Hunton Insurance Recovery Blog

After a four-day trial, an Arizona federal jury found that Western Truck Insurance Services, Inc., an insurance broker, was negligent in selling Madison Alley Transportation and Logistics Inc. a business interruption policy with inadequate annual limits. Based on its finding of negligence, the jury determined that the broker was liable for $685,000 of $1,000,000 in damages suffered by Madison Alley as a result of a flood in its warehouse.  The verdict and Complaint, filed in Arizona state court before the case was removed, can be found here and here.

In June 2016, a subtenant in Madison Alley’s warehouse broke a sprinkler line while operating a forklift, causing the warehouse to flood. The warehouse was used to store and deliver retail display goods, and Madison Alley was unable to do business during the five months of repairs.

Madison Alley sought coverage under a business interruption policy it had purchased through Western Truck, but the policy’s $20,000 limit was not enough to cover its approximately $1,480,000 in losses.

In August 2017, Madison Alley sued Western Truck, alleging that it and one of its salesmen were negligent in selling a policy that had inadequate limits based on Madison Alley’s company size and revenue figures. Western Truck argued that, as the insurance broker, it did not have a duty to determine what policy limits were sufficient for Madison Alley’s business. Western Truck argued that it was Madison Alley’s responsibility to make sure it had adequate coverage, but that, instead, Madison Alley was concerned only with satisfying its landlord’s insurance requirements, and made a conscious decision to underinsure its business.

After four days of trial, a jury found that Western Truck was 60% negligent for selling the inadequate policy, that Madison Alley was 35% negligent, and that the Western Truck salesman was 5% negligent. The jury further found that Western Truck was additionally negligent in its hiring and training of the salesman, and awarded Madison Alley $100,000 in damages on that count.

The verdict serves as a reminder that, while policyholders of course have a degree of responsibility to know their business and seek sufficient insurance coverage, they also have a right to rely on the purported expertise offered by insurance professionals, who have a duty to provide reliable and competent advice about their clients’ insurance needs. When a company relies on a broker’s advice in selecting types and/or amounts of coverage, then finds itself without sufficient coverage for a loss, experienced coverage counsel can often help determine what went wrong and whether a duty was breached.