February 11, 2011
Court unmoved by suit over underinsured home
By ANDREW BERGH
Special to the Journal
How do you know if you have enough insurance
One simple way is by asking your insurance agent. But if you go this
route, make sure you keep asking questions until you receive specific
answers. Because as two long-time State Farm insureds recently learned,
an insurance agent usually owes no duty to affirmatively advise you
about the adequacy of your insurance coverage.
The Case of the Woefully Underinsured Abode hails from Goldendale, which
is where Richard and Mary Lou McClammy first bought a home in 1994. That
same year, they purchased a homeowner's policy from Robert Cole, a local
agent for State Farm Fire & Casualty Co.
When the McClammys bought a new house in 1995, they kept their business
with State Farm. After Cole gave them three quotes ranging from $195,000
to $225,000 in coverage, they opted for a $200,000 “replacement cost”
policy. Like most homeowner's policies, the coverage increased with
construction costs and inflation.
Not long after this transaction, Cole retired and State Farm appointed
his son, Michael, as his replacement. The McClammys loyally stayed with
the agency, also buying several car insurance policies, an umbrella
policy, and a liability policy for their business.
Over time, the McClammys gradually improved their home. They replaced a
pellet stove with a propane stove in 1995, installed skylights in 1999,
replaced the roof in 2000, and added a sunroom and remodeled the kitchen
in 2000 or 2001.
If they read their fine print, the McClammys knew they were supposed to
keep State Farm current about any major improvements to their home.
Instead, Richard McClammy didn't say anything to Cole about their
remodeling and addition until May 2004, which is when he went to the
agent's office to discuss a recent large premium hike.
Uncomfortable with the amount of their coverage, McClammy told Cole
about their improvements and suggested that he go inspect the house. The
agent apparently didn't commit one way or the other. But in a follow-up
email, Cole suggested that the coverage on the house — then just over
$275,000 — could be reduced to about $240,000 and “still stay within an
estimated 100% to value.”
In October 2004, Mr. McClammy returned to the agency to discuss a water
damage claim. He again told Cole about their improvements, and again
asked him to go out and evaluate their coverage. Focusing on the water
damage claim, the agent was noncommittal and said they could “do that
later.” McClammy never asked Cole during this meeting (or at any other
time) to raise the limits on his homeowner's coverage.
Six months later, a fire completely destroyed the McClammys' home. A
contractor estimated that it would cost $580,000 to rebuild a similar
house. But according to State Farm, its liability under the replacement
cost policy was capped at $367,000.
Given this huge shortfall, the McClammys later sued State Farm and its
agent for damages in Klickitat County Superior Court. The defendants
were liable for the $213,000 difference, the suit claimed, because Cole
had negligently failed to ensure that the McClammys were adequately
But the insureds faced a steep uphill battle.
Under Washington law, absent a “special relationship” between the
insurance agent and the insured, the agent ordinarily owes no duty to
advise the insureds that they should increase their coverage. Relying on
this general rule, the trial court granted a defense motion for summary
judgment and dismissed the McClammys' claims.
In the ensuing appeal, the McClammys argued that they had a “special
relationship” with Cole, and that their suit was wrongly dropped. But a
Washington appeals court recently said ix-nay.
The “special relationship” exception doesn't apply, said the court,
unless three circumstances are present. First, there must be a
“long-standing relationship” between the insurance agent and the
insured. Second, there must be “some type of interaction on the question
of coverage.” And third, the insured must rely on the agent's expertise
to his or her detriment.
The appeals court agreed that the relationship between the McClammys and
Cole had been long-standing.
The court also acknowledged that there had been “interaction” between
Richard McClammy and Cole — specifically, the two meetings in May and
But on each occasion, the court emphasized, McClammy never requested
advice about whether he and his wife should increase their homeowner's
coverage, and Cole never gave any such advice. Instead, the first
discussion arose from the McClammys' concern over the recent premium
hike — not the amount of their replacement cost coverage — while the
second focused on the water damage claim.
In short, the appeals court ultimately said the level of interaction
between the insureds and their agent was insufficient to establish a
As a consequence, the McClammys' suit against State Farm and their
agent, just like their house, went down in flames.
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