Insurance Law: Limitation on Damages & Statute of Limitation

An insurance agent’s bad faith may be imputed to the insurance company and thus become the company’s bad faith.  However, under Georgia law, the potential liability of an insurance broker or agent (separate from the potential liability of the insurer itself) is limited to the terms of the insurance policy it negligently failed to procure. An agent who negligently fails to procure the requested coverage is liable for loss or damage to the limit of the agreed policy.
J. Smith Lanier & Company v. Southeastern Forge, Inc.
In J. Smith Lanier & Company v. Southeastern Forge, Inc., the Georgia Supreme Court clarified that an agent or broker who negligently fails to procure a policy is not necessarily subject to the same law as an insurer who refuses to pay a claim in bad faith.  Southeastern Forge was a client of the independent insurance broker J. Smith Lanier (“Lanier”).  In 1998, Lanier prepared Southeastern’s application for primary and excess general liability coverage, but negligently failed to list an event on the application when it was submitted to the excess insurer.  After an agricultural blade manufactured by Southeastern Forge malfunctioned and injured a worker in Texas, the excess insurer sought a declaratory judgment that the policy was void ab initio for the failure to list the event on the application.  Southeastern Forge then filed suit against Lanier, asserting negligence, breach of fiduciary duty, and breach of contract to recover the funds expended in the Texas suit.  The trial court held that Southeastern Forge could not obtain more than the $2 million policy limits.  The Georgia Supreme Court agreed, noting that under the facts of that case the law did not impose “the unique statutory duties of insurers on independent brokers who do not issue contracts of insurance and have no duty or ability to evaluate and compromise claims.”
Statute of Limitation
A claim for negligent procurement is likely subject to the four-year statute of limitations. Because the “action in tort for negligence depends upon the presence of damages and, therefore, may not be maintained until the principal suffers a loss,” the statute of limitations for negligent procurement of insurance may not begin to run until the insurer denies coverage.

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