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Century Surety Company vs. Crosby Insurance Inc Should Remind Every Insurance Broker--Be Honest
by crosscomplaint.com 2012 All Rights Reserved The relationship between an insurance broker and insurance carrier is complex.. There exists a contractual obligation to to indemnify and hold each other harmless especially when something goes wrong. In other words, the broker and carrier are basically saying to each other--you take care of me and I'll take care of you in so many words. Here's a sample indemnification and hold harmless from a typical agency agreement:

But what happens if the insurance carrier believes those boundaries have been crossed by the agency for fraud or misrepresentation? This was the case when Century Surety Company decided to file a lawsuit against Crosby Insurance Inc. in California for fraud, negligence, and negligent misrepresentation (CENTURY SURETY COMPANY, Cross-complainant and Appellant, v. CROSBY INSURANCE, INC. et al.,. ). The case originated when a construction customer (Baroco) of Crosby was sued for construction defects on a home they had built as general contractors. Baroco filed a claim

with their insurance carrier Century Surety, which investigated the claim and determined the application had included false information. Baroco was not claim free or acted as a drywall installer. Insurance carriers use this information to determine pricing and eligibility. Baroco was eligible for Century's pricing model based on the material facts submitted which included fraudulent letterhead from a Farmers agent stating Baroco was claim free. Consequently, Century decided to file a lawsuit against their own representative for fraud and misrepresentation. This case and others like it should send a warning signal to every insurance broker--underwrite your applications honestly and remember the definition for misrepresentations or fraud. The case summary provides clear definitions to help insurance agents stay out of trouble. One lawsuit could destroy your business and reputation. Lawsuits become public information and end up being published on the internet forever. In addition, Insurance brokers fail to remember their errors and omissions insurance policy will more than likely deny coverage for intentional fraud and misrepresentations (Why Reading Your E&O Insurance Policy Is Required). Cause of Action for Negligent Misrepresentation The fourth cause of action is also identified as negligent misrepresentation. The following elements must be pleaded to state a cause of action for negligent misrepresentation: (1) a false statement of a material fact that the defendant honestly believes to be true, but made without reasonable grounds for such belief, (2) made with the intent to induce reliance, (3) reasonable reliance on the statement, and (4) damages. Key points For Insurance Broker: Insurance applications and questions contain material facts Customers need to answer questions and provide documentation Classifying a business incorrectly hurts the customer and carrier Cause of Action for Fraud and Deceit The following elements must be pleaded to state a cause of action for fraud: (1) a misrepresentation of a material fact; (2) knowledge of falsity; (3) intent to deceive and induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damages. Key points For Insurance Broker: A guilty state of mind equals fraud Are you trying to deceive others? Customer? Underwriter? Intentionally altering documentation--prior insurance, signatures, etc.. Source: FindLaw