Bear with me while I set the stage.

                On the one hand, I grew up in the 1960's with the Space Race, Star Trek and the Jetsons. (For those of you not taking Centrum Silver every day, you can look them up on YouTube.) Notions of what the future would look like were paramount for me, as with many of my generation. Computers, robots, automation to the extreme with all its benefits. Later, future depicting movies, would have a more dystopian view.

                On the other hand, I am a student of the history of insurance. For many years, I have collected dozens of historical insurance policies, as anyone who has been to our office can attest.  These insurance policies are not only interesting to look at, but they each tell a story about a time in insurance history.  Many of the insurance policies that we have from the late 1800's and early 1900's have large rectangular blanks in the center of the Declarations Page where the multi-page, tissue paper thin forms and endorsements particular to the risk being insured were glued as part of the final, issued policy.                 

                Now add the two things above together, fast forward to today, and this is where we are now. Many insurers have now gone completely digital with the submission of risks solely online, usually via a portal. This is not exactly new. But what is new, and the impetus for this E&O Report, is that many insurers are now doing away with even digital documents being signed. No more signed applications or other submissions. Worse still, is that we are now aware of at least one major insurer that is using an underwriting algorithm that generates the quote automatically without any human involvement. We have an E&O matter we are handling where the application is not only on-line only, but there is no line for an insured's signature and no way to print the application or to send it to the customer. During the course of discovery in this litigation even the insurer only produced the “application" as a screen shot.  In this matter, a quote was generated automatically without any involvement by an underwriter.  The quote lists the policy forms, including “Protective Safeguard" which is the requirement that the sprinkler system be maintained. The quote has a signature line for waiver of terrorist coverage, but that is it.

                We are also seeing this trend played out with agents and brokers. It seems that as the world becomes more “remote" dependent and accepting, certain traditional ways of doing business are going the way of the buggy whip. Progress and evolution are fine and necessary, but only if the legal consequences are addressed. Unfortunately, they are not.

                In this type of situation, insurance agents/brokers and insurers are in the same boat. The submission of documents that have not been signed by an applicant /insured is very dangerous and will seriously affect all parties in the insurance procurement process. This lack of a signed application also presents potential E&O problems for insurance agents and brokers if there is litigation regarding the coverage procured.    

                First, as you may know from our prior E&O Reports and seminars, New York is a Specific Request state. If the applicant asks the insurance agent or broker for “A" you have a duty to procure “A" or advise that “A" cannot be obtained. But, after an uninsured loss we often see the insured lying or changing the version of what they actually asked for to try to widen the duty of the agent or broker.  A signed application can help prevent that from happening, since a signed application is the request.  In the case of Sung v. Hong,[1] the court said “the application was dispositive of the plaintiff's claim" against the broker that the wrong limits of uninsured/underinsured coverage were procured in contravention to what the broker promised to procure. Another court held that “an insurance broker is not liable for information contained in an insurance application that was reviewed and approved by the insured." Carner v Seneca Ins. Co., Inc.[2]

                Second, this law dovetails with, and is supported by, the Duty to Read defense which, (contrary to popular belief), applies to all insurance documents, the application and proposal included, not just the insurance policy.[3] But the Duty to Read defense is not available to an insurance agent or broker in an E&O Matter regarding information in the insurance application when the application is not signed and the insured claims they never saw it.

                Third, remember that an insurance agent/broker stands in the shoes of the insurer and when sued, can assert any defense the insurer may have to the claim. (This rule applies as long as that defense is not because of the agent or broker). Unfortunately, an insurance agent/broker and insurance carrier lose the defenses of material misrepresentation and/or fraud, and the equitable relief of rescission or reformation where there is no signed application by the Insured.

                In order for there to be a “material misrepresentation" or “fraud" in the submission of the risk, a/k/a the application, the insured must have signed the application. (There are certain caveats to this rule, but they are beyond the scope of this Report.) Consider this. The law is clear that an insurance carrier loses the defense of misrepresentation and materiality thereof where it fails to ask a question on something it later claims was important to the risk. For example, in the case of Christiana Gen. Ins. Corp. of New York v. Great American Ins. Co.[4] the court held that “where the insurer specifically inquires as to a fact, the insured is thereby on notice that the insurer considers it material."  Additionally, in the case of Jaunich v. National Union,[5] the court stated that “such information is particularly material when the information has been specifically requested as part of the insurance application."

                Consider this. In the case of Bleecker St. Health & Beauty Aids, Inc. v. Granite State Ins. Co.[6] the plaintiffs-insureds admitted that they did not read the insurance application when they signed it. The court did not care that the insured did not read the application and found that the signature was enough to support the insurer's defenses based on the contents of the application. The agent or broker involved could also rely on those defenses.

                Fourth, in the Carner v. Seneca Ins. Co. case referred to above, the court stated that “an insurance broker is not liable for information contained in an insurance application that was reviewed and approved by the insured."

CONCLUSION

            If either your internal procedures and/or those of any insurer with whom you do business do not require a signed application from an insured, we suggest that you consider doing the following: (1) Get a signed application anyway, no matter what the insurance company's procedures are.  Some agencies and brokerages follow the procedure of obtaining a signed ACORD application when a signed company application is not required.   Then, they simply retain the signed ACORD application in their customer file as documentation to confirm the information provided; and (2) Speak with any insurance companies that may not require a signed application to make them understand that they are creating a situation where they will lose a key defense to all manner of false and fraudulent misrepresentations, including rescission and reformation of the policy.

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[1] Sung v. Hong, 678 N.Y.S.2d 116 (2nd Dept. 1998).
[2] Carner v. Seneca Ins. Co., Inc, 2012 N.Y. Misc. LEXIS 931 (NY County, Judge J.M. Kenney).
[3] See Motor Parkway Enters., Inc. v. Loyd Keith Friedlander Partners, Ltd., 89 A.D.3d 1069 (2nd Dept. 2011).​
[4] Christiana Gen. Ins. Corp. of New York v. Great American Ins. Co., 979 F.2d 268 (2d Cir.1992).
[5] Jaunich v. National Union, 647 F. Supp. 209 (N.D. Cal. 1986).

[6] Bleecker St. Health & Beauty Aids, Inc. v. Granite State Ins. Co., 38 A.D.3d 231 (1st Dept. 2007).