Claims against insurance agents and brokers: Timing is everything

In the aftermath of Hurricanes Katrina and Rita, many insurance agents and brokers in Louisiana and Mississippi and, to some extent, in Texas have found themselves being sued for allegedly failing to advise their customers of the availability of flood insurance or supposedly recommending against the purchase of separate flood insurance policies in addition to homeowner’s policies.

In most cases, the customers established a relationship with a particular insurance agent or broker many years prior to Hurricanes Katrina and Rita, but did not purchase separate flood insurance coverage at the time. As the customers’ homeowners policies were renewed, the issue of flood insurance coverage was not specifically addressed or was addressed through vague discussions. In some instances, the customer claims to have had specific discussions during the renewal period about flood insurance coverage.

One issue which the courts are beginning to confront is whether these claims were asserted in a timely fashion or whether they are barred by the applicable statute of limitations or, in the case of Louisiana, prescription. More specifically, the courts must decide whether the time for bringing these claims against the insurance agent or broker begins running when the relationship began and the customer first purchased insurance coverage but not separate flood insurance, when the customer renewed his insurance coverage or when the customer suffered an uninsured loss.

Louisiana law — most favorable

Among the three states, Louisiana appears to have the most favorable law for the insurance agents and brokers. Unlike Mississippi and Texas, Louisiana has a statute which specifically governs the time for bringing claims against insurance agents and brokers (L.R.S. 9:5606).

The Louisiana statute provides that lawsuits against insurance agents or brokers must be filed “within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission or neglect is discovered or should have been discovered.”

While the one year time period is shorter than that available in most other states, the Louisiana statute specifically adopts the “discovery” rule, which, in many instances, increases the time available to file suit.

However, in addition to the one year “prescriptive” period, the Louisiana statute provides an absolute “peremptive” bar of three years for filing suit, providing that “even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at least within three years from the date of the alleged act, omission, or neglect.” The three year “peremption” period may not be renounced, interrupted or suspended.

In the majority of the Hurricane Katrina and Rita related cases, the initial issuance of a homeowner’s insurance policy and the alleged advice about the need or lack of need for flood insurance occurred substantially more than three years prior to Hurricanes Katrina and Rita. Thus, in claims against their insurance agents, customers generally argue that the prescriptive and peremptive periods should begin running from the renewal of their homeowners policies immediately preceding the hurricanes. Louisiana courts have held that the mere renewal of a policy does not start the running of a new one year prescriptive or three year peremptive period. [Biggers v. Allstate Ins. Co., 886 So. 2d 1179 (La. App. 5th Cir. 2004)]

However, the courts have left open the possibility that a new prescriptive and peremptive period could begin running if a separate breach of duty can be established. As one court recently stated, “the inquiry is whether the actions of the insurance agent at the time of renewal can be construed to constitute an act separate from the initial policy procurement.” [Fidelity Homestead Association v. Hanover Ins. Co., 458 F. Supp. 2d 276, 280 (E.D. La. 2006)]

While this pronouncement sounds simple, it is not clear what actions will be construed as “separate from the initial policy procurement.” In a non-hurricane related case, one court found that a separate breach of duty existed for purposes of the three year peremptive period when an insured requested and was denied replacement cost coverage at the time of a policy renewal, even though the insured had requested, and been denied, that same coverage during prior renewal periods. [Sonnier v. Louisiana Farm Bureau Mutual Ins. Co., 924 So. 2d 419 (La. App. 3rd Cir.), writ denied, 930 So. 2d 33 (La. 2006)]

With respect to claims arising out of Hurricanes Katrina and Rita, a number of federal courts have found a “reasonable probability” that discussions about overall insurance coverage during meetings between the agent and customer when homeowners and other policies were renewed constituted a separate breach of duty for peremption purposes, even if flood insurance was not specifically mentioned. [Babovich, Spedale & Chauvin v. Transportation Ins. Co., 2007 WL 902 283 (E.D. La. 2007); Arceneaux v. Schamburg, 2007 WL 987010 (E.D. La. 2007); Fidelity Homestead Association v. Hanover Ins. Co., 458 F. Supp. 2d 276, 280 (E.D. La. 2006); Southern Athletic Club, L.L.C. v. Hanover Ins. Co., 2006 WL 2583406 (E.D. La. 2006); Dobson v. Allstate Ins.Co., 2006 WL 2078423 (E.D. La. 2006)]

However, these rulings were made as part of deciding whether the insurance agent was “fraudulently” joined to the lawsuit and not as a definitive pronunciation of Louisiana law. Therefore, the resolution of this issue must await further consideration by Louisiana courts.

Mississippi — a three year period

Mississippi law requires that claims against insurance agents or brokers for negligence or misrepresentation be brought within three years after the cause of action accrues. (Miss. Code §15-1-49) Unlike Louisiana, Mississippi does not have a peremptive period within which the action must be filed.

There are no Mississippi cases interpreting when a cause of action accrues against an insurance agent or broker for alleged negligence or misrepresentation in connection with recommending or offering advice about available insurance coverages. As in Louisiana, this issue has been addressed in Hurricane Katrina related lawsuits by the Mississippi federal courts deciding whether insurance agents have been fraudulently joined in those lawsuits. In a representative ruling, one Mississippi federal judge concluded:

“With respect to the issue of the statute of limitations, I can find no authority which establishes the date the statute begins to run in the circumstances alleged in this complaint. Because the plaintiff has selected a theory of recovery against Denison based on allegations of negligence, his cause of action may not have accrued on the date of the conversation he has alleged. His cause of action may have accrued on the date he knew or should have known that the misconduct he alleges had taken place. In some circumstances, a cause of action for negligence may not accrue until the plaintiff suffers damages from the misconduct.” [Carr v. Denison, 2006 WL 3335508 (S.D. Miss. 2006); Nguyen v. Allstate Ins. Co., 2006 WL 2192562 (S.D. Miss. 2006); Shiyou v. State Farm Fire & Casualty Co., 2006 WL 2192706 (S.D. Miss. 2006)]

Recently, although not in a Katrina related lawsuit, the Mississippi Supreme Court held that the limitations period applicable to negligence and misrepresentation claims against insurance agents does not begin running until actual damage occurs. [Bullard v. Guardian Life Ins. of America, 941 So. 2d 812 (Miss. 2006)]

With respect to Katrina related lawsuits, this ruling would suggest that the time for filing claims against insurance agents or brokers for failing to advise to purchase, or recommending against the purchase of, separate flood insurance policies did not begin running until after the hurricane struck and caused property damage. However, it is also possible that the Mississippi courts may decide that the limitation period does not begin running until the customer’s flood related losses are denied by the customer’s homeowners insurer and/or a Court determines that the flood related losses are not covered under the homeowners or other insurance policy.

Texas — no reported decisions

Somewhat surprisingly, there do not appear to be any reported decisions from Texas dealing with claims arising out of Hurricane Rita against insurance agents or brokers for failing to advise to purchase, or recommending against, the purchase of separate flood insurance policies. Consequently, there are no decisions specifically addressing when the time for bringing such claims begins to run.

In general, Texas law provides that claims against insurance agents or brokers for negligence or misrepresentation must be brought within two years after a cause of action arises. [Tex. Civ. Prac. & Rem. Code §16.003; Rice v. Louis A. Williams & Associates Inc., 86 S.W. 3d 329 (Tex. Civ. App. – Texarkana 2002, pet. denied) If a contract or breach of fiduciary duty claim can be maintained against an insurance agent, that action would be subject to a four year statute of limitations.]

In most cases, a cause of action arises when a wrongful act causes a legal injury, and, generally, negligence claims cannot be maintained unless there is some damage. [Bird v. W.C.W., 868 S.W. 2d 767 (Tex. 1994); Sabine Towing & Transportation Co. v. Holliday Ins. Agency Inc., 54 S.W. 3d 57 (Tex. Civ. App. – Texarkana 2001, Pet.denied.)]

Therefore, as appears to be the rule in Mississippi, the time to bring a claim in Texas against an insurance agent for failing to advise to purchase, or recommending against, the purchase of a separate flood insurance policy would not begin running until the insured incurred property damage and may not begin running until the claim is denied under other insurance policies and/or there is a judicial determination that there is no coverage for the loss under other insurance policies.

Enough uncertainty

Among the three states most affected by Hurricanes Katrina and Rita, claims against insurance agents and brokers for allegedly advising against or failing to recommend that an insured purchase a separate flood insurance policy are more likely to be dismissed as untimely in Louisiana than in Mississippi or Texas. However, even in Louisiana, there is, at present, enough uncertainty in how the applicable prescription/peremption statute will be applied that many cases which appear to be untimely on their face will pass judicial scrutiny and be allowed to proceed.