A North Carolina insurance agency cannot escape a lawsuit brought by a homeowner who was denied coverage after a hurricane because key elements of the property were not mentioned in the coverage application.
In a case that began almost a decade ago and is likely to continue for another few years, the state Supreme Court decided last month that a move to dismiss the lawsuit against J. Kim Hatcher Insurance agency is not allowed under 100-year-old case law. The ruling partly upholds a 2023 North Carolina appeals court ruling that had overturned a trial court’s 2021 order dismissing the homeowner’s lawsuit.
“The question presented in this case is whether a person is contributorily negligent for signing a blank insurance application and trusting his or her agent to complete it carefully, no matter the circumstances,” Supreme Court Justice Anita Earls wrote for the court.
The answer is that the question must be weighed by a jury and such lawsuits cannot be easily shelved by a judge, the high court noted. While the Hatcher agency, based in Beulaville and Kenansville, argued that the property owner, Daniel Jones, contributed to the misrepresentation and the coverage denial by signing the application without reading the policy, the justices found that defense does not always apply.
“Whether an individual was reasonably put off his guard, and thus was not contributorily negligent, is fact specific,” the opinion notes. “The interactions between the insured and the agent before and after the policy was issued are relevant to the determination of whether it was reasonable for the insured to trust the agent enough to not double-check the agent’s work.”
The situation began in 2016, when Jones agreed to let Hatcher quote him a price on an HO policy for his home in Pender County, near the coast. The Hatcher agency producer who worked with Jones was not named in the suit. Kyle Hatcher is listed as the agency owner.
The agency secured a policy through Nationwide. A year later, Jones switched back to North Carolina Farm Bureau, but Hatcher told Jones the agency could obtain the same coverage through GeoVera Specialty for a lower premium, according to Jones’ complaint. The agency representative reportedly told Jones that all the homeowner needed to do was sign the blank application and pay the first premium – and the agency would take care of the rest.
Hatcher inspected the property and took photographs. A year later, Jones renewed the GeoVera policy. The court opinion did not explain why the agent may have omitted some details about the property.
In September 2018, Hurricane Florence severely damaged the property, ripping shingles off the roof and damaging interiors and belongings, the court explained. The family was forced to live elsewhere for a period of time.
After initially noting that it would pay the claim, GeoVera later balked, informing Jones that the insurance application did not mention the fact that a large pond was on the property, directly in front of the house, and that the property covered almost eight acres of land, including some farmland. That constituted a material misrepresentation, the carrier said.
After the denial, Jones filed suit against the Hatcher agency, against a surplus lines broker and against GeoVera, charging negligence and gross negligence and asking for punitive damages. The trial court judge in New Hanover County agreed to dismiss the suit based on Hatcher’s argument that Jones himself was negligent for signing a blank policy application.
The Court of Appeals overturned the trial court, and Hatcher and Jones both appealed. The Supreme Court sided with Jones, finding that the trial court had erred. To establish contributory negligence as an affirmative defense, a defendant must prove that the “plaintiff could have avoided injury by exercising reasonable care,” the justices wrote, citing a previous court decision.
In general, yes, anyone who can read has a duty to do so when signing a document, the court noted. But in this case, Jones’ claim was not a contract action but a negligence claim. The homeowner had expected the insurance agent to handle everything, as promised and as the agency had done previously.
“These allegations of a prior course of conduct and Hatcher’s specific assurances are sufficient to allege that Jones may have been reasonably put off his guard, and therefore that Jones was not contributorily negligent,” the justices said.
Homeowners may reasonably expect that, where an agent stands to earn commission for performing a service, the agent can be trusted to perform that service with due care.
“After all, if a customer can never trust their agent, what is the point of hiring the agent to begin with?” the court noted. “Requiring customers to double-check their agent’s homework, no matter the circumstances and as a matter of law, is inconsistent with reasonable social expectations.”
The case does not clearly show that Jones contributed to his own injury, and the issue must be decided by a jury.
The high court overruled the appellate court on one point. The appeals court judges found in 2023 that Jones could not seek punitive damages in the suit because he had failed to name specific people at the insurance agency. But the agent acting on behalf of the Hatcher agency had signed the application and had the authority to bind the corporation, the Supreme Court opinion explained.
Also, the court said, “because we conclude that Jones sufficiently alleged facts to support punitive damages based on willful or wanton conduct, Jones’s claim for gross negligence likewise survives and necessarily overcomes Hatcher’s allegation of contributory negligence.”
Justice Trey Allen dissented in part. The case now goes back to the trial court level for a trial or settlement talks.
Topics
North Carolina
Homeowners
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