Brown & Brown of Texas, Inc. v. Omni Metals, Inc., 2008 Tex. App. LEXIS 2065 (March 20, 2008), See Omni Metals Decision.
If this decision stands, then let the word go forth: customers and additional insureds, never, never rely on a certificate of insurance, insist in all cases on getting a copy of the named insured's policy, and read it carefully.
The named insured, Port Metal Processing, Inc., stores large coils of steel for processing. Its customer, Omni Metals, used Port's services over the years and continually asked Port to verify insurance coverage for Omni's products while stored with Port. Port maintained a bailee's liability policy covering property of others stored in Port's facility, but the policy excluded coverage if Port charged a fee for storage, which it did. Port obtained the policy from Transcontinental through an agent, Brown & Brown (actually, a predecessor named Poe & Brown -- this case was first appealed in 2000).
Now, here for me is the kicker. Port's president actually read the policy, noticed the exclusion and asked the agent if the exclusion applied to Omni's product. The agent said the exclusion only excluded property unrelated to Port's core business, and the steel coils were covered. The agent issued a number of certificates of insurance over the years for Omni's benefit stating that Port purchased the bailee's liability policy covering "all risks" of direct physical loss to property. The certificates also had the usual disclaimers the the certificate was informational and did not change the actual terms of the policy.
A fire destroyed Port's warehouse including Omni's product. Transcontinental denied the claim, and all kinds of litigation followed. This lawsuit was brought by Omni against both the insurer and agent (earlier litigation with Port had settled). The trial court dismissed the case based on the exclusion.
One of the oddities of this case is that Houston state courts are subject to the co-extensive jurisdiction of two courts of appeal, in the the 1st and the 14th Districts (the 1st District used to be Galveston, but after the 1900 hurricane practically destroyed the city and other historical developments, the District was moved to Houston). In 2000, Omni appealed the case, which the clerk randomly assigned to the 14th District. The appellate court found that both the actual statements and the certificate were actionable misrepresentations and reversed and remanded back to the trial court for fact findings by a jury to determine if Omni relied on the alleged misrepresentations.
The jury brought a verdict favorable to Omni, and the insurer and agent appealed, this time drawing the 1st Court of Appeals. Ignoring the legal findings of the 14th Court, the 1st Court held that Omni, as a stranger to the policy, could not, as a matter of law, have relied on any statements made to Port, and could not have relied on the certificate of insurance because of the Texas Supreme Court's statement in Via Net v. TIG Ins. Co., 211 S.W.3d 310 (Tex. 2006) that "those who take [certificates of insurance] at face value do so at their own risk." Reversed and rendered that Omni take nothing.
This decision drew a vigorous dissent (see Dissent) regarding both the majority's disregard of the 14th District's "law of the case" (meaning that a legal decision made on appeal should not be reconsidered on a subsequent appeal of the same case), and its distortion of the Via Net decision, which addressed the applicable statute of limitations in a failure-to-procure insurance case. Via Net had nothing to do with an agent's liability for misrepresentations in a certificate.
But neither the majority nor the dissent (nor the 14th Court for that matter) drew any distinction between the agent and the insurer, even though Transcontinental asserted that Poe & Brown was not its actual or apparent agent. Based on the facts related, coverage under the policy is not the issue. It is the law in Texas that an insurer will not be bound by misrepresentations in a certificate of insurance (barring liability for the agent's misrepresentations). So I don't see how Transcontinental is on the hook here, unless Poe & Brown was the agent of the insurer (not Port's agent). The key is the agent's liability for misrepresentation.
Poe & Brown knew that Port charged Omni for storage. The agent also knew that Omni was asking Port about coverage. And, asked point blank if the exclusion applied to Omni's product, the agent gave Port a false yet plausible explanation of the exclusion. Both Port and Omni were justified in accepting the agent's explanation despite what they may have thought the policy said. This is the dictionary definition of the tort of negligent misrepresentation.
I hope this panel of the 1st District Court of Appeals will reconsider the dissent's arguments. If not, I hope the 1st District Court of Appeals will reconsider the decision en banc. If not, I hope the Supreme Court considers the decision. If not, never, never rely on a certificate of insurance or, for that matter, an agent's explanation of policy language.