JANUARY 2012 BAD FAITH CASES: JUDGMENT GRANTED TO INSURANCE AGENTS BECAUSE INSURED FAILED TO PRODUCE AN EXPERT REPORT AND COULD NOT ESTABLISH WHAT DUTY WAS OWED AND BREACHED (Philadelphia)

In Randazzo v. National Penn Insurance Company, the court granted summary judgment to the defendants on the insured’s professional negligence and negligent misrepresentation claims. When the insured appealed, the court issued this opinion. It is not wholly clear from the recitation of the facts pleaded whether both sets of defendants were insurance agents and/or whether one of the defendants was also the insurer issuing the policy and/or only that insurer’s agent. The policy in effect at the time of the loss was issued by Penn American Insurance Company, and was brokered by defendant National Penn. The defendant is identified in the caption as National Penn Insurance Company and in the body of the opinion as National Penn Insurance Agency, Inc.

The insured owned real estate in Pennsburg, Pennsylvania. In the early 1990’s the insured contacted Swartley Insurance Agency to purchase insurance coverage for the property. Soon after, Swartley merged with National Penn and, William Griffith, its employee, brokered the insured a policy with a coverage limit of $350,000.00. In 2005, the insured allegedly asked Griffith to increase insurance coverage on the property to $700,000.00 and was assured by Griffith that the change would be effectuated. Griffith denies that this conversation ever occurred.

Plaintiff alleges that he had asked another agent to review his coverage, and was told by that agent that he had $850,000 in coverage. The second agent denied this, but admitted to assisting the plaintiff in obtaining a policy with $840,000 in coverage that would go into effect on October 9, 2007. However, on October 7, 2007, a fire destroyed the insured’s property. At the time of the fire loss, the insured’s property was insured by the carrier for $350,000.00.

On October 10, 2011, the insured filed suit in Philadelphia County, alleging professional negligence and negligent misrepresentation. After the court granted summary judgment to the carrier, the insured appealed, claiming that the trial court erred in granting the motion on the basis of its failure to file an expert report. The insured claims that such a report was unnecessary.

The motion for summary judgment argued that the insured’s failure to provide an expert report to substantiate his claims of professional negligence, misrepresentation, and damages, warranted the dismissal of the complaint. The court stated that the defendants were “insurance companies and/or agents affiliated with the insurance companies. As such, Defendants have a general duty to exercise the skill and knowledge normally possessed by members of the insurance profession and a failure to do so will render the company/agent liable for any loss of coverage.”

The court granted this motion because, even viewing the record in a light favorable to the non-moving party, the insured failed to prove that (1) the carrier owed a duty of care (2) the duty was breached, (3) the breach resulted in his injury, and (4) that the insured suffered an actual loss or damages. After the appeal was filed, the court defended its decision on two grounds.

The court focused on the need for expert testimony, stating that “the testimony of an expert is essential to aid the jury in understanding the complexities of the insurance practice and policies; and determining the facts in issue, the duty owed by Defendants to Plaintiff, the alleged breach of said duty, the adequacy of insurer’s investigation of claim, and the actual loss incurred since the knowledge and assessment of these facts are beyond that possessed by laypersons.”

The court looked to law on insurance bad faith by carriers for guidance on the agent’s duties, and stated that “although insurance is not so highly technical a field that the public cannot understand at least the general nature of an insurer’s responsibilities, courts have held that expert testimony on the issue of an insurer’s duty of care is necessary where a plaintiff questions the adequacy of an insurer’s assessment of plaintiff’s insurance needs.”

The plaintiff in this case alleged that defendants failed to use due care in investigating his insurance needs and failed to obtain the coverage that a reasonably prudent insurance agent would have obtained under the circumstances. The court found that “[t]his allegation alone requires expert testimony, which Plaintiff has failed to engage.” “Further, when considering Plaintiff’s negligence claim, a fact-finder would be charged with the responsibility of comparing Defendants’ investigation of Plaintiff’s insurance needs to what the assessment of the average insurance agent and insurance agency would have provided. Such an assessment is well beyond a layperson’s knowledge. Where Defendants’ conduct is being judged by the acceptable insurance investigation standard/practices in the insurance industry, Plaintiff must produce an expert to establish the required standard and the alleged deviation from said standard.”

The court further found the negligent misrepresentation claims were inadequately pleaded, and that “[e]ven assuming that Plaintiff substantially relied on Defendants’ representations and thereby took no other action to increase the policy limits of his insurance policy, Plaintiff has not produced an expert report to substantiate his claim for damages, including, but not limited, to his claims of loss of rents, business income, and personal property damages. The lack of expert testimony also critically adversely affects Plaintiff’s case.”

Date of Decision: December 15, 2011

Randazzo v. National Penn Insurance Company, NO. 03243, 2011 Phila. Ct. Com. Pl. LEXIS 363 (Phila. Ct. Com. Pl. Dec 15, 2011) (Quinones Alejandro, J.)