Surplus Lines Insurance – Beware

De Soto insurance lawyers who know, will tell you to be aware of surplus lines insurance. These policies often have exclusions to such a degree as to make the insurance meaningless. A 2014, opinion issued by the Dallas Court of Appeals certainly left one insured feeling they had been ripped-off. The style of the case is, Simon v. Tudor Insurance. Here is some of the relevant information.
This is an insurance coverage dispute.
In December 2007, Simon d/b/a Sherlock Pest signed and submitted to Hines, an insurance agent, an application for insurance entitled “Termite & Pest Control General Liability Application.” The application stated “WDI excluded.” Simon also signed an accompanying “Absolute WDI Exclusion” that read:
I hereby agree to and acknowledge that I fully understand that this policy contains an absolute exclusion for all professional liability or errors and omissions claims or losses arising out of Inspection operations of any kind. The exclusion specifically address but is not limited to, Wood Destroying Insect Inspections, Real Estate Inspections with respect to all business concerns regardless of the interest of insured.
I hereby state that I understand and agree with the above exclusions of coverage.
Tudor subsequently issued a commercial liability policy to Simon d/b/a Sherlock Pest. The policy reflected the exclusion that Simon had agreed to in his application and the WDI exclusion in two endorsements, which stated:
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
EXCLUSION–DESIGNATED PROFESSIONAL SERVICES This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART SCHEDULE Description Of Professional Services:
1. STRUCTURAL PEST AND/OR WOOD-DESTROYING ORGANISM INSPECTIONS … .
This insurance does not apply to “bodily injury”, or “property damage” . . . due to the rendering of or failure to render any professional service.
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. EXCLUSION–INSPECTION, APPRAISAL AND SURVEY COMPANIES This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART … .
This insurance does not apply to “bodily injury”, or “property damage” . . . for which the insured may be held liable because of the rendering of or failure to render professional services in the performance of any . . . inspection . . . services.
On November 17, 2008, Simon signed and submitted to Hines a “Pest Control Renewal Application/Quote” that specified: “Excludes WDI Inspections Errors & Omissions. Simon agreed to and acknowledged an accompanying “Absolute WDI Exclusion” that was identical to the exclusion that he signed with his original policy in 2007. The renewal application also stated that “WDI E&O not available for Home Inspectors.”
On November 25, 2008, Hines, as Tudor’s authorized representative, signed a certificate of insurance for Sherlock Pest that was submitted to the Structural Pest Control Service of the Texas Department of Agriculture. The certificate noted that the policy’s effective date was December 17, 2008 and the expiration date was December 17, 2009. In the certificate, Tudor stated “that it had issued to the insured named herein a policy or policies of insurance providing the types of insurance and limits of liability set forth herein.” The certificate clarified that the certificate was “furnished for information only, conferred no rights on the holder and was issued with the understanding that the rights and liabilities of the parties will be governed by the original policies as they may be lawfully amended from time to time.” The certificate also provided:
GENERAL LIABILITY: Applicant must file with the board a policy or contract of insurance approved as sufficient by the board in an amount of not less than $200,000 bodily injury and property damage coverage with a minimum total aggregate of $300,000 for all occurrences, insuring him against liability for damage to persons or property, under his care, custody, or control.
On the certificate, Tudor listed the limits of liability for “BODILY INJURY AND PROPERTY DAMAGE” under the 2008 policy that it issued to Sherlock Pest as $200,000 for each occurrence and $300,000 aggregate. The certificate included a space for Tudor to “list any categories of pest control work or any pesticides excluded in this coverage.” Tudor did not list any excluded categories.
On December 1, 2008, Tudor issued a renewal policy covering the policy period from December 17, 2008 to December 17, 2009. The renewal policy included verbatim the two endorsements that were included in Simon’s original 2007 policy, which excluded from coverage (1) bodily injury and property damage resulting from providing or failing to provide structural pest and wood destroying organism inspections and (2) bodily injury and property damage resulting from providing or failing to provide inspection services.
while the renewal policy was in effect, Sherlock Pest performed a wood destroying insect inspection on a home and provided the inspection report to Sherlock Spec to include in a home inspection report. The homeowners subsequently sued Simon d/b/a Sherlock Pest and d/b/a Sherlock Spec for allegedly performing an improper wood destroying insect inspection. Simon alleged that Simon d/b/a Sherlock Pest reported the claim to Hines and Tudor, and Tudor denied the claim on the grounds that the policy excluded coverage for that type of claim. According to Simon, Underwriters, the professional liability carrier for Sherlock Spec, subsequently settled the homeowners’ claim and obtained a release of the claim against Simon d/b/a Sherlock Pest and d/b/a Sherlock Spec.
Simon then sued Tudor alleging claims for deceptive trade and insurance practices, common law fraud, and negligent misrepresentation and, as the basis for those claims, contended that Simon was harmed because they relied on the truthfulness of the certificate of insurance.
The summary judgment evidence established that, prior to Tudor’s submission of the certificate of insurance for the renewal policy in 2008 and prior to the allegedly faulty home inspection by Sherlock Pest, Simon expressly acknowledged in the application for insurance and renewal application that the insurance for which he applied did not include coverage for liability arising from wood destroying insect inspections.
In addition, the plain language of the two endorsements in both the original 2007 policy and the renewal 2008 policy–which was in effect at the time of the allegedly improper inspection–clearly excluded coverage for professional services and for inspection services. And although Simon claimed they relied on the certificate of insurance, that certificate specifically stated that the certificate “neither affirmatively nor negatively amends, extends or alters the coverage afforded by the policies scheduled herein.” The certificate also provided that it “is furnished for information only, confers no rights on the holder and is issued with the understanding that the rights and liabilities of the parties will be governed by the original policies as they may be lawfully amended from time to time.”
Consequently, Tudors’ summary judgment evidence established that the terms of the documents that Simon d/b/a Sherlock Pest signed and that were in effect when Tudor issued the certificate of insurance and when Sherlock Pest performed the allegedly improper wood destroying insect inspection would not have caused a reasonable person to believe that the insurance that Tudor provided to Simon d/b/a Sherlock Pest included coverage for liability for wood destroying insect inspections. And Simon did not raise a genuine issue of material fact in response to the motions for summary judgment by their argument that they reasonably relied on language in the insurance certificates.
This court upheld the motion for summary judgment in favor of Tudor.