A CAUTIONARY TALE—INSURANCE BROKER STUCK WITH $11.4 MILLION JUDGMENT AFTER COMMUNICATION BREAKDOWN

Insurance Alliance v. Lake Texoma Highport, LLC
Dallas Court of Appeals, No. 05-12-01313-CV (November 19, 2014)
Justices Bridges, O’Neill, and Brown (Opinion)
Highport owns a commercial marina on Lake Texoma that was severely damaged by a flood in 2007. When it discovered the $15 million Lloyd’s insurance policy on the property would not cover its entire loss because it did not provide the “blanket” coverage Highport had requested from its broker, Insurance Alliance, Highport sued the broker and the carrier. Insurance Alliance, which had not dealt directly with Lloyd’s, added two “middle” brokers (CRC and Bowood) as third-party defendants. Each party blamed others for a communication breakdown. By the time of trial in 2012, the litigants were Highport, Insurance Alliance, and Bowood. A Grayson County jury found that Insurance Alliance had failed to procure the coverage it had agreed to procure for Highport, that everyone except Highport was negligent, and that Insurance Alliance, but not Bowood, committed negligent misrepresentations and DTPA violations. The jury found Highport had incurred just over $8.7 million in actual damages—measured by the difference between the coverage requested and the coverage actually provided—and over $2.7 million in attorneys’ fees. The trial court entered judgment on the breach-of-contract verdict and rendered take-nothing judgments on both parties’ claims against Bowood. The Dallas Court of Appeals affirmed.

After conducting a risk assessment for Highport in 2005, Insurance Alliance recommended that Highport purchase “blanket” insurance coverage, under which one policy limit covers all losses, with replacement-cost coverage and no sub-limits or coinsurance penalties. Highport purchased policies through Insurance Alliance in 2005, 2006, and 2007. Rather than dealing directly with the insurer, Insurance Alliance used CRC as a middle broker; CRC’s sister company, Southern Cross, then retained Bowood, a London broker, to contact the Lloyd’s underwriters. Neither Insurance Alliance nor Highport was aware at the time that the policy did not provide the blanket coverage Highport had requested. As the appellate court observed, “clearly there was a miscommunication at some point in the process.” After the flood caused property damage estimated at more than $9 million, Highport learned from Insurance Alliance that its policy had a $4,075,000 sublimit for property damage, and did not provide replacement-cost coverage.

Insurance Alliance’s CEO admitted that “something went wrong” and his company bore some responsibility for the discrepancy. But Insurance Alliance insisted that CRC and Bowood should bear more of the fault, because (1) Bowood had made unauthorized changes to the policy terms by deleting the term “blanket” from the information submitted to the underwriters, and (2) neither Bowood nor CRC had told Insurance Alliance the policy did not provide blanket coverage at a time the discrepancy could have been corrected. The jury apparently agreed, as it proportioned 55% of the responsibility to CRC, Bowood, and Lloyd’s. But that allocation affected only the tort claims, and did not reduce Insurance Alliance’s liability for breach of contract.

To determine Highport’s damages, the jury was asked to find “the amount of coverage that would have been available under the policy sought to repair and/or replace property damaged in the flood, less the amount of coverage that was provided by the policy obtained.” The actual terms of both policies—the one sought and the one obtained—were disputed. According to Insurance Alliance, Bowood had furnished “seventeen different policy versions.” And Lloyd’s did not issue a signed policy until 2011, four years after the loss. The Court of Appeals rejected Insurance Alliance’s argument that Highport was required to ask the trial court for a coverage determination. The jury was entitled to resolve any questions about Highport’s coverage from the conflicting evidence. And if expert testimony were required on this issue, Highport’s attorney testified he considered himself an expert and the jury was not instructed otherwise. The Court found there was sufficient evidence to support the jury’s determination that Highport had incurred over $8.7 million in uncovered losses because of the policy discrepancy.

On other issues, the Court affirmed: (1) the $2.7 million award of attorneys’ fees against Insurance Alliance, over its objection that fees had not been properly segregated; (2) the take-nothing judgment on Insurance Alliance’s cross-claim against Bowood for unfair or deceptive practices under the Texas Insurance Code, where Bowood’s client was Southern Cross, not Insurance Alliance or Highport; and (3) the trial court’s refusal to award Highport 10% of its damages against Bowood, based on the jury’s allocation of proportionate responsibility, invoking the election-of-remedy and one-satisfaction rules.

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