Opinion ID: 2600140
Heading Depth: 3
Heading Rank: 2

Heading: Duty to Procure Insurance

Text: ¶ 19 The second issue before us is whether Albrecht assumed a duty to procure insurance when he allegedly told Harris he would take care of that, and that he would come out and look at the equipment after Harris called Albrecht and told him that he wanted business and fire coverage on [the] equipment and the contents of his architectural business. ¶ 20 One standard for determining whether an insurance agent has assumed a duty to procure has been stated as follows: [A] court must look to the conduct of the parties and the communications between them, and more specifically to the extent to which they indicate that the agent has acknowledged an obligation to secure a policy. Where an insurance agent or broker promises, or gives some affirmative assurance, that he will procure or renew a policy of insurance under circumstances which lull the insured into the belief that such insurance has been effected, the law will impose upon the broker or agent the obligation to perform the duty which he has thus assumed. Further, if the parties have had prior dealings where the agent customarily has taken care of the customer's needs without consultation, then a legal duty to procure additional insurance may arise without express and detailed orders from the customer and acceptance by the agent . . . . [A]n application from the customer is sufficient to support a duty to procure insurance. A bare acknowledgment of a contract to protect the insured against casualty of a specified kind until a formal policy can be issued is enough . . . . Alford v. Tudor Hall and Assocs., Inc., 330 S.E.2d 830, 832-33 (N.C. Ct. App. 1985) (quotations and citations omitted). ¶ 21 In Alford, the plaintiff contacted an employee of the defendant about acquiring insurance on a house under construction. The parties discussed the value of the property, and the defendant's employee agreed to prepare several quotes and call the plaintiff that afternoon. No one called the plaintiff, and his house burned down several days later. In holding that the employee had no duty, the court noted the history of the parties' prior dealings, but emphasized that their discussion prior to the fire left open the question of how much coverage Alford desired. Id. at 833. The employee also did not inform or assure Alford that his new house had insurance. Id. ¶ 22 The Alford standard would ask us to determine whether Albrecht acknowledged an obligation to secure a policy, thereby creating a duty to procure insurance. Id. at 832. Factors that indicate a duty include (1) whether Harris gave Albrecht an application, (2) whether Albrecht made a bare acknowledgment of a contract covering a specific kind of casualty even though all the terms had not been settled, (3) whether Albrecht made promises to procure insurance that lulled Harris into believing a policy had been procured, and (4) whether there were prior dealings where Albrecht took care of Harris' needs without consultation. Id. at 832-33. ¶ 23 The final three factors are relevant to the instant case, requiring a close look at the language used during Albrecht's and Harris' telephone call. Albrecht said he would take care of that, he would come out and look at the equipment. This statement is not a bare acknowledgment of an obligation to procure insurance because the statement that he would come out and look at the equipment indicated that Albrecht needed to gather more information or do other work before procuring a policy. A bare acknowledgment occurs when an agent confirms coverage pending the issuance of a formal policy. Id. at 833. ¶ 24 Albrecht's comments failed to rise to the level of a promise to procure insurance and were insufficient to lull Harris into believing a policy had been procured because they lacked the requisite specificity. An agent must affirmatively assure the insured that a policy will be procured or has been procured. Harris argues that their prior dealings lulled him into believing Albrecht would procure insurance. Rather, Harris lulled himself into believing he had an insurance policy. No reasonable and experienced businessperson would believe the conversation here gave rise to a duty to procure insurance when considered in light of its brevity and the lack of any specificity for such a complex and customized type of policy. Even if Albrecht's comments lulled Harris into believing Albrecht would procure a policy, the fact that Harris never completed an application, never received a bill or policy, and was never contacted by Albrecht in the five months after the conversation should have put Harris on notice that he did not yet have a policy. Failing to examine one's mail is not a defense. ¶ 25 The Alford court noted that the evidence fail[ed] to show that the parties had a course of dealing whereby the defendant would obtain insurance for plaintiffs without their approval as to the amount of coverage. Id. The plaintiff had a history of reviewing policies before deciding the amount of insurance to purchase. Id. The fact that Harris had a history of leaving the details to Albrecht does not affect the outcome because Harris desired a policy quite distinct from past policies. Instead of seeking an additional personal policy for home or auto, Harris desired a business policy. ¶ 26 A significant distinction exists between business insurance policies and personal insurance policies. The ease of procuring an auto or homeowner's policy contrasts sharply with the customization required for a business policy. See supra Part II.A. The information available to Albrecht at the time of the telephone conversation provide the essential elements needed to create an insurance contract. A policy for an architectural business requires more customization than one for a simple retail business. Valuable papers, for which Harris now seeks to recover damages, were beyond Albrecht's authority to bind State Farm, and State Farm would likely have required Harris to take certain loss-reduction measures regarding the safe-keeping of those papers before binding them. It was impossible for Albrecht to provide Harris with a standard business policy. ¶ 27 Albrecht did not acknowledge an obligation to secure an insurance policy for Harris because Albrecht did not: (1) take an application for insurance; (2) make a bare acknowledgment against casualty of a specific kind; (3) lull Harris into believing he would procure insurance or that a policy had been procured; or (4) have a pattern of prior dealings of the type sufficient to impose a duty to procure insurance. At most, Albrecht lulled Harris into believing that he would come out and look at his business. [1] ¶ 28 The court of appeals cited several cases supporting its decision. We agree with Judge Davis' dissent, however, finding those cases distinguishable from the instant case because in each the agent had all the information needed to procure a policy. See Lawrence v. Francis, 267 S.W.2d 306, 309 (Ark. 1954) (finding a duty existed when the insurance agent, who was also the real estate agent for the home buyer, failed to procure a new policy or transfer the existing policy after closing on the home); Caddy v. Smith 877 P.2d 667, 669 (Or. Ct. App. 1994) (finding a duty existed where the agent failed to add liability coverage to a standard homeowner's policy after a detailed conversation about coverage); Massengale v. Hicks, 639 S.W.2d 659, 660 (Tenn. Ct. App. 1982) (finding a duty existed where the insured sought an auto policy renewal and spoke with the agent on several occasions). ¶ 29 The instant case is similar to Lewis v. Pike, where the court granted summary judgment against a plaintiff who failed to place a specific order for insurance. 663 P.2d 91, 92-93 (Utah 1983). Likewise, in Stockberger v. Meridian Mutual Ins. Company, the court stated that no liability arose unless the plaintiff gave sufficient directions to enable the agent to create a final contract. 395 N.E.2d 1272, 1279 (Ind. Ct. App. 1979). Harris failed to give Albrecht sufficient instructions to impose a duty to procure insurance, and the missing terms could not be implied from the parties' prior dealings. See Lewis, 663 P.2d at 92; Boston Camping Distrib. Co. v. Lumbermens Mut. Cas. Co., 282 N.E.2d 374, 376 (Mass. 1972) (holding a request for coverage from A to Z, second to none expressed only an intent to obtain insurance); Wallis v. Liberty Mut. Ins. Co., 465 S.W.2d 422, 425-26 (Tex. Ct. App. 1971) (noting that an agent instructed by the insured to procure insurance did not assume a duty). Here, Harris merely requested insurance and expressed a desire to procure insurance. [2]