The Hawaii Intermediate Court of Appeals affirmed the jury's finding that the broker was liable for failing to secure coverage for the insureds' home. Certain Underwriters at Lloyd's London v. Vreeken, 2014 Haw. App. LEXIS 322 (Haw. Ct. App. June 30, 2014).
Based upon their dealings with the broker, the insureds thought they had coverage for their home from March 3, 2004 to March 3, 2005 and from May 9, 2005 to May 8, 2006. The house was elevated nine feet above the ground for structural renovation, but collapsed on May 23, 2005. The original policy had lapsed on March 3, 2005. The second policy was voided because the application prepared by the broker stated there was no renovation work underway on the property.
The insureds sued. The jury found the broker and its agent liable for general, special and punitive damages. An appeal was filed. The ICA largely affirmed after addressing the many points raised on appeal.
The broker first argued it had no agency relationship with the agent. The insureds testified that they visited the agent in the broker's office, made out the check for the premium to the broker, and the agent accepted the check. Therefore, the jury reasonably determined that the agent had apparent authority to act on behalf of the broker and that the broker was liable for the agent's actions.
The defendants argued they owed no duty to procure other insurance or to advise the insureds that the original policy had lapsed. An insurance agent, however, "owes a duty to the insured to exercise reasonable care, skill and diligence in carrying out the agent's duties in procuring insurance." Quality Furniture, Inc. v. Hay,, 61 Haw. 89, 93, 595 P.2d 1066, 1068 (1979). Here, when the insureds asked what needed to be done to make sure their policy continued in force, the agent told them "he would take care of it." When the agent learned the original policy would not be reinstated, neither he nor the broker notified the insureds that the policy had not been reinstated before the house collapsed two months later. The agent also concealed from the insureds that he had submitted a second application with a material misrepresentation that resulted in voiding the second policy.
Under these circumstances, it was the broker's duty to inform the insureds of the agent's failed attempt at reinstating th eoriginal policy and of the agnet's actions in seeking the second policy. The agent had taken on the responsibility of reinstating the policy, but the insureds were not aware that their home would not be covered.
The defendants next argued that the insureds failed to present any evidence that they could have obtained insurance to cover the risk of collapse. The ICA held that the insureds were not required to demonstrate that alternative insurance was available as part of their prima facie case. Instead, the burden was on the defendants to show the unavailability of alternate insurance.
The ICA also upheld the negligent misrepresentation claim. There was evidence from which the jury could conclude that the agent made the statement that "I'll take care of it" without sufficient intent that he would be able to renew the policy, despite the insureds' reliance on the renewal.
The ICA then considered the award of punitive damages. The jury awarded $10,000 in punitive damages against the agent and $450,000 against the broker. The evidence supported the jury's conclusion that the agent acted wantonly. But there was insufficient evidence that the broker authorized or ratified the agent's activities. The evidence at trial did not support an award of punitive damages against the broker. Therefore, this award was vacated.
This is an important decision that brings Hawaii in line with other jurisdictions that hold insurance agents and brokers liable for failure to place adequate coverage, especially when there is a special or longstanding relationship with the insured. E.g., Troost v. Estate of DeBoer, 155 Cal. App. 3d 289 (Cal. Ct. App. 1984); Wachovia Ins. Serv., Inc. v. Toomey, 994 So.2d 980 (Fla. 2008).