In AGA Fishing Group Ltd. v. Brown and Brown, Inc., ___ F.3d ___, 2008 WL 2687494 (1st Cir. July 10, 2008), the First U.S. Circuit Court of Appeals affirmed that an insurance company is not liable for insufficient coverage absent the existence of "special circumstances" creating a duty of care.
In 1987, the Joneses purchased a scallop boat and formed AGA Fishing. The Joneses maintained the original amount of $1,000,000 in protection and indemnity (P & I) coverage that had been held by the previous owner. In 2001, the scallop fishing industry was booming and similar vessels commonly carried $5,000,000 of P & I coverage, including vessels insured by Flagship. (Brown and Brown, Inc., is the parent company to Flagship Group Limited.)
A crewman on the scallop boat was injured, and the $1,000,000 policy limit was insufficient to cover his damages. As a result, the U.S. marshal seized the boat and sold it at auction to satisfy the judgment.
AGA sued Brown and Brown and its agents, alleging that they breached a duty to advise AGA as to the proper amount of coverage. The court stated that an agent has no general duty to ensure proper coverage amounts, but that such a duty exists under "special circumstances" where an agent makes a specific assertion as to coverage amounts and there is subsequent reliance by the insured.
AGA argued that special circumstances existed because the Joneses relied on their agents, with whom they had a long-standing relationship, to determine the proper coverage due to the Jones' lack of education and sophistication, and because Flagship's website represented to the public that Flagship was a maritime insurance expert.
The court, however, found that the agents made no assertions or offered any recommendations as to amounts of coverage.. The court also found that the Joneses never asked their agents whether the coverage amounts were adequate. Instead, the Joneses decided their coverage amounts based on the previous owner's coverage, and they maintained the same amounts for the next 16 years without any direction, assertion or recommendation by their agents. Finally, the court found that the Joneses never viewed the Flagship website and thus they could not have relied on Flagship's representation of expertise. Therefore, the court held that there were no "special circumstances" creating a duty of care to ensure proper coverage amounts.
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