Agent Liable in Premium Payment Dispute After Fire Destroys Home
A federal judge has sided with United States Liability Insurance Company (USLI), determining the insurer is not obligated in a case involving an insurance agency accused of mishandling premium payments. This decision leaves the agency on the hook for damages after a fire destroyed the homeowners’ residence.
In a March 17 opinion, Chief Judge Kristine G. Baker of the US District Court for the Eastern District of Arkansas granted summary judgment to USLI. The court determined that the insurer was within its rights to deny coverage to Stone County Insurance Agency, Inc., based on a specific policy exclusion.
At the heart of the matter was a professional liability policy issued by USLI to Stone County Insurance. The homeowners, Ase Gro Lindland and Olav Lindland, alleged that the agency’s failure to properly manage their homeowners insurance premiums led to the cancellation of their policy shortly before a devastating fire consumed their Arkansas home.
The Lindlands, who split their time between Arkansas and Norway, maintained a long-standing relationship with Stone County Insurance, relying on the agency for their homeowners coverage payments. Faced with pandemic-related travel restrictions in May 2021, they emailed their credit card information to the agency, requesting that their premium be paid.
Janet Nesbitt, an employee of the agency, processed two payments totaling approximately $1,450. However, according to court records, Nesbitt mistakenly told the Lindlands that the payments covered a full year when they only covered six months.
Furthermore, notices regarding a $78 balance and a cancellation warning were sent to the Lindlands’ Arkansas address while they remained in Norway. The agency, which allegedly received copies of these notices, failed to inform the Lindlands.
As a result, their policy lapsed on October 27, 2021, due to nonpayment. Less than six months later, an uninsured fire destroyed the Lindlands’ home. Their insurer denied the claim.
The Lindlands subsequently sued Stone County Insurance in state court, alleging negligence and breach of an oral contract. They later secured a consent judgment in their favor, receiving nearly $587,000 for property damage, personal belongings, and related expenses.
Stone County Insurance assigned its rights under its professional liability policy to the Lindlands, who then sought to collect the judgment from USLI.
USLI maintained that its policy contained a clear exclusion that barred coverage. Specifically, Exclusion D excluded claims arising from “the commingling of, or inability or failure to pay, collect, safeguard or return any money.”
Although USLI initially funded the agency’s defense under a reservation of rights, it later withdrew and filed a declaratory judgment action, seeking confirmation that it owed no duty to defend or indemnify.
Chief Judge Baker supported the insurer, ruling that the Lindlands’ claims were directly tied to Stone County Insurance’s failure to pay premiums—precisely the type of risk the policy excluded. “The plain language of Exclusion D controls,” Judge Baker wrote. She emphasized that the agency’s failure to notify the Lindlands of overdue notices or misrepresenting the coverage term was inseparable from the ultimate failure to pay, leading to the policy lapse.
Attempts by Stone County Insurance and the Lindlands to argue that other acts of negligence triggered coverage were rejected. Judge Baker highlighted that Arkansas law interprets policy exclusions broadly when the language is clear, not requiring a proximate cause analysis to enforce them. The court also dismissed claims that USLI’s initial decision to defend the agency meant it could not later deny coverage. Arkansas law, Judge Baker noted, does not permit estoppel to expand coverage beyond the clear terms of the policy, even when a defense was initially provided without a reservation of rights.
The ruling serves as a reminder of the importance of well-drafted exclusions within professional liability policies, particularly in cases that involve financial transactions and client funds. For insurance agents and brokers, the case serves as a warning on the risks that can arise from assuming informal duties to manage client payments. For insurers, the ruling reinforces the enforceability of clear policy language and reinforces the importance of early and clear coverage determinations.
Judge Baker’s order denied counterclaims filed by both Stone County Insurance and the Lindlands, affirming USLI’s position that it owed no duty to defend or indemnify.
