|Does your dealership have an obligation to determine whether a customer has preexisting medical conditions before selling the customer credit disability insurance? At least one court thinks so, giving dealers one more thing to worry about. Here’s the story.|
During April 2000, Wayne Parker and Kenneth Konopinski separately leased vehicles through Klaben Family Dodge. Both Parker and Konopinski bought credit disability insurance issued by Protective Life Insurance in connection with the lease of their vehicles.
In the month prior to leasing his vehicle through Klaben, Parker was diagnosed with hip problems and, within two months after the lease transaction, underwent a total hip replacement. Similarly, within the six weeks prior to leasing his vehicle through Klaben, Konopinski had a heart catheterization and a balloon angioplasty. Three months after the lease transaction, Konopinski underwent triple bypass surgery.
When Parker and Konopinski became disabled as a result of these medical procedures, they sought coverage under their disability insurance with Progressive, but were denied coverage under the contractual provision denying coverage for preexisting conditions. Parker and Konopinski sued Klaben and Progressive alleging, among other things, negligence and fraudulent misrepresentation. The claims against Progressive were based on the agency theory of respondeat superior (Latin for "let the master answer," a doctrine in the law of agency, providing that a principal – here, the insurance company - is responsible for the actions of its agent – here, the dealership - in the "course of employment").
Klaben and Progressive moved for summary judgment. The trial court found in favor of Klaben and Progressive, and Parker and Konopinski appealed.
The Ohio Court of Appeals found that Klaben’s failure to ask Parker and Konopinski about their medical conditions, to investigate reasons why coverage might not be available to them, or to make sure they read their respective insurance policies did not amount to a fraudulent misrepresentation. In fact, the appellate court found that Parker and Konopinski were aware of their respective medical conditions and should have been aware that any disability insurance coverage could be affected by such medical conditions. Thus, the appellate court found that Klaben did not fraudulently misrepresent that the insurance policy would cover Parker’s and Konopinski’s preexisting medical conditions.
However, under a negligence theory, the appellate court found that Klaben did have a duty to inquire into Parker’s and Konopinski’s medical histories as a seller of disability insurance. The appellate court held that Klaben’s conduct fell short of the standard of care expected of insurance agents selling credit disability insurance because a minimal level of inquiry would have revealed Parker and Konopinski’s medical conditions and the likelihood that they would not be covered for those conditions. Thus, the appellate court held that Klaben’s actions in the sale of insurance to Parker and Konopinksi were negligent.
Because Progressive had an ongoing relationship with Klaben, received monthly remittances of premium payments for disability insurance coverage from Klaben, and provided the forms Klaben used, the appellate court found that Progressive and Klaben had an agency relationship such that Progressive was liable for Klaben’s actions.
The lesson here? Well, at least in Ohio, you’d better make some inquiries about your customer’s health before peddling disability insurance to him. And you need to consider whether the ruling has implications in the sale of life insurance, GAP and perhaps other products.
Will courts in other states follow this line of reasoning? Quite possibly.
Time to go golfing with the lawyer again.
Parker v. Protective Life Insurance Co. of Ohio, 2006 WL 2241590 (Ohio App. August 4, 2006)
Vol 3, Issue 11
Auto retail veteran and F&I products expert Paul McCarthy has joined AUL Corp. as vice president of national sales.