Coverage Suit

A declaratory-judgment action was filed by an insurer that is not a party to this case, but the insureds added claims against many other insurers for reimbursement of the costs of defending and settling earlier litigation. For the purpose of this suit, the only relevant insurer involved in the coverage suit was Ocean Marine Indemnity Co. (OMI). OMI provided the insureds $5 million in umbrella coverage for the one-year period from Oct. 1, 1992, through Sept. 30, 1993. OMI disputed coverage and in 2001, the insureds settled their claims against OMI for $500,000.

Broker-Liability Suit

The coverage suit was followed by the broker-liability suit. In 2003, the insureds sued the brokers, alleging that they were liable for the costs of defense and settlement of the third-party litigation to the extent that any of these expenses were or should have been covered by insurance but remained unpaid.

The trial court granted partial summary judgment in the brokers' favor on the insureds' claims of negligence, negligent misrepresentation and violations of a Texas statute. The remaining claims were tried before a jury in 2005. The trial court granted a directed verdict in the brokers' favor on the insureds' claims for breach of fiduciary duty and rendered judgment on the jury's verdict in the brokers' favor on the insureds' fraud claims. On appeal, the appellate court reversed the summary judgment, but affirmed the judgment in all other respects.

OMI was a Louisiana insurance company and was admitted to do business there, but Guidry sold the insureds the policies in Texas, and OMI was not admitted to do business in Texas. The insureds faulted Guidry not only for placing their umbrella coverage with a surplus-lines carrier, but in particular, for obtaining insurance from OMI.

When Guidry procured the insurance, OMI was eligible for admittance to the business of insurance in Texas and had a rating of “A-” in Best's Insurance Reports, most commonly referred to at trial simply as Best's.

Related: Read “Risky Building” by Barry Zalma.

Agent's Errors

It was undisputed that Guidry is not licensed to sell insurance in Texas; that he is not licensed to sell surplus-lines insurance anywhere; that OMI is a surplus-lines carrier; that the cover note did not contain the warning required by statute; and that Guidry did not disclose any of this information to the insureds.

Based on the testimony presented, a reasonable jury also could conclude that Guidry did not attempt to procure insurance from an admitted carrier before placing the insurance with a surplus-lines carrier; did not look at Best's report on OMI; and did not review the Louisiana edition of Surplus Lines Reporter.

Insured's Obligation

To prove causation of damages from the failure to place the coverage with an admitted carrier, the insureds had to prove that an admitted carrier would have contributed more to the Derrick settlement than OMI did. Without such evidence, the insureds could not show that Guidry's failure to place the insurance with an admitted carrier caused the insureds to receive anything less than they otherwise would have done.

To make such a showing, the insureds had to present evidence that (1) they could have obtained insurance from an admitted carrier, and (2) the admitted carrier would have paid more toward the Derrick settlement than OMI did.

To prove that Guidry's failure to hold the proper licenses caused them to receive a lower contribution to the Derrick settlement, the insureds had to produce evidence that they would have received more if their umbrella insurance had been purchased through a licensed agent. There was no such evidence.

Related: Read the column “No Foundation” by Barry Zalma.

Based on the jury's finding that Guidry misrepresented an insurance policy or the financial condition of an insurer, the trial court awarded the Insurers attorneys' fees of $350,000 and exemplary damages of $1 million, as found by the jury. A plaintiff who does not recover actual damages cannot recover attorneys' fees under the Insurance policy or exemplary damages.

No evidence supported the insureds' claim that their insurance agent's acts or omissions caused them to be paid less in indemnity for the Derrick settlement than they otherwise would have received. The Court of Appeal, therefore, reversed the trial court's judgment and rendered judgment that the Insureds take nothing by their claims.

This case proves that luck sometimes overcomes lack of skill, experience, knowledge and license. No matter how badly Guidry serviced his clients his error did not damage them. Escaping this judgment was based upon the skill of his insurer and the lawyers retained by it to defend Guidry and his employer. He should be happy that the Court of Appeal were fans of the late Chick Hearn, the radio announcer for the Los Angeles Lakers, who coined the phrase, “No harm, no foul.” Although not codified, if the plaintiffs can't prove they were damaged, they should receive nothing, no matter how negligent their agent.