After Hurricane Ike, residents of Galveston and Bolivar Islands discovered they did not have the insurance their agent had told them they purchased. To recover, a claim must be brought against the agent.
Defense – Contributory Negligence; Failure to Examine Policy
The Texas Supreme Court in Colonial Savings Association v. Taylor addressed the law on this point. Colonial involved a suit brought by an insured against a party that was deemed to have essentially assumed the role of an agent for the insured. The court stated that while some jurisdictions have held that an insured has a legal duty to read his policy, the prevailing view–joined by this State–is as follows: “[A]n insured who accepts a policy without dissent, is presumed to know its contents, but the presumption may be overcome by proof that ‘he did not know its contents when it was accepted, as by showing that when he received it he put it away without examination, or that he relied upon the knowledge of the insurer and supposed he had correctly drawn it.’
The court held that when an insured presents sufficient proof to overcome the presumption, it then becomes the agent’s “burden to prove that [the insured] was negligent in failing to read the policy.” If the fact-finder determines that the insured was not negligent, the insured’s failure to read will not bar his recovery; this determination will traditionally necessitate the inclusion of a contributory negligence question in the court’s charge.
Recently a Texas Appeals Court added to this notion, opining:
“An insured’s reading of certain policy provisions will often result in nothing more than an exercise of the eyes. In other words, the fact that an insured has made himself cognizant of the existence of certain terms in his policy does not necessarily mean that the insured has thus acquired an understanding or appreciation of those terms. This is because policy provisions may be simple or complex, and the insured reading the provisions may be an experienced business person who is insurance savvy or an unsophisticated individual who knows nothing about insurance. It thus behooves an insured to not only read his policy, but to also question his agent on terms and conditions that are not understood; the agent’s reiteration as to what is covered under the policy will assist the insured in any later lawsuit. Though it clearly advantages an insured to explore any confusion over terms read but not understood, it is not clear that an insured is always negligent in failing to do so.”
Kloesel ultimately concluding:
“Accordingly, we believe a fact-finder should be able to determine that an insured is not negligent for failing to question or investigate the policy terms he reads, but does not understand. In order to arrive at this determination, the fact-finder must find that (1) it was reasonable for the insured to have not understood the import of the terms read, and (2) the insured’s failure to acquire an understanding of the terms was directly related to the insured’s reasonable reliance on the agent’s knowledge and the assumption that the agent had correctly drawn the policy in conformance with said knowledge. Given the varying complexity of insurance terms and provisions, the varying degrees of insurance knowledge possessed by insureds, and the varying communications that may exist between an agent and insured, a fact-finder should assess what is reasonable on a case-by-case basis.”
Because “[a]n insured who hires and pays a professional [agent] does so to reduce, if not eliminate, the risk that an inadequate policy will be procured,” it stands to reason that “[i]nsurance consumers who instruct their [agents] to provide coverage [should be] entitled to have those instructions followed without regard to the insured’s failure to detect the [agent’s] negligent conduct.”