Was Arizona agent negligent for not obtaining UM/UIM coverage?

In Arizona, like most states, a statute requires that an insurer offer each insured both Uninsured Motorist (UM) and Underinsured Motorist (UIM) Coverage.

The statute says that the coverage can be excluded only if the insured signs a document specifically rejecting the coverage. Insurers can prove compliance with the statute by having their insureds sign a form approved by the Arizona Department of Insurance (DOI) selecting or rejecting such coverage.

In Wilks v. Manobianco, the Arizona Supreme Court was called upon to decide whether compliance with Arizona Revised Statutes (ARS) § 20-259.01 bars a negligence claim alleging that the insurance agent failed to procure the UIM coverage requested by the insured.

Factual background

For two years, Lesley Wilks had car insurance from State Farm Mutual Automobile Insurance Co., which she obtained through John Manobianco at the Manobianco Insurance Agency (collectively, Manobianco). Her policy included liability and both UM and UIM coverage. Wilks later replaced the State Farm policy with a policy from another insurance company.

A year later, she decided to switch back to State Farm. When doing so, Wilks asked Manobianco to obtain “the exact same coverage that [she] had previously, full coverage.” Manobianco did not look up Wilks' prior coverage and procured insurance that did not include UIM coverage. In the course of signing several insurance forms, Wilks signed the DOI-approved form, which had been filled out by Manobianco to reject UIM coverage.

Rear-ended by underinsured driver

Years later, Wilks was rear-ended by an underinsured driver. State Farm denied the UIM claim she made under her policy. Wilks and her husband sued Manobianco for malpractice for failing to procure the insurance coverage they had requested.

Manobianco moved for summary judgment, arguing that it satisfied its duty of care as a matter of law by complying with ARS § 20-259.01, and obtaining Wilks' signature on the DOI-approved form, rejecting the coverage.

The trial court found “that [Manobianco's] compliance with ARS § 20-259.01 demonstrated that [it] fulfilled [its] duties to Plaintiffs regarding offering the UM/UIM coverage,” and therefore Manobianco breached no duty owed to the plaintiffs. The court of appeals reversed the trial court, holding that insurance agents owe their clients a common-law duty of reasonable care.

The statute did not abolish that duty, the appeals court said, because the statute does not apply to insurance agents. The Arizona Supreme Court granted review of the case, noting that the statute's effect on the common-law duty of insurance agents is a potentially recurring issue of statewide importance.

Next page: Case analysis

(Photo: Shutterstock)

Case analysis

Manobianco argued that the statute implicitly bars negligence claims because the statute mandates that “rejection of coverage … shall be valid for all insureds,” which precludes any action involving a fact-based inquiry related to a plaintiff's UIM coverage.

The Arizona Supreme Court noted that the “shall be valid” language in ARS § 20-259.01(B) guarantees that “if an insurer provides and the insured signs a DOI-approved UM/UIM selection form, the insurer has satisfied the statutory requirement to 'make available' and 'by written notice offer' UM/UIM coverage.”

Thus, completing the DOI-approved form eliminates fact questions concerning “whether UM/UIM coverage was sufficiently offered” by the insurer and “whether the terms of the offer were understood,” the court said.

The form therefore only bars inquiries related to the insurer's offer of UM/ UIM coverage, the court explained. Because Wilks conceded that she was offered UIM coverage on a DOI-approved form, which she signed, her claim that Manobianco failed to procure the UIM coverage she requested “does not frustrate the purpose of § 20-259.01(B).”

The Supreme Court recognized that the distinction between the facts surrounding an insurer's offer of UM/UIM coverage and those surrounding a client's request for such coverage is slight, but that distinction is important given the language and purpose of the statute.

Duty on insurers

The court found that the statute imposes a duty on insurers to make an offer of UM and UIM coverage, but it does not discuss or affect whether an agent must honor a client's request for such coverage.

“An agent's common-law duty to its clients to procure requested UIM coverage therefore remains distinct from the duties prescribed by § 20-259.01,” the court said. Whether Manobianco failed to honor the Wilkses' alleged request for UIM coverage, and whether that failure breached Manobianco's common-law duty of care, are questions for the trier of fact.

Although the statute speaks only in terms of protecting “insurers” — that is, those who write automobile insurance policies — Manobianco maintained that the statute also applies to insurance agents because the term “insurer” necessarily includes insurance companies and their agents. The court rejected this argument.

Because the statute does not bar the Wilkses' negligence claim, the court held, Wilks' admitted failure to read the DOI-approved form she signed — despite its bold print “WARNING” and directive to “read carefully before signing” — may be submitted to the jury to consider during its assessment of comparative negligence.

Remanded for futher proceedings

The Arizona Supreme Court affirmed the opinion of the court of appeals, reversing the trial court's entry of summary judgment, and remanded the case to the trial court for further proceedings.

This is a situation in which an insurance agent and his lawyers were too smart by half. Rather than arguing the straightforward, admitted fact that the plaintiff had rejected UM/UIM coverage in writing, they argued that the statute helped the agent. There was no reason to raise that argument as this is a straight factual issue that should have been found for the insurance agent as a matter of law.

The insured, Wilks, admitted that the form was signed providing instructions to the insurance agent that UM/UIM coverage was rejected. Her actions should overcome the oral claim that Wilks asked for UM/UIM coverage.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, claims handling, bad faith and fraud. Contact him at [email protected].

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