Escalante’s owned and operated four restaurants in the Houston area. Between 2003 and 2006, the property and casualty insurance policy on the restaurants was with Ohio Casualty Group. The Ohio Casualty Policy provided, subject to certain exceptions, coverage against the loss of business income caused by an off-premises power or utilities outage. In 2005, Hurricane Rita struck Houston. Escalante’s subsequently made a claim against the policy and Ohio Casualty paid the claim.
The Ohio Casualty Policy recited (Section III, n.):
The following items are added to the Additional Coverages section of Part A coverage of the Property Coverage form:
n. Off Premises Power Failure We will pay up to $25,000 for loss of Business Income and Extra Expenses caused by the failure of power or other utility service supplied to the described premises if the failure occurs away from the described premises.
The failure of power or other utility service must result from direct physical loss or damage by the Covered Cause of Loss.
We will only pay for the loss you sustain after the first 24 hours following the direct physical loss to the off premises property. Off Premises Power Failure under this Additional Coverage does not apply to failure of power or other utility service resulting from direct physical loss or damage by any Covered Cause of Loss to overhead transmission lines.
Patrick Torres, the president of Escalante’s, testified that during this same time period, Insurance Alliance’s principal, Kirk Gentle, was seeking to regain Escalante’s as a client. Toward this end, Escalante’s provided Insurance Alliance with a copy of its then-current policy and agreed to purchase coverage under a new policy procured by Insurance Alliance if the coverage matched the Ohio Casualty coverage but cost less. According to Torres, Insurance Alliance told him that it had such a policy. Torres specifically reminded Insurance Alliance of his prior claim from Hurricane Rita and emphasized that the coverage he sought from Insurance Alliance had to be the same as that provided by the Ohio Casualty Policy. In fact, Torres asked if the coverage under the new policy matched the Ohio Casualty Policy “apples to apples,” and was assured that it did.
In reliance upon Insurance Alliance’s assurances, Escalante’s declined to renew the Ohio Casualty Policy and, instead, purchased a new insurance policy issued by Allied Property & Casualty Insurance Company from Insurance Alliance in 2006. No claims were made on the Allied Policy during the first year, and the policy was renewed for 2007-2008.
In September 2008, Hurricane Ike caused a temporary loss of electrical power at all four Escalante’s restaurants, and Escalante’s lost revenue as a result of the interruption. Apart from minor damage suffered at one location, none of the other restaurant locations suffered physical damage, but all experienced food spoilage and business interruption. Escalante’s complained that it never recovered for these losses under the Allied Policy because losses caused by an off-premises power failure were expressly excluded from coverage.
Exclusion (e) to Section B of the Allied Policy stated:
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other causes or event that contributes concurrently or in any sequence to the loss.
…
e. Off-Premise Services The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises.
But if a failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
Escalante’s maintained that had the Allied Policy’s coverage been identical to the prior Ohio Casualty Policy, as Insurance Alliance had assured, the restaurants’ losses would have been covered. Escalante’s sued Insurance Alliance for its failure to procure coverage that matched the prior Ohio Casualty Policy “apples to apples.”
This is an overview of the dispute and the discussion by the court is extensive. It is well worth reading when considering to sue an agent for failing to provide proper insurance coverage.