My broker procured the wrong insurance and I am exposed to a loss. My broker failed to procure proper insurance and I am exposed to a loss. “Where the parties enter into an agreement to procure insurance and there is a negligent failure to do so, an insurance broker may be liable for damages.” The Lexington Club Community Association, Inc. v. Love Madison, Inc., 43 Fla.L.Weekly D1860a (Fla. 4th DCA 2018). The proper measure of damages in a negligent procurement of insurance claim is “what would have been covered had the insurance been properly obtained.” Id. quoting Gelsomino v. ACE Am. Ins. Co., 207 So.3d 288, 292 (Fla. 4th DCA 2016). This measure of damages in a negligent procurement of insurance claim is important because it is the measure of damages that dictates recoverable damages under this claim.
In Lexington Club Community Association, Inc., condominium associations hired a contractor to perform post-hurricane repairs. The contractor was required to obtain a performance and payment bond. The contractor obtained bonds from a non-Florida surety (insurance) company that was not authorized to do business in Florida. In doing so, the association paid the contractor’s surety agent $327,915 in premium, of which 10% of this amount went to the agent as commission. The associations thereafter learned the surety was located in Barbados and not licensed in Florida, which raised a red flag, as it should. The associations then sued, among others, the surety agent that procured the bonds and received the commission for negligent procurement of insurance, a declaration that the bond was unenforceable, and unjust enrichment. (Notably, although the surety was sued, it did not respond to the complaint and a default was entered against it.). Ultimately, the associations paid a huge premium for a valueless product, i.e., surety bonds backed by a foreign entity that had no incentive to honor the bonds, particularly since it was not licensed to do business in Florida.
Of importance, the association had no cause to rely on the bonds because it did not incur any damage or issue to actually trigger the application of the bonds, other than wanting a refund in its premium. This meant it was suing the surety agent for the $327,915 in premium that was paid to the surety not licensed to do business in Florida. But, the lack of an actual loss under the bonds is an important consideration when it comes to proving damages. A jury found that any negligence of the surety agent was not a cause of damage to the associations, presumably because the associations had no proven damage under the bonds. Instead, the jury awarded the associations the 10% commission the agent received in procuring the bonds, approximately $32,000, through an unjust enrichment claim. (An analogy would be procuring insurance from a non-Florida entity but not actually having a claim to trigger the insurance coverage. The same rationale would apply.).
Florida Statute s. 626.901 applies when dealing with an unauthorized insurer, which is an insurer not authorized to transact insurance in Florida, such as the surety in this case. Section 626.901(2) provides:
If an unauthorized insurer fails to pay in full or in part any claim or loss within the provisions of any insurance contract which is entered into in violation of this section, any person who knew or reasonably should have known that such contract was entered into in violation of this section and who solicited, negotiated, took application for, or effectuated such insurance contract is liable to the insured for the full amount of the claim or loss not paid.
However, even under s. 626.901, an insurer’s unauthorized policy would still be deemed enforceable in Florida; however, the insurance broker could still be liable for amounts or loss not paid by the insurer. Fla. Stat. s. 626.901. Applied here, the bonds would still be enforceable (irrespective of the surety that actually issued the bonds). But, again, the associations here did not actually incur a loss that would trigger the application of the bonds.
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