The question immediately arises as to whether an agent is liable for post-loss incorrect statements of coverage even if those representations were made honestly and in good faith. Unfortunately, the answer is yes. The answer is yes even when the policyholder gives the agent incomplete information concerning the circumstances of the loss. The only possible defense that an agent may have to promissory estoppel is when a policyholder gives an agent false information concerning the circumstances of a loss prior to the agent making a representation of coverage.
Consequences of Promissory Estoppel
If an agent makes an incorrect statement that there is coverage, the consequences can be devastating. The following is an example of the consequences of promissory estoppel:
- the insurance proceeds would be $1,000,000.00 if coverage was afforded;
- the agent represents that there is coverage for a particular loss, but the company later correctly denies the claim;
- as a result of agent’s representation that there was coverage, the policyholder renews his lease at a cost of $300,000.00 over 3 years;
- the renewal of the lease is the only adverse action taken by the policyholder as a result of the agent’s representation.
Under these circumstances, what is the extent of the agent’s liability? Believe it or not, the agent is prevented (estopped) from asserting that there is no coverage. Therefore, depending on the state, his exposure may be $1,000,000.00!