Utah Court: Agents Should Take Care When Making Verbal Promises

April 16, 2007

The Utah Supreme Court has found that a “party may recover under the doctrine of estoppel when an insurance agent makes material misrepresentations as to the policy provisions, the party reasonably relies on those misrepresentations in buying the coverage, and that reliance results in legal injury to the party.”

In Youngblood v. Auto-Owners Insurance Co., Robert L. Youngblood was struck by a vehicle when he was walking through a parking lot. The driver carried $50,000 in available liability insurance and the claim for the policy limit. However, Youngblood claimed that his damages exceeded $50,000, and thus sought additional coverage from his company’s insurer, Auto-Owners Insurance Co.

Youngblood had purchased underinsured motorist coverage, in the name of his corporation, Youngblood Home Improvement Inc., rather than in his individual name.

According to Youngblood, his insurance agent told him his underinsured motorist coverage would cover him if he was struck by a vehicle as a pedestrian. However, the policy, as written, actually limited his coverage to bodily injury sustained only while he was “occupying” an automobile. Or, coverage would be provided if he had sustained bodily injury as a pedestrian or while occupying another person’s automobile that is not insured under the UIM policy and the first named insured in the policy was an individual, according to court documents.

Youngblood acknowledged that the language of his policy did not extend coverage. However, he argued that coverage should be expanded to cover his claim, under the principles of estoppel.

For the purposes of the case, estoppel generally means when an insurance agent promises that things, knowing at the time of the promise all of the material facts, but is ultimately wrong, and reasonable reliance on that promise leads to loss or injury.

The Supreme Court said the “law holds insurance agents to accurately representing policy provisions and honestly answering consumer questions. Agents who are not trained to act with complete
honesty and integrity in their interactions with consumers, or
who simply refuse to do so, place themselves and their principals
at risk. The law will hold both principal and agent liable for
misrepresentations upon which consumers reasonably rely.”

Thus, the high court ruled that estoppel may apply under some factual circumstances. It said: “Estoppel may be applied to modify terms of an insurance policy when (1) an agent makes material misrepresentations to the prospective insured as to the scope of coverage or other important policy benefits, (2) the insured acts with prudence and in reasonable reliance on those misrepresentations, and (3) that reliance results in injury to the insured.

Thus, an insurance agent’s verbal representations of a policy to an insured may provide insurance coverage beyond the express terms of the insurance policy, it indicated.

Source: Utah Supreme Court

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