Opinion ID: 4537592
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: Fischer Not Negligent Merrick argues that, as an insurance broker, Fischer had a duty to advise Western Hay of its obligation as an employer under the Nebraska Workers’ Compensation Act to carry workers’ 1 See Neb. Rev. Stat. § 24-1106 (Cum. Supp. 2018). 2 Ray Anderson, Inc. v. Buck’s, Inc., 300 Neb. 434, 915 N.W.2d 36 (2018). 3 Id. 4 Gage County v. Employers Mut. Cas. Co., 304 Neb. 926, 937 N.W.2d 863 (2020). - 238 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 compensation insurance.5 Merrick contends that had Fischer “simply told Western Hay that [it] had to carry coverage” then Fischer “would have met its duty of providing sound advice to Western Hay.”6 Merrick thus argues that the court erred in dismissing his negligence claim against Fischer. [4-7] To prevail in any negligence action, a plaintiff must show a legal duty owed by the defendant to the plaintiff, a breach of such duty, causation, and resulting damages.7 An insurance agent or broker who agrees to obtain insurance for another but negligently fails to do so is liable for the damage proximately caused by such negligence.8 When an insured asks an insurance agent to procure insurance, the insured has a duty to advise the insurance agent as to the desired insurance.9 An insurance agent has no duty to anticipate what coverage an insured should have.10 It is the duty of an insured to advise the agent as to the insurance he wants, including the limits of the policy to be issued.11 In Polski v. Powers,12 this court noted that although it may be good business for an insurance agent to make insurance coverage suggestions, absent evidence that an insurance agent has agreed to provide advice or the insured was reasonably led by the agent to believe he would receive advice, the failure to volunteer information does not constitute either negligence or breach of contract for which an insurance agent must answer in damages. We went on to hold that it would be an unreasonable 5 See, Neb. Rev. Stat. § 48-103 (Reissue 2010); § 48-106. 6 Brief for appellant at 10. 7 Lewison v. Renner, 298 Neb. 654, 905 N.W.2d 540 (2018). 8 Hobbs v. Midwest Ins., Inc., 253 Neb. 278, 570 N.W.2d 525 (1997); Flamme v. Wolf Ins. Agency, 239 Neb. 465, 476 N.W.2d 802 (1991). 9 Dahlke v. John F. Zimmer Ins. Agency, 245 Neb. 800, 515 N.W.2d 767 (1994). 10 Id. 11 Manzer v. Pentico, 209 Neb. 364, 307 N.W.2d 812 (1981). 12 Polski v. Powers, 221 Neb. 361, 377 N.W.2d 106 (1985). - 239 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 burden to impose upon insurance agents a duty to anticipate what coverage an individual should have, absent the insured’s requesting coverage in at least a general way.13 Relying on this line of authority, the district court found that Fischer had no duty to advise Western Hay regarding workers’ compensation insurance until Western Hay requested a quote for workers’ compensation insurance in February 2009. Fischer responded to that request by asking for Western Hay’s payroll information in order to obtain a quote for the necessary coverage. Fischer did not receive the requested information until after Merrick’s accident. On April 8, Fischer informed Western Hay that it had obtained a quote, but the quote was too expensive. The district court reasoned that under these facts, Fischer had no duty to obtain workers’ compensation insurance for Western Hay and advise Western Hay regarding such insurance until Western Hay’s request in February 2009. The court found that it was the actions of Western Hay which delayed the insurance quote and that Fischer had not provided Western Hay with any false information regarding the commercial line policy’s coverage or the need for workers’ compensation coverage. Thus, the court found that Fischer had not breached its duty to Western Hay and that Fischer was entitled to judgment as a matter of law. Merrick suggests that the district court did not sufficiently recognize that Fischer is an insurance broker and not an insurance agent. We have previously addressed the distinction between an insurance broker and an insurance agent. “A representative of the insured is known as an ‘insurance broker.’ A broker represents the insured by acting as a middleman between the insured and the insurer, soliciting insurance from the public under no employment from any special company, and, upon securing an order, places it with a company selected by the insured, or if the insured has no preference, with a company selected by the broker. 13 Id. - 240 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 In contrast, an ‘insurance agent’ represents an insurer under an exclusive employment agreement by the insurance company.”14 Merrick’s primary argument on appeal is that “the duty owed by an insurance broker differs from that of an insurance agent as to a broker’s duty to advise clients concerning certain matters.”15 Merrick argues that based on cases like the Eighth Circuit’s decision in Bell v. O’Leary,16 a broker owes an insured a duty to act with reasonable care, skill, and diligence. Merrick then goes on to argue, without supporting legal authority or standard of care testimony, that Fischer had an affirmative duty to advise Western Hay for insurance risks known to the trucking business and that in order for Fischer to fulfill its duty to act with reasonable care, Fischer was required to advise Western Hay to carry workers’ compensation insurance. We find that under the facts of this case, and upon consideration of Merrick’s theory regarding the duty an insurance broker owes to an insured, Merrick’s reliance on the distinction between an insurance broker and an insurance agent is misplaced. Merrick’s argument is not supported by the rationale articulated in our decision in Broad v. Randy Bauer Ins. Agency.17 In that case, we acknowledged that courts often use the term “insurance agent” loosely,18 but recognized the need to consider how agency principles affect an insurance intermediary’s contract liability. Upon review of agency principles recognized 14 Broad v. Randy Bauer Ins. Agency, 275 Neb. 788, 794, 749 N.W.2d 478, 483 (2008). See, also, Moore v. Hartford Fire Ins. Co., 240 Neb. 195, 481 N.W.2d 196 (1992); 3 Steven Plitt et al., Couch on Insurance 3d § 45:1 (2011). 15 Brief for appellant at 7. 16 Bell v. O’Leary, 744 F.2d 1370 (8th Cir. 1984). 17 Broad, supra note 14. 18 See, e.g., id.; Bell, supra note 16; 3 Plitt et al., supra note 14. - 241 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 in the insurance context, we concluded that an insurance agent is not personally liable to the insured for contracts the agent makes on behalf on the insurer.19 However, we recognized the existence of a valid cause of action against a broker for breach of contract to procure insurance, because the broker is the insured’s agent.20 Thus, Broad recognized that agency principles may dictate the causes of action available against a broker or agent. The distinction between an agent and a broker is important because acts of an agent are imputable to the insurer and acts of a broker are imputable to the insured.21 Our decision in Broad did not suggest, as Merrick assumes, that agency principles affect the scope of the general duty that an insurance intermediary owes to an insured to act with reasonable care. [8,9] Here, Merrick has asserted a claim against Fischer for negligence. We have previously recognized that a broker who agrees to obtain insurance coverage for another but fails to do so is liable for damage proximately caused by such negligence, including the amount that would have been due under such policy if it had been obtained.22 If an insurance agent or broker undertakes to advise an insured, the agent or broker must use reasonable care to provide accurate information.23 Thus, Nebraska law requires an insurance broker to secure the insurance requested by the insured and if the insurance broker is advising the insured, the broker must do 19 Broad, supra note 14, citing Gieseke v. Hardware Dealers Mut. Fire Ins. Co., 46 Ill. App. 2d 131, 195 N.E.2d 32 (1963). 20 See Broad, supra note 14. 21 See, United Fire & Cas. Ins. Co. v. Garvey, 419 F.3d 743 (8th Cir. 2005); Mark Andy, Inc. v. Hartford Fire Ins. Co., 229 F.3d 710 (8th Cir. 2000); 3 Plitt et al., supra note 14. 22 Countryside Co-op v. Harry A. Koch Co., 280 Neb. 795, 790 N.W.2d 873 (2010), disapproved on other grounds, Weyh v. Gottsch, 303 Neb. 280, 929 N.W.2d 40 (2019). 23 Flamme, supra note 8. - 242 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 so with reasonable care. Merrick posits that Fischer’s duty in this case is broader than previously recognized by this court and encompasses a duty to evaluate risks within the insured’s business and advise the insured regarding those risks or, more specifically, to advise an insured employer to obtain workers’ compensation insurance even in the absence of a request for such insurance. We are persuaded that Merrick’s claim against Fischer is resolved by application of the Nebraska Court of Appeals’ decision in Hansmeier v. Hansmeier.24 There, the owners of a farming operation obtained insurance through an insurance agent. The farm had one full-time employee but did not provide insurance for the employee. The employee then injured his thumb in an auger, and the injury was not covered under the farm’s liability policy. The farm had not complied with § 48-106(7), which provides that if an employer who is engaged in an agricultural operation, as described under § 48-106(2)(d), elects to be exempt from the Nebraska Workers’ Compensation Act, then the employer must provide employees written notice that the employer does not provide workers’ compensation coverage and the employee must sign the notice. Section 48-106(7) states that the failure to provide the required notice subjects the employer to liability under the Nebraska Workers’ Compensation Act for any employee not notified. The farm owners did not provide the required notice, the employee brought a workers’ compensation claim against the farm owners, and the parties reached a settlement. The farm owners in Hansmeier then brought a negligence claim against their insurance agent based on the failure to properly advise them regarding the necessity or availability of workers’ compensation insurance. The Court of Appeals found that any claim of negligence or negligent representation failed as a matter of law. The court stated that the parties had discussed workers’ compensation insurance, but the 24 Hansmeier v. Hansmeier, 25 Neb. App. 742, 912 N.W.2d 268 (2018). - 243 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 farm owners elected not to purchase such insurance. The court found that the insurance agent had not provided any false information to the insureds and that the agent had no further responsibility to inform the insureds of their obligations under the notice provisions of the Nebraska Workers’ Compensation Act.25 [10] We agree with the proposition articulated in Hansmeier that the Nebraska Workers’ Compensation Act governs employers, not insurance agents.26 Our prior cases have generally indicated an insurance intermediary owes a duty of reasonable care, whether the intermediary is an agent or broker.27 Given that, under Hansmeier, the Nebraska Workers’ Compensation Act does not affect an insurance agent’s duty to act with reasonable care, we hold that the same is true for insurance brokers. Absent evidence that an insurance agent or broker has agreed to provide advice or the insured was reasonably led by the agent to believe he would receive advice, the failure to volunteer information does not constitute either negligence or breach of contract for which an insurance agent or broker must answer in damages.28 The Eighth Circuit Court’s decision in Bell is factually distinguishable.29 In that case, an insurance broker obtained flood insurance for two different owners of mobile homes. The mobile home owners experienced flood damage, and their insurance claims were denied because the policies had been issued erroneously. The insurer determined that the mobile homes were not eligible for flood insurance because they were located in unincorporated areas. The Eighth Circuit held that under Missouri law, an insurance broker who fails to determine whether a client is eligible for insurance coverage 25 See id. 26 Id. 27 See, Hobbs, supra note 8; Flamme, supra note 8. 28 See Polski, supra note 12. 29 Bell, supra note 16. - 244 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 is negligent.30 The court found that the insured had relied on the broker to obtain the requested insurance, that the broker accepted that responsibility, and that by failing to discover the insureds were ineligible for coverage and by failing to notify them of that fact, the broker was negligent.31 In the present case, even when the evidence is viewed in the light most favorable to Merrick, there is no failure to obtain effective insurance by Fischer that is analogous to the actions of the broker in Bell. Rather, the failure in this case was on the part of the insured for failing to request workers’ compensation insurance and failing to timely provide payroll information. Merrick acknowledged at oral argument that he was not alleging any negligence in procuring the requested insurance and that he did not challenge the district court’s finding that the actions of Western Hay delayed the insurance quote by failing to provide the necessary information until 1 day after Merrick’s accident. Further, we note that the Eighth Circuit was applying Missouri law in Bell, and the Missouri Supreme Court has specifically rejected the argument that insurance brokers have the duty Merrick is arguing for here.32 Just as in Hansmeier, Fischer never provided Western Hay with false information regarding insurance coverage and there were no agreements between Western Hay and Fischer which obligated Fischer to advise Western Hay of its obligation to maintain workers’ compensation insurance.33 As a result, Fischer had no duty to advise Western Hay of its obligations under the Nebraska Workers’ Compensation Act. Further, as we stated in Broad, a broker represents the insured by acting as a middleman between the insured and the 30 Id. 31 Id. 32 See, e.g., Emerson Elec. Co. v. Marsh & McLennan Co., 362 S.W.3d 7 (2012) (brokers have no duty to advise insured on its insurance needs unless they specifically agree to do so). 33 See Hansmeier, supra note 24. - 245 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 insurer, soliciting insurance from the public under no employment from any special company, and, upon securing an order, places it with a company selected by the insured or, if the insured has no preference, with a company selected by the broker.34 The evidence indicates that no order for workers’ compensation insurance was placed by Western Hay until February 2009 and that Western Hay failed to provide the necessary payroll information to secure such an order. As a result, Fischer did not breach its duty to Western Hay. Fischer is entitled to judgment as a matter of law. This assignment of error is without merit. Great West Owed No Duty to Defend Merrick argues that Great West had a duty to defend Western Hay in the underlying lawsuit and acted in bad faith when it failed to provide a defense. The district court found that the commercial lines policy clearly excluded coverage for workers’ compensation liability and that as a result, Great West was not required to defend Western Hay. Merrick argues that the workers’ compensation exclusion in the policy is inapplicable because the case was brought in district court, not workers’ compensation court. [11] A court construes insurance contracts like other contracts, according to the meaning of the terms that the parties have used. When the terms of an insurance contract are clear, a court gives them their plain and ordinary meaning as a reasonable person in the insured’s position would understand them.35 [12-14] Whether an insurer has a duty to indemnify and defend an insured depends upon whether the insured’s claimed occurrence falls within the terms of the insurer’s coverage as expressed in the policy.36 The insurer has a duty to indemnify 34 See Broad, supra note 14. 35 Federated Serv. Ins. Co. v. Alliance Constr., 282 Neb. 638, 805 N.W.2d 468 (2011). 36 Id. - 246 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 an insured who becomes legally liable to pay damages for a covered occurrence.37 An insurer’s duty to defend is broader than the duty to indemnify.38 [15,16] A court must initially measure an insurer’s duty to defend an action against the insured by the allegations in the complaint against the insured, but in determining its duty to defend, an insurer must look beyond the complaint and investigate and ascertain the relevant facts from all available ­sources.39 An insurer has a duty to defend if (1) the allegations of the complaint, if true, would obligate the insurer to indemnify, or (2) a reasonable investigation of the facts by the insurer would or does disclose facts that would obligate the insurer to indemnify.40 Thus, an insurer has a duty to defend its insured whenever it ascertains facts that give rise to potential liability under the policy.41 Conversely, an insurer is not bound to defend a suit if the pleadings and facts ascertained by the insurer show the insurer has no potential liability.42 Although an insurer is obligated to defend all suits against the insured, even if groundless, false, or fraudulent, the insurer is not bound to defend a suit based on a claim outside the coverage of the policy.43 To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the insurance policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.44 37 Id. 38 Id. 39 Id. 40 Id. 41 Id. 42 Id. 43 Mortgage Express v. Tudor Ins. Co., 278 Neb. 449, 771 N.W.2d 137 (2009). 44 See LeRette v. American Med. Security, 270 Neb. 545, 705 N.W.2d 41 (2005). - 247 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 Upon our de novo review of the commercial lines policy, we are persuaded that Western Hay’s underlying claim is excluded under the employer’s liability exclusion. As detailed above, both the commercial auto and commercial general liability provisions of the commercial lines policy contain a workers’ compensation exclusion and an employer’s liability exclusion. The workers’ compensation exclusion excludes any obligation for which any “‘insured’” may be held liable under any workers’ compensation law or similar law. The employer’s liability exclusion states that the insurance policy does not apply to “‘[b]odily injury’” to an “‘employee’ of any ‘insured’ arising out of and in the course of . . . [e]mployment by any ‘insured.’” We determine that the language of the employer’s liability exclusion is clear and unambiguous and that based on an ordinary understanding of the terms within the exclusion, a reasonable person in the insured’s position would understand that the policy does not cover injuries to employees occurring in the course and scope of their employment. The allegations in Merrick’s complaint in the underlying action made clear that he sought to hold Western Hay liable for damages based on injuries he sustained during the course and scope of his employment as a truckdriver. These allegations demonstrate that Great West had no potential liability under the commercial lines policy based on Merrick’s injuries. As a result, Great West had a reasonable basis for denying benefits of insurance coverage and did not act in bad faith in refusing to provide a defense to Western Hay. And it makes no difference here that Merrick’s claim was asserted in the district court rather than the Nebraska Workers’ Compensation Court. As we have already explained, the policy exclusion was clear and unambiguous. The procedure permitting a suit in the district court by an injured worker against an uninsured employer does not impose an obligation upon an insurer where the policy at issue clearly excludes any such coverage. - 248 - Nebraska Supreme Court Advance Sheets 305 Nebraska Reports MERRICK v. FISCHER, ROUNDS & ASSOCS. Cite as 305 Neb. 230 Based on the employer’s liability exclusion, Great West had no contractual obligation to defend or indemnify Western Hay in the lawsuit brought by Merrick. Great West had a valid basis for denying coverage, and thus, Great West is entitled to judgment as a matter of law. This assignment of error is without merit.