Commentary From Counsel: Update: Wisconsin Supreme Court Affirms Agent E&O Win, Strengthens Future Defenses

On May 21, 2020, in Emer’s Camper Corral v. Alderman, the Wisconsin Supreme Court issued a 6-1 majority opinion confirming a rigorous causation standard for negligent procurement E&O claims. The Court ultimately found that, in order to prevail on a claim for negligent procurement of an insurance policy, an insured must show that the promised policy was commercially available to them. While this decision is undoubtedly a win for agents, it is critical that you take care when communicating with clients.

Since 2004, Rhonda Emer and her husband have sold new and used camper trailers under the trade name Camper Corral. Not long after founding the business, the Emers began purchasing Camper Corral’s insurance through the defendant insurance agency. Starting in 2007, General Casualty Company of Wisconsin insured Camper Corral. However, before the commencement of the 2012-13 policy year, General Casualty sent Camper Corral a nonrenewal notice after two consecutive years with at least $100,000 in hail damage claims.

Following the nonrenewal, the Emers worked with their agent to obtain insurance through Western Heritage Insurance Company. The 2012-13 policy had a $5,000 deductible for hail damage per camper. However, the agent told the Emers that, if they could go claim free for two years, he may be able to negotiate the hail damage deductible down to $1,000 per camper. After two claim free years, the agent contacted the Emers with the news that he had obtained a policy from Western Heritage with a $1,000 deductible per camper for hail damage and a $5,000 aggregate deductible limit. In reality, the Western Heritage policy the Emers ultimately purchased had a $5,000 deductible per camper for hail damage with no aggregate deductible limit.

In September of 2014, another hail storm swept over the Camper Corral lot. This storm damaged 25 of the campers in the Emers’ inventory. Because of the actual terms of the Western Heritage policy, the Emers’ deductible amounted to $125,000. As a result, the Emers sued the agent for negligence, suggesting he had breached his duty to them by failing to adequately describe the terms of the Western Heritage policy. For damages, the Emers asked for $120,000, i.e., the difference between their deductible and the $5,000 aggregate deductible they were promised. The case ultimately went to trial. However, before the jury could deliberate, the agent moved for a directed verdict, arguing the Emers had not satisfied their evidentiary burden. The trial court agreed, ruling that, without evidence that the policy promised to the Emers was commercially available to them (and not just generally available in the marketplace), they could not prevail on their negligence claim. The Wisconsin Court of Appeals affirmed the trial court, and the Emers appealed the case to the Wisconsin Supreme Court. According to the State Supreme Court, to prevail on their negligence claim against the agent, the Emers needed to prove four well-settled elements: “(1) [the agent’s] duty of care to Camper Corral; (2) [the agent’s] breach of that duty; (3) injury caused by [the agent’s] breach; and (4) actual loss or damage resulting from the injury.” However, the only issue left for the Supreme Court to decide was the third: causation.

The Wisconsin Supreme Court ultimately held that the Emers had not provided sufficient evidence to satisfy the causation standard. In their arguments before the Wisconsin Supreme Court, the Emers suggested they only needed to prove that a policy like the one they were promised was commercially available. The Supreme Court, though, found that was one step short. Not only did the Emers have to prove that the relevant policy was available in the marketplace, but they also had to show that the policy was commercially available to their business. Put differently, “[w]hether the unavailability is general, or instead particular to Camper Corral, the policy’s unavailability exists independently of any negligence on behalf of the broker.” Thus, as the Emers did not show that the policy promised to them by the agent was commercially available to their business, the Supreme Court affirmed the trial court’s directed verdict in the agent’s favor.

This decision is a big win for both insurance agents and E&O carriers defending claims under Wisconsin law. With the additional burden of having to prove specific availability in negligent procurement cases, agents will see fewer judgments against them and, as a result, fewer lawsuits brought in the first place. Further, only one Justice dissented in the Camper Corral case. Thus, even as the makeup of the Court shifts slightly over the next few months, this decision is likely to remain binding precedent well into the future.

With this in mind, you should still see this case as a cautionary tale. Sure, the case ended with a positive result for both the defendant agent, the E&O carrier and insurance agencies around Wisconsin. But, it took a full trial and appeals all the way to Wisconsin’s highest court to achieve that result. It is essential that you take great care when marketing policies to your clients. Doing so will likely save you the hassle of expensive litigation.

Ultimately, the Wisconsin Supreme Court’s decision in Emer’s Camper Corral v. Alderman is a huge win for insurance agents and E&O carriers around the state. This will undoubtedly result in fewer negligent procurement cases brought against agents and stronger defenses in some of the cases and claims that are brought by disappointed insureds. We will keep an eye on the application of this stringent causation standard—it may well cross

Wisconsin’s borders into other states.