On July 9, 2015 the Arizona Supreme Court issued its opinion in Wilks v. Manobianco. The issue in the case was whether an insurance agent’s compliance with Arizona Revised Statutes (A.R.S.) § 20-259.01, which requires insurers to offer uninsured motorist (UM) and underinsured motorist (UIM) coverage to insureds, precluded a negligence claim against the agent for failure to procure the UIM coverage requested by the insured which the agent agreed to procure. The Court held that compliance with the statute, including the insured’s completion of a form rejecting the UIM coverage, did not bar the professional negligence claim against the agent. The Supreme Court’s opinion affirmed the opinion issued by the Court of Appeals in July of 2014.
Lesley Wilks had car insurance from State Farm, which she obtained from John Manobianco at the Manobianco Insurance Agency (collectively, “Manobianco”). Her policy included UM and UIM coverage. Two years later, Wilks switched to another insurer, and obtained a policy that also included UM and UIM. A year later, Wilks decided to switch her policy back to State Farm. Wilks asked Manobianco to obtain “the exact same coverage that [she’d] had previously, full coverage.” Manobianco told Wilks that they would give her the same coverage, but Manobianco did not look up her prior coverage with State Farm. Wilks signed several documents, including a form approved by the Department of Insurance, which Manobianco had filled out to reject UIM coverage.
Several years later, after Wilks was hit by an underinsured driver, State Farm denied her UIM claim. Wilks and her husband sued Manobianco for failing to procure the insurance coverage Wilks requested.
The trial court found that Manobianco’s compliance with A.R.S. § 20-259.01 showed that the agency had fulfilled its duties to Wilks, and therefore Manobianco breached no duty owed to her. The Court of Appeals reversed, and the Supreme Court accepted review.
The Supreme Court explained that under Arizona’s common law, insurance agents owe a duty of reasonable care when obtaining insurance on behalf of their clients. It rejected Manobianco’s argument that the legislature modified that common-law duty by enacting A.R.S. § 20-259.01, which provides in relevant part:
Every insurer writing automobile liability or motor vehicle liability policies shall ... make available to the named insured thereunder and shall by written notice offer the insured and at the request of the insured shall include within the policy underinsured motorist coverage which extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy. The selection of limits or rejection of coverage by a named insured or applicant on a form approved by the [DOI] director shall be valid for all insureds under the policy.
A.R.S. § 20-259.01(B)(UIM); see also A.R.S. § 20-259.01(A)(UM).
The court decided two questions. One, it determined that the language of the statute did not mention insurance agents and thus only covered insurers—those who write automobile insurance policies. Two, the court decided that the statute did not preclude common law causes of action for professional negligence (also called malpractice) because the statute did not mention it. Generally, when the legislature seeks to preempt a cause of action, the statute or the legislative record must state the legislature’s intent explicitly. The court explained that the statute provides insurance companies with a method of proving that they offered UM and UIM coverage to their insureds.
Manobianco argued that the statement in the statute that “rejection of coverage … shall be valid for all insureds” precludes any action involving a fact-based inquiry regarding a plaintiff’s UIM coverage. The court disagreed, stating that 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 statute only bars inquiries related to the insurer’s offer of UM and UIM coverage. The statute does not address factual inquiries related to other types of alleged negligence or wrongdoing.
However, the court held that Wilks’ admitted failure to read the DOI form she signed, despite the word “WARNING” in bold print and the language “read carefully before signing,” could be submitted to the jury to consider during its assessment of comparative negligence. In other words, the jury could reduce the amount of damages it awards Wilks based upon her own negligence in failing to read the form, which contributed to the lack of UIM coverage. Furthermore, the court held that the jury could weigh the fact that Manobianco complied with A.R.S. § 20-259.01 as evidence that he acted reasonably under the circumstances.
A.R.S. § 20-259.01 does not apply to insurance agents, only insurance companies. Compliance with the statute does not preclude a professional negligence claim against the agent. The jury can consider the fact that the insured failed to read the form she signed in assessing comparative negligence, and thus can reduce her damages based upon her own negligence. The jury also could consider the fact that the agent complied with A.R.S. § 20-259-01 as evidence that the agent acted reasonably under the circumstances, and thus was not negligent by failing to obtain the UIM coverage.
For more information about any of the matters discussed in this Insurance Client Alert, please contact your Kutak Rock LLP attorney or a member of our Insurance Practice Group.