Montana Insurance Agents, Applications & Failure to Procure Coverage

Montana's procurement rule is direct

Montana Supreme Court decisions repeatedly state that an insurance agent owes an absolute duty to obtain the insurance coverage that an insured directs the agent to procure.

The request does not necessarily require insurance-industry terminology

A consumer can communicate the protection desired without knowing the technical name or policy form used by the insurance industry.

Relevant statements can include:

• “give me the same coverage I already have”
• “transfer my existing coverage to Montana”
• “keep these same limits”
• “cover this business use”
• “make sure this vehicle is covered”
• “add this driver”
• “I need protection for this specific risk”
• a request for a specifically identified policy benefit

Bailey: a request for “the same coverage” can create a factual issue

Bailey v. State Farm Mutual Automobile Insurance Co., 2013 MT 119, 370 Mont. 73, 300 P.3d 1149, is the principal modern Montana automobile-procurement case.

The Baileys moved from Oregon to Montana. They testified that they showed their Oregon State Farm insurance information to the Montana agency and asked that the same coverage be transferred.

The Montana applications were completed electronically by the agency. The resulting Montana insurance contained only $5,000 in MedPay and did not provide the UIM coverage the Baileys maintained they had carried in Oregon.

Bailey is especially important because it confirms that a request stated by reference to an existing policy—such as a request for the same coverage previously carried—can be relevant evidence of a specific insurance request.

Interstate policy transfers require a substance comparison

Insurance terminology, statutory requirements and available policy forms differ among states. A request to “transfer the same coverage” should therefore be tested by the substantive protection being transferred, not merely by copying labels or internal coverage codes.

A signed application is important evidence, but not always conclusive

Insurance applications can be powerful evidence of what coverage was selected. They should be preserved and compared carefully with the insured's instructions.

Montana, however, does not automatically treat a signed application as conclusive proof that the agent obtained precisely what the insured had requested.

In Bailey, the agent entered the coverage selections into the electronic applications before the insured signed the printed forms. Evidence concerning the earlier request for matching Oregon protection remained material.

Montana does not impose an absolute duty to read the insurance policy

Bailey, Robertus, Thomas and Fillinger recognize that an insured does not lose a negligent-procurement claim automatically merely because the insured failed to discover the coverage problem by reading the policy or application.

The insured's obligation to review insurance documents depends on what is reasonable under the facts and circumstances.

The agent relationship can affect reasonable reliance

Montana considers the relationship between the insured and the insurance professional when deciding whether reliance was reasonable.

• length of the relationship
• specific insurance needs communicated
• agent representations concerning expertise
• whether the agent completed the application
• whether prior declarations were supplied
• whether the agent prepared a coverage comparison
• whether the agent represented that requested coverage had been obtained
• whether policy differences were explained
• whether later documents clearly contradicted the representation
• the sophistication and circumstances of the insured

Fillinger: an agent must carry out the insurance instructions

Fillinger v. Northwestern Agency, Inc., 283 Mont. 71, 938 P.2d 1347 (1997), involved a Montana outfitting business seeking insurance protection connected with its operations, including horse-related risks.

The jury found the agency liable on several theories after the procured insurance did not supply the protection the Fillingers maintained had been requested.

Fillinger also remains important to Montana's no-absolute-duty-to-read doctrine and to the role that oral negotiations and agent representations can play in reconstructing an insurance transaction.

Duty to procure requested insurance is not the same as a universal advisory duty

Monroe: no general heightened duty had been recognized

In Monroe v. Cogswell Agency, 2010 MT 134, 356 Mont. 417, 234 P.3d 79, the Montana Supreme Court noted that a heightened professional advisory duty had not yet been recognized under Montana law.

The Court nevertheless reaffirmed the established duty to procure coverage actually requested by the insured.

Bailey did not finally decide the heightened-duty question

Bailey reversed summary judgment under the established procurement theory and therefore found it unnecessary to decide whether the circumstances might also support a heightened duty.

No request or undertaking can defeat the procurement theory

R.H. Grover, Inc. v. Flynn Insurance Co., 238 Mont. 278, 777 P.2d 338 (1989), illustrates the opposite side of Montana's rule.

Where the particular insurance was not requested and the agent had not undertaken to procure it, the asserted negligent-procurement duty did not arise.

Identify the agent, agency and insurer separately

An individual producer, agency and insurer are not automatically the same legal actor. Determine who performed each step of the insurance transaction.

• individual insurance producer
• business-entity insurance agency
• appointed producer
• independent producer or broker
• insurance company
• customer-service representative
• underwriter
• other intermediary

Monroe: agency can change during the procurement process

Monroe explains that an insurance agency can initially act for the customer while investigating and selecting among insurers, but after the agency selects and procures a particular insurer's policy, an agency relationship with the insurer can arise for aspects of the solicitation and procurement.

Montana regulates producer licensing and insurer appointments

MCA § 33-17-201 presently provides that a person may not sell, solicit, negotiate insurance, or act as an insurance producer in Montana unless licensed under the producer-licensing chapter.

MCA § 33-17-236 separately regulates when a producer may represent that the producer is an authorized or appointed producer of a particular insurer.

Misrepresentation can be a separate issue from procurement negligence

A transaction may involve both:

• failure to obtain requested insurance; and
• a representation that particular coverage had been obtained when it had not.

Those issues should be identified separately because negligent procurement, common-law fraud or misrepresentation, insurer liability, regulatory rules and current statutory insurance-practices remedies do not necessarily have the same elements, defendants or remedies.

Failure-to-procure investigation

Reconstruct the insurance transaction chronologically. The application is important, but the complete record can begin before the application and continue through policy delivery and renewal.

Evidence to preserve

• prior insurance policies
• prior declarations pages
• insurance cards given to the agent
• applications
• electronic application audit records
• quotations
• coverage proposals
• coverage comparison documents
• binders
• agent notes
• agency CRM records
• emails
• text messages
• recorded calls
• renewal notices
• policy-change requests
• endorsement requests
• premium invoices
• declarations pages
• complete issued policy
• policy-delivery records
• advertising or expertise representations
• producer licensing records
• producer appointment information
• underwriting records where obtainable
• available policy forms
• evidence of the requested coverage's availability
• documents showing the loss caused by missing coverage

Common failure-to-procure mistakes

• Looking only at the signed application.
• Ignoring oral or written insurance instructions given before the application.
• Assuming “full coverage” has one standardized legal meaning.
• Failing to obtain the prior policy in a state-to-state transfer.
• Comparing labels instead of substantive coverage.
• Assuming failure to read the policy automatically bars the claim.
• Ignoring comparative negligence when obvious discrepancies were received.
• Assuming every producer has a universal duty to recommend every possible coverage.
• Stating that Montana could never recognize a heightened duty under special facts.
• Failing to prove the requested insurance was actually obtainable.
• Failing to measure the benefits the missing coverage would have paid.
• Failing to identify the individual producer, agency and insurer separately.
• Assuming producer licensing automatically establishes civil liability.
• Using older insurance-practices remedies without checking current law.

Montana authority map