Protecting Yourself From Underwriter Mistakes

You’re with a corporate client with difficult to place group health insurance coverage, in light of the company’s claims history. When the client’s group health coverage comes up for renewal, you solicit a quote from a health insurer with which you have a producer agreement, but, over the course of several months, citing the client’s claims history, the insurer declines to supply you with a quote. You subsequently learn, however, that the insurer who was refusing to provide you with a quote provided a quote for the client’s group health insurance to a competitor, even though the competitor had provided the insurer with a significantly worse claims history. You lose the account, with the competitor being appointed your now former client’s broker of record, and the coverage quoted to your competitor being accepted by the former client. You ask an underwriter at the insurer what happened, and he says “we screwed up.” Is there anything you can do about it?

 
            In Gaelick v. Connecticut General Life Insurance Co., 2011 U.S. Dist. LEXIS 95254 (Aug. 25, 2011), the broker alleged the above fact scenario and sued the insurers, Connecticut General Life Insurance Company, CIGNA Health Corporation, and CIGNA Healthcare, Inc. under a variety of theories for the loss of the client and the commission that would have been earned had the broker (PSI Consultants, LLC) been the broker on the accepted deal. Among the claims asserted were claims for “toritious interference with prospective economic advantage” and “tortious interference with contractual relations,” “fraud”, “negligent misrepresentation,” “breach of the covenant of good faith and fair dealing,” “unjust enrichment,” and “promissory estoppel.” Reading this you’re thinking, somehow the insurer was found responsible for the lost commission and damage to the client relationship, right? But the fact is that all of the claims were dismissed.
 
            Now this may have been the result of a very unique set of facts, but the court, considering each claim in turn, noted that while the broker certainly had a relationship with its client that deserved protection from interference, “tortious interference with prospective economic advantage” and “tortious interference with contractual relations” claims require allegations of intent to interfere. Alleging merely that the insurer “screwed up” was not sufficient.
 
            Similarly, the “fraud” claim required intent as well. Although the broker alleged that a fraud took place when the defendant insurers said they couldn’t provide it with a quote, but apparently could provide a quote based on even worse claims history information provided by a competitor, the absence of allegations of malice or intent were once again fatal to the broker’s claim in this regard.
 
            Turing to the “negligent misrepresentation claim,” the Court noted that in order to be liable to another for negligent misrepresentation, one must owe the other a duty to provide information in a non-negligent manner. But the Court pointed out that there is no case law creating a duty of care as between insurers and brokers as a general matter.
 
            With respect to the “breach of the covenant of good faith and fair dealing” claim, the Court noted that a party to a contract breaches the covenant of good faith and fair dealing if it acts in bad faith or engages in some other form of inequitable conduct in the performance of a contractual obligation. While the defendant insurers’ conduct was certainly inequitable, the Court pointed out that, again, such a claim requires a showing of bad motive or intention. Again, therefore, alleging merely that the insurer admitted to having “screwed up” was insufficient.
 
            Finally, as regards the “unjust enrichment” and “promissory estoppel” claims, the Court noted that, in New Jersey, the unjust enrichment doctrine requires a showing that the plaintiff conferred a benefit upon the defendant for which the plaintiff expected remuneration, and the failure of remuneration enriched the defendant beyond its contractual rights. Here, because PSI Consultants had not alleged that they had conferred any benefits on the consultant insurers, they had no right to assert a claim against them for unjust enrichment. And as regards the “promissory estoppel’ claim, the Court concluded that insufficient facts had been alleged to establish the requisite elements of: (1) a clear and definite promise by the promisor; (2) that the promise was made with the expectation that the promisee would rely thereon; (3) that the promisee in fact reasonably relied on the promise; and (4) that a detriment of a substantial nature was incurred in reliance on the promise.
 
            The end result: unfortunate situation, but nothing the Court can do about it.
 
            Having reviewed this decision, should brokers despair? Are they to look to the heavens plaintively wondering, “is there no justice in circumstances like this?” Is there anything of value to take from the ruling? A couple of comments and suggestions are offered.
 
            First, specific facts and circumstances are critical to an analysis of each case. This was a fairly unique circumstance which hopefully will rarely occur. Assuming the facts alleged to be true, the insurer apparently “screwed up,” but didn’t act with malice or bad motive. Stuff happens. Second, we know that mistakes can happen, but acknowledging that fact is not much solace when you’ve lost a commission. The outcome of this litigation had to be tough medicine for the broker to swallow. And it won’t be any easier for the next broker either, even if misery does love company. That said, perhaps there is a lesson to be learned. 
 
            This writer’s thinking? In the future, if you have a client with difficult to place coverage you know or suspect may be being competitively bid, and you are having difficulties obtaining a quote, you should consider asking your contact at the insurer’s underwriting department to check to make sure this really isn’t something they can quote and ask that they confirm that this isn’t being quoted with someone else (“because, you know, I read about this case where this happened once”). Being fore-warned is being fore-armed, and maybe you can avoid getting blindsided. Moreover, if you receive confirmation that the business can’t be quoted and isn’t being quoted to anyone else, and if this turns out to not be true, you may have a better case to make if another “screw-up” occurs.
 
Peter Biging is a partner at Lewis Brisbois Bisgaard & Smith LLP, where he practices out of their New York office, and functions as a Vice Chair of the firm’s nationwide professional liability practice group. Contact Peter at biging@lbbslaw.com or 212.232.1363
 
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