On February 16, 2011, the Tennessee Supreme Court redefined and revamped the law governing an insurance agent’s responsibilities in procuring insurance coverage for an insured. In its landmark decision of Morrison v. Allen, 338 S.W.3d 417 (Tenn. 2011), the court held that an insurance agent could be held liable for his failure to procure an incontestable insurance policy even in instances when the insured fails to read his insurance application. In this insurance dispute, the plaintiff sued her insurance agent after the plaintiff was denied benefits under a life insurance policy that contained incorrect information. The plaintiff alleged that her insurance agent breached an owed duty to her and her husband by failing to procure an incontestable policy after they relied on his expertise in obtaining a policy that contained accurate information. The court affirmed the trial court’s judgment and held that the agent was liable to the plaintiff, despite her admission that neither she nor her deceased husband had read their insurance applications. Moreover, the court held that the damages award should not be offset by any settlement funds the plaintiff received from the insurance company because the settlement with the insurance company was not based solely on a claim for breach of the insurance policy. Rather, the settlement reached released the insurance company from all claims brought by the plaintiffs, including those for violations of the Tennessee Consumer Protection Act, negligence, and breach of contract. Thus, the settlement proceeds would not offset any award entered against the insurance agent because the settlement proceeds were not limited to the benefits the plaintiff would have received if the policy was in place.
The Morrison opinion sets forth three important principles that have reshaped agent liability in the insurance context:
First, Morrison is the first Tennessee Supreme Court case that recognizes an independent cause of action for an agent’s failure to procure an insurance policy. More importantly, it is the first Tennessee opinion that has allowed a plaintiff to recover against an agent for his failure to procure an incontestable policy. The court identifies the elements necessary to prevail under this theory and thus lays the groundwork for future claims to be brought against insurance agents in Tennessee.
Next, by labeling insurance agents as fiduciaries and professionals in their field, Morrison sets forth a higher standard of conduct to be followed in Tennessee. The rule in Morrison is clear: Agents are not absolved from liability because an insured signs an application with inaccurate information. Rather, as professionals with a unique set of expertise, Tennessee insurance agents are responsible for conveying accurate information in an application so as to ensure the receipt of an incontestable policy.
Finally, Morrison opens the door for creative plaintiffs to seek full recovery from both an insurance company and his or her insurance agent. Under Morrison, a carefully crafted complaint coupled with a broad settlement agreement can significantly increase a plaintiff’s chance of recovering against both the insurer and agent.