Why it matters

An appeals court in Texas upheld an $8.7 million jury verdict against a broker that procured coverage with significant restrictions, contrary to what the broker had recommended and agreed to procure. The policyholder had hired the broker to perform a risk assessment of its marina property. The broker recommended blanket insurance coverage with no coinsurance penalties or sublimits. When a 2007 flood caused significant damage and the insured submitted a claim, however, it was told the $15 million blanket coverage was subject to several sublimits and penalties. The policyholder sued the broker. After a three-week trial, a jury awarded roughly $8.7 million to the insured. The broker appealed. A panel of the Texas Court of Appeals found that the insured presented sufficient evidence to support the award.

Among other facts the court found significant, the insured never received a final, signed copy of the Lloyd’s policy until years after it filed suit. In effect, the court ruled that when an insured is promised particular insurance, pays for it and is provided proof of insurance, but not the policy, it is entitled to the benefit of the coverage sought.

Detailed Discussion

Lake Texoma Highport (“Highport”) maintained a large marina consisting of multiple boat docks, a service center, a fuel station, an administration building, and several restaurants and bars. In 2005, Highport hired Insurance Alliance to conduct a risk assessment of the property. Following Insurance Alliance’s recommendations, Highport instructed Insurance Alliance to obtain the recommended coverage—a $15 million blanket policy with no coinsurance penalties or sublimits and with replacement cost coverage.

Insurance Alliance acted as the broker for the policy; the carrier was Lloyd’s of London.

A flood damaged the marina in 2007, completely submerging some of the buildings and causing significant damage to Highport’s property. But when Highport filed a claim with Lloyd’s, it learned that the $15 million policy had sublimits and coinsurance penalties.

Highport sued Insurance Alliance, Lloyd’s, and an intermediary broker, Bowood. Lloyd’s settled the suit for $6.7 million and Highport proceeded to trial against Insurance Alliance and Bowood. During the three-week trial, the two brokers pointed the finger at each other: Insurance Alliance told the jury that Bowood made unauthorized changes to the terms of the policy, while Bowood said the forms submitted to it were incomplete and inaccurate.

The jury returned a verdict against all the defendants for $8.3 million, representing 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 provided by the policy obtained) and $438,598 in business interruption damages, plus court costs, pre- and postjudgment interest, and attorneys’ fees. After posttrial motions, the trial court entered judgment for Highport in the amount of $8,738,598, plus court costs, interest, and attorneys’ fees.

Insurance Alliance appealed. The broker argued that Highport failed to present sufficient evidence to support the jury’s award.

The Texas appellate panel disagreed, upholding the award in its entirety as supported by the evidence. Among the evidence was that insureds rarely receive full, final versions of Lloyd’s policies, and that “the first time a Lloyd’s signed policy was issued in this case was in June 2011,” over four years after the policy term commenced.

“In summary, there was evidence that Highport’s property damages, excluding overwater electrical, were as high as $14.6 million and that it could have received that amount under the $15 million blanket policy it sought,” the court wrote. “There was also evidence that Highport was entitled to a maximum of $2,915,000 under the policy it actually had; $14.6 million less $2,915,000 is $11,685,000.”

Turning to damages for business interruption, the court again found sufficient evidence to support the verdict. Testimony for Highport showed the total business interruption damages were $1,438,598 and that the policy requested would have provided $1 million for business interruption over the dry property at issue. The amount found by the jury – $438,598 – was the difference between the two, the court noted.

The panel also affirmed the award of $2.7 million in attorneys’ fees.

To read the opinion in Insurance Alliance v. Lake Texoma Highport LLC, click here.