In a split decision, the North Carolina Court of Appeals in Jones v. J. Kim Hatcher Insurance Agencies, Inc., 893 S.E.2d 1 (N.C. App. 9/5/23) held that the insured’s failure to read the policy application that the insured signed after it was prepared by the insurance agent did not foreclose the insured from pursing a negligence claim against the agent. The insured’s failure to read the application before signing it did established contributory negligence on the part of the insured.
The Jones case involved the purchase of a homeowner insurance policy. The insured property was a home that was on five-acres, which included a half-acre pond in front of the home. The insurance agent had gone to the home and inspected it and photographed it for the insurance company as part of the application underwriting. The agent then placed the home with a surplus lines insurer. Being a surplus lines insurer, North Carolina’s Guaranty Fund was not available. The agent did not tell the applicant/insured that the policy was placed with a non-admitted insurer.
The home was damaged in a hurricane. The surplus lines insurer denied coverage, pointing to the policy application which the insurer alleged materially misrepresented the insured property because the application did not disclose the pond or the amount of acreage for the property. Thereafter, the insured sued the surplus lines insurer and the agent, arguing that they conspired to sell the surplus lines policy without disclosing that the surplus lines insurer was not licensed in North Carolina. The trial court granted a motion to dismiss regarding all claims except for the breach of contract claim against the surplus lines insurer. The claim against the agent was dismissed. On appeal, the Court reversed the trial court dismissal of the insurance agent on the negligence claim.
The Court of Appeals held that the insured/applicant could pursue a claim against the agent for negligently completing the insurance application. The insured/applicant argued that he had provided the agent with accurate information regarding the property, which included the presence of the pond and the acreage. It was the insurance agent that negligently failed to provide the information on the insurance application. The application was presented to the insured/applicant with the agent saying that it only needed to be signed.
The North Carolina Court of Appeals acknowledged that, in general, every insured has a duty to read the insurance application that the insured signs. However, it is not an absolute duty and is subject to qualification that the insurance agent had not misled the insured or put the insured off his guard. It was alleged that the insurance agent had assured the plaintiff that the agent had completed the application using correct information the insured provided. In turn, the agent alleged contributory negligence on the part of the insured. The Court allowed the contributory negligence claim to be submitted to the jury and whether the insured relied on the agent rather than reading the application before signing it. The partial dissent argued that the insured applicant could not pursue a negligence claim against the agent because under North Carolina law, contributory negligence barred the plaintiff from recovering from the defendant’s negligence. The dissent found that the insured/applicant signed the application, which affirmatively represented that he had read the application and that the information was true and accurate.