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Arizona Legislature Fixes Insurance Agent Liability Loophole

Arizona Governor, Doug Ducey, has signed a bill that corrects a major loophole that had subjected insurance agents who write auto policies to increased professional liability exposure. House Bill 2129 was drafted in response to a 2015 Arizona Supreme Court ruling, Wilks v. Manobianco, a decision that seemed contrary to statute at the time, and generated a great deal of confusion amongst Arizona insurance agents.

The new law effectively reverses the Supreme Court’s ruling, and provides much needed clarity regarding the protections afforded to producers when they properly execute an uninsured motorist (UM) and underinsured motorist (UIM) rejection form. It goes into effect August 6, 2016.

The issue in the Manobianco case was whether an insurance agent’s compliance with Arizona Revised Statutes (A.R.S.) § 20-259.01, which requires insurers to offer UM and UIM coverage to insureds, precluded a negligence claim against the agent for failure to procure the UIM coverage requested by the insured which the agent agreed to procure. The Supreme Court held that compliance with the statute, including the insured’s completion of a rejection form rejecting the UIM coverage, did not bar the professional negligence claim against the agent.

The facts of the case are important to note. Lesley Wilks purchased auto insurance from State Farm Insurance Company, through her agent Manobianco. Her policy included UM and UIM coverage. Two years later, Wilks switched to another insurer, and obtained a policy that also included UM and UIM. A year later, Wilks decided to switch her policy back to State Farm. Wilks asked Manobianco to obtain “the exact same coverage that [she’d] had previously, full coverage.” Manobianco told Wilks that they would give her the same coverage, but Manobianco did not look up her prior coverage with State Farm. Wilks signed several documents, including a rejection form approved by the Department of Insurance, which Manobianco had filled out to reject UIM coverage. Several years later, after Wilks was hit by an underinsured driver, State Farm denied her UIM claim.  Wilks sued Manobianco for failing to procure the insurance coverage Wilks requested. The trial court found that Manobianco’s compliance with A.R.S. § 20-259.01 showed that the agency had fulfilled its duties to Wilks, and therefore Manobianco breached no duty owed to her. The Court of Appeals reversed, and the Supreme Court accepted review and affirmed the opinion issued by the Court of Appeals in July 2014.

The Supreme Court explained that under Arizona’s common law, insurance agents owe a duty of reasonable care when obtaining insurance on behalf of their clients. It rejected Manobianco’s argument that the Legislature modified the common-law duty by enacting A.R.S. § 20-259.01. The Supreme Court held that the language of the statute did not mention insurance agents, only covered insurers, and thus the statute did not preclude common law causes of action for professional negligence because the statute did not specifically mention such exclusion.

At the time of the Supreme Court ruling, the Independent Insurance Agents & Brokers of Arizona Inc. expressed concern that the decision would expose agents to professional negligence claims if they are accused of failing to inform their customers about UM and UIM coverage – even with a signed waiver acknowledging the customer is expressly rejecting such coverage. The legislature acted quickly to address this professional liability loophole, and clarify that if a producer uses an approved uninsured motorist selection/rejection form it satisfies the producer’s standard of care. Relevant language in the bill states: “An insurance producer that uses such a form in offering uninsured motorist coverage and confirming the selection of limits or rejection of coverage by a named insured or applicant satisfies the insurance producer’s standard of care in offering and explaining the nature and applicability of uninsured motorist coverage. A named insured’s selection of limits or rejection of uninsured motorist coverage on a form approved by the director constitutes the final expression of the named insured’s decision to purchase or reject uninsured motorist coverage.”

For many years, insurance agents relied upon the UM/UIM “Acceptance and/or Rejection” form approved by the Arizona Department of Insurance as documentation that they made this coverage available, and adequately explained the coverage. However, the Manobianco case subjected agents to professional liability even in situations where this approved form was used, causing agents to have to explore alternative methods of “proving” they offered UM/UIM coverage. The new bill reduces the risk of professional negligence claims (and drawn out “he said – she said” disputes) by clearly stating that the execution of an approved form is definitive proof that an agent fulfilled the standard of care. If you have questions regarding how the new law affects your business, you should contact qualified insurance counsel.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.