I Square Management LLC is a hotel
management company that also builds and renovates existing hotels. I Square and
an affiliate, AKH Hotel, LP, purchased a hotel in Knoxville, Tennessee, and
planned significant renovations. As part of the renovations, I Square and AKH bought
furniture, fixtures, and equipment, and stored it in a warehouse pending
During the project their insurance agent,
McGriff Insurance Services, Inc., advised that a “builder’s all-risk” policy was
unnecessary. After a flood destroyed much of the property in the warehouse, I
Square and AKH filed claims with their insurers.
AKH and I Square sued McGriff when claims
against their insurance carriers were denied. The theory of the lawsuit was
that McGriff negligently rendered advice that AKH and I Square need not
purchase a builder’s all-risk policy. And that an all-risk policy would have
adequately covered the loss.
The district court, finding that
McGriff had no duty to give advice to its customers regarding the availability
of different coverages or that adequate coverage existed, granted judgment for
Plaintiffs AKH and I Square
The first test undertaken by the
appellate court was to determine if McGriff owed a duty to its customers to
explain and recommend various coverages. Absent a duty, I Square and AKH have
The appellate court found, at least
in this State, the “long established rule placing a responsibility on the
insured to educate himself concerning matters of insurance coverage.” An agent
may inform the customer of the availability of various insurance products, but
the agent has no obligation to do so.
However, where an agent and insured
have a “special relationship” then a duty may be imposed on the agent to advise
the customer of appropriate insurance coverage.
To utilize that exception, AKH and I
Square claim that McGriff is a highly skilled expert, and that both I Square
and AKH completely relied upon assurances offered by McGriff. To their
Unconvinced by this position, the
appellate court responded with “It would be the rare agent who does not hold
himself out as highly skilled, and the rare insured who doesn’t rely on the agent’s
skill in making insurance selections.”
As a counterpoint, the Plaintiffs
offered that McGriff sought to do business with I Square and AKH. Not the other
way around. McGriff then met with I Square at I Square’s offices to pitch
McGriff’s insurance prowess and a plan that would streamline I Square’s
insurance practices and save it money.
McGriff also promised to service I
Square’s existing policies for free and when the policies were ripe for renewal,
McGriff would recommend one universal policy to cover all projects instead of
multiple and more costly policies.
Induced by those assurances, I
Square abandoned its existing agent and turned to McGriff.
Remaining unpersuaded by any of
this, the appellate court determined that no special relationship exists that
would merit the imposition of liability upon McGriff. Absent that duty, it is
irrelevant that Plaintiffs relied on McGriff’s suggestions, and that Plaintiffs
suffered significant damages.
McGriff wins; AKH and I Square lose,
again. See I Square Management and Arkansas Knoxville Hotel v. McGriff Insurance
Service; US Court of Appeals, 8th Circuit, Case No. 21-3256,
November 9, 2022: https://law.justia.com/cases/federal/appellate-courts/ca8/21-3256/21-3256-2022-11-09.html.
Questions / Issues:
- Did the outcome of this case surprise you – did you expect Plaintiffs to receive a Judgment against their insurance agent for Plaintiffs’ damages? I did.
- How will you change your practice based on this
case? Engage risk managers or paid insurance consultants, perhaps, to
render written reports upon which you may rely? Because otherwise, you may
have no recourse against a negligent insurance agent.
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.