In 1988, a couple purchased a home for $34,000. Over the next ten years, they spent $40,000 remodeling and updating the home. In 1998, they purchased a farm/ranch insurance policy with $90,000 coverage for the home and an additional $53,000 for personal property. The policy included inflation protection. Years later, they added a sunroom onto the home, but did not increase the policy coverage on their home. In 2006, the home burned down, resulting in a total loss for the homeowners. The insurance adjuster informed the couple that they were entitled to receive replacement costs up to the policy limits.
In 2008, the homeowners sued the insurance company on the basis that the company somehow negligently misrepresented themselves in bad faith. The homeowners were upset because their total loss incurred in the fire exceeded their recovery from the insurer. They claimed that they had relied on the insurer to assess their insurance needs and make sure they were “adequately insured.” The trial court granted summary judgment in favor of the insurer and found that there was no negligent misrepresentation on the part of the insurer and that they did not engage in bad faith by denying the couple’s claims beyond the policy limits.
The homeowners appealed, but the court found that the insurer fulfilled their obligations to the homeowners. The insurance agent had warned the couple to add coverage to their home, but they refused to do so. Thus, the insurer covered the homeowners with the coverage they requested and had no obligation to advise the client regarding additional coverage or risk management. Importantly, the insurance agent did not hold himself out to be a risk management specialist. It was up to the client to inform the agent of improvements to the home and to seek out full coverage on the policy. Amling v. State Farm Insurance Co., et al., No. 1-033/10-1130 (Iowa Ct. App. Apr. 27, 2011).