Ohio Court Holds that Insurance Agents and Brokers Cannot be Sued for Negligence

March 1, 2007

David Walulik of Frost Brown Todd recently obtained a significant victory for Ohio insurance agents and brokers in a decision that eliminates most negligence claims.  In Mafcote v. Genatt Associates, 2007 U.S. Dist. Lexis 10117 (S.D. Ohio Feb. 14, 2007), U.S. District Court Judge Susan Dlott held that an insurance agent or broker cannot be sued by a policyholder for negligence unless the insurance agent or broker committed an act or error that causes actual physical injury or property damage.  The alleged failure to procure proper insurance coverage does not give rise to such a negligence claim.  Under Mafcote, an Ohio insurance agent or broker cannot be sued for negligent failure to procure insurance or the right type of coverage.

Mafcote is an extension of Ohio ’s economic loss doctrine to professional malpractice claims.  In the product liability context, Ohio courts have held that a plaintiff may not recover in negligence for a defective product unless that person suffered personal injury or property damage.  Where a plaintiff merely alleges that a product has failed to perform, the plaintiff is left to contractual remedies which typically are limited to the manufacturer’s warranty.

In Mafcote, a paper manufacturer sued its insurance broker alleging that it negligently failed to procure an insurance policy covering business interruption losses.  A boiler accident at the policyholder’s plant disrupted its supply chain and caused the policyholder to purchase more expensive substitute product from third parties.  The policyholder claimed that the insurance broker’s failure to obtain proper coverage caused the policyholder to be uninsured for this loss.

The Mafcote court rejected the claim and held that Ohio law does not recognize this type of negligence.  The policyholder merely sought the insurance payout that it expected to receive.  This insurance payout is an economic loss that was not the result of physical injury or property damage caused by the broker.  As such, the policyholder was left to its contractual remedies even though the policyholder had no viable breach of contract claim.  As a result, the insurance broker won a complete dismissal. 

The lesson to be learned from Mafcote is that insurance agents and brokers should always have a written contract with a policyholder prior to providing service.  We have found in many cases that insurance agents or brokers often operate without such agreements.  These cases often leave the agent or broker disputing the terms of an alleged oral contract in a lawsuit that is difficult to dismiss before trial.  Proper use of a written contract can dictate the scope of service to be provided and can be used to limit future liability.

Attorneys at Frost Brown Todd advise and defend insurance agents and brokers from numerous types of policyholder lawsuits.  We routinely advise agents and brokers how to structure their contracts to avoid future liability and minimize legal risks.  In light of the Mafcote case, all insurance agents and brokers should examine their engagement contracts to determine how best to eliminate future claims.  We would be happy to discuss available options and other developments in this area of the law.  In that regard, please feel free to contact David Walulik (513) 651-6877 dwalulik@fbtlaw.com, Joseph Dehner (513) 651-6949 jdehner@fbtlaw.com, or Scott Brown (513) 651-6995 sbrown@fbtlaw.com for additional information or advice.

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