Author: Chris Boggs
Several agents have recently asked essentially the same question in different ways:
- “What is our responsibility as the agent regarding the Legal Action Against Us provision in the Commercial Property Conditions?"
- “Many of our clients turned in COVID-related business income claims that were all denied, do we have a duty to explain to them their right to sue and the limitation on the time to bring suit contained within the policy?"
- “Should we notify our insureds about their time limit to sue the insurance carrier?"
Each of these questions relate specifically to the “Legal Action Against Us" provision found in the Commercial Property Conditions (CP 00 90) that reads:
D. LEGAL ACTION AGAINST US
No one may bring a legal action against us under this Coverage Part unless:
1. There has been full compliance with all of the terms of this Coverage Part; and
2. The action is brought within 2 years after the date on which the direct physical loss or damage occurred.
Although some states apply different time limitations for suits against the insurance carrier, the unendorsed ISO form grants the insured two years from the date of the direct physical loss or damage to sue the carrier. Ignoring the obvious issue of the lack of direct physical loss or damage (as most courts are ruling), most insureds have already eaten up the first year of this limited time for COVID-related business income losses. So…
Does the agent have a duty to notify the insured of this time limit on lawsuits?
Is that short enough?
Explanation (Longer Answer)
Questions or advice on suits against this insurance carrier represents one of those situations where the agent walks a fine line between who they think they represent and who they actually represent. Agents must remember that when they are appointed by an insurance company, they represent the insurance carrier, not the client. The agent's generally expected duty is to work in the best interest of the company.
If the insured has submitted a claim and the insurance carrier has denied it, the next steps are up to the insured (the party to the contract). The agent is not a party to the contract and is also not an attorney. Insureds desiring to pursue the insurance company in court must seek advice from legal counsel. The agent is not licensed or qualified to act as an attorney.
If the agent undertakes to advise the client to sue the carriers, they may be creating major problems from themselves; the carrier may sue the agent or cancel the contract. This is a time for the agent to stay neutral and answer questions but not offer preemptive advice in relation to this specific policy provision.
Do not undertake to notify your clients regarding any time limit to sue the insurance carrier regarding COVID business income claims (or any other claims). Address this issue only if the insured specifically asks; and when asked point them to the policy wording without offering an opinion.
Advising clients that they have only a certain amount of time remaining to sue the insurance carrier is a very bad decision from an errors and omissions (E&O) perspective. This is not the agent's duty and it likely violates the agency's understood duty to work in the best interest of its principal – the insurance company.
Leave lawsuits and advice on lawsuits to the lawyers! Agents should not undertake any legal recommendations or advice (or opinion) regarding the time limitations for suing the insurance carrier.
Last updated: April 9, 2021