The Utah Supreme Court in Espenschied Transp. Corp. v. Fleetwood Servs., Inc., 2018 UT 32, 422 P.3d 829 (Utah 2018) held that the law allowing insureds to sue their insurance companies for bad faith conduct resulting in unpaid excess judgments did not apply to lawsuits brought against insurance agents who failed to procure requested coverage which, in turn, resulted in uncollectable judgment. In this case, the insured hired Fleetwood Services, an insurance agency, to procure a commercial lines insurance policy for their trucking company. As part of the procurement process, the insured provided Fleetwood with a list of vehicles to be insured. The policy was issued covering the vehicles that were on the list. Thereafter, one of the insured’s vehicles was involved in an accident which resulted in a death. The survivors of the decedent sued the trucking company and its successor. The insurance company denied coverage because the vehicle involved in the accident was not on the list Fleetwood had provided to the insurer. A settlement was then reached between the decedent’s family and the insured trucking company. At the time of the settlement the insured trucking company had formally dissolved its business and had no assets other than potential claims against third parties. As part of that settlement, the insured assigned to the decedent’s family any claim it had against Fleetwood and the insurance company. As part of the settlement, the insured trucking company agreed to pursue claims against Fleetwood and the insurance company. Because the trucking company was a defunct corporation with no assets, the only way the family could recover from the trucking company was if the trucking company recovered from Fleetwood or the insurer.
Prior to the loss in question, the insured trucking company sold or leased almost all of its assets to another trucking company, Dats Trucking, Inc. As part of that transfer of assets, Dats agreed to indemnify the insured trucking company from and against all claims, liability or expenses, including attorney’s fees, relating to the vehicles.
While the insured trucking company was defending the wrongful death suit, the attorney’s fees and costs that had incurred were paid by Dats under the indemnity agreement which was part of the asset sale. At the same time, the insured trucking company sued Fleetwood and the insurer, asserting tort and contract claims against Fleetwood. The Court granted summary judgment in favor of Fleetwood, ruling that the insured trucking company did not suffer actual damages. The trial court also granted summary judgment in favor of the insurer, ruling that Fleetwood was not the insurer’s agent.
The Supreme Court held that the insured trucking company’s settlement agreement and consent judgment with the family did not constitute actual damages. Because the insured trucking company was a defunct corporation without assets, the family could not collect from the trucking company.
Many years ago the Utah Supreme Court held that an insured could pursue claims against an insurance company arising from an excess judgment without first establishing that the insured paid the judgment. See, Ammerman v. Farmers Insurance Exchange, 450 P.2d 460 (Utah 1969). The Court in this case, however, did not apply that rule to the claims brought against insurance agents and brokers. The Court noted that its prior ruling in Ammerman was based on policy considerations of (1) preventing insurers from benefitting from the insured’s lack of financial resources; (2) eliminating an insurer disincentive to fulfill its duty to its insured; and (3) recognizing that judgments against insureds constituted actual harm in the form of potential damage to the insured’s credit rating. However, under the facts at bar, the Court found that these policy considerations did not apply to claims against insurance agents or brokers.
The Court found that the insurance company’s fiduciary duty to defend its insured differed from an insurance agent’s contractual duty to procure coverage. Damages from a breach of contract involving the agent were limited to actual damages. However, in the Ammerman case, the Court was concerned with eliminating a perverse disincentive for insurance companies to fulfill their fiduciary duties to insureds. Insurance agents and brokers had no such disincentive.
The Court acknowledged and an unexecuted judgment entered against an insured could constitute actual harm for which an insurance agent or broker may be found liable. However, for the insured to recover, it was required to show that the harm could be monetized, such as harm to its credit rating or reputation, loss of business opportunities, or bankruptcy. None of these had been proven in this case.