Let’s say you go to an insurance agent to buy an insurance policy. You tell the agent you want coverage for something specific, for example, fire damage to your boat. The agent sells you a policy the agent tells you covers fire damage to your boat. The agent gives you some documents summarizing the policy that say fire damage to your boat is covered. Then your boat catches fire and you make a claim, but the insurer denies coverage. The insurer says the policy fine print excludes fire damage, even though the agent said it was covered.
Can they do that?
The answer is no, according to the Washington Supreme Court. On October 10, 2019, the Washington Supreme Court decided T-Mobile v. Selective Insurance Company. The decision confirms insurance companies may be bound by statements their agents make when selling insurance policies.
In this case, T-Mobile hired a contractor to build a cell phone tower. T-Mobile required the contractor to obtain insurance coverage protecting T-Mobile. The contractor’s insurance policy only covered a small T-Mobile subsidiary, not T-Mobile itself. But the insurance company’s agent issued a series of insurance certificates stating that T-Mobile itself was covered in addition to the subsidiary.
T-Mobile was sued over the cell tower construction project and made a claim under the policy. The insurer denied coverage on the basis the policy did not name T-Mobile as an insured.
In the resulting lawsuit, the insurance company argued T-Mobile should not have relied on the insurance agent’s representations that T-Mobile was covered. The insurer said T-Mobile should have read the policy and seen that T-Mobile was not covered.
The Washington Supreme Court disagreed. The Court determined T-Mobile was justified in believing that the insurance company’s agent was authorized to speak on behalf of the insurer. The court found the agent’s specific statements that T-Mobile was covered overcame boilerplate disclaimers the insurer had made.
The court also emphasized the importance of holding insurers to their agents’ promises. Without that rule, the court noted, insurers would have no incentive to make sure their agents’ statements to people buying insurance were true. The court observed that allowing insurance companies to ignore their agents’ statements was important because “Otherwise, an insurance company’s representations would be meaningless and it could mislead without consequence.”
This ruling is important. Many folks buy insurance after discussing with their agent, reading brochures, or browsing the internet. They rarely read the policy fine print. Even T-Mobile, a huge corporation presumably represented by a team of insurance lawyers, relied on the insurance agent’s representations without noticing the policy fine print. If insurance companies could let their agents sell policies promising coverage that didn’t exist, consumers would pay for coverage they never received and would have little recourse.