Insurance agent negligence cases are rarely easy. A recent decision offers valuable insight into how insurance agent negligence claims play out when organizations misunderstand the scope of their insurance coverage. 1
This lawsuit arose after the Piatt Lake Bible Conference Association’s “Miracle Building,” a multipurpose structure at a remote youth camp in Michigan, collapsed under the weight of snow and ice. The nonprofit believed it was fully covered under its long-standing insurance policy with Church Mutual. However, after the loss, the Association discovered that critical portions of the reconstruction costs associated with compliance with modern building codes were not included in the replacement cost coverage.
These additional “code upgrade” costs exceeded $1 million, but the policy provided only a $100,000 cap for code compliance expenses. The Association then sued Church Mutual in a negligence action. It argued that it had relied on the Church Mutual agent’s representations and that a special relationship existed, giving rise to a legal duty to advise them more fully about the coverage being provided.
The policyholder’s argument centered on the notion that over time, Church Mutual had cultivated a trusted relationship through direct contact, insurance reviews, and promotional materials suggesting that the insurer was an expert in religious institution coverage. The Association claimed that Church Mutual assured them they were “fully covered,” and that this language created a reasonable belief among board members that they would be able to rebuild their structures completely in the event of a loss.
The Association also emphasized its repeated inquiries over the years about the adequacy of the policy’s coverage. According to their argument, the insurer’s failure to explain the significance of the limited ordinance or law coverage and the practical effect of that cap amounted to negligent misrepresentation.
The court, however, found no legal basis for the negligence claim. Under Michigan law, insurance agents do not owe a general duty to advise policyholders about the sufficiency of their coverage unless a narrow “special relationship” exists. That special relationship arises only under specific circumstances, such as when an agent misrepresents coverage, fails to clarify an ambiguous question, gives inaccurate advice, or expressly agrees to undertake an advisory role.
In this case, the court concluded that no such “special relationship” existed. The board members who interacted with the insurer understood that “replacement cost” meant restoring what had existed, not upgrading to new code. One board member even testified that he recognized code upgrades, such as fire suppression systems, would not be included if the original structure didn’t have them. As a result, there was no evidence of a misstatement, and certainly no indication that Church Mutual had undertaken a duty to advise the nonprofit about what types of endorsements or higher limits it should consider.
Even assuming a duty might have existed, the court further ruled that the Association failed to prove reliance. The board president could not recall the specifics of the discussion with the insurance agent in which she felt assured that the Association was fully covered. Furthermore, the record lacked any evidence that the board took or refrained from taking action based on a clear, inaccurate representation. In the court’s view, any misunderstanding stemmed not from a misrepresentation by the insurer but from assumptions made by the nonprofit’s leadership about what they believed “full coverage” meant.
For officers and leaders of nonprofit organizations, this case carries several important lessons. First and foremost, it is crucial to explicitly ask your insurance agent not only whether a policy includes replacement cost coverage, but also whether it provides sufficient coverage to rebuild in compliance with current building codes. Many older buildings, particularly those constructed decades ago, will not meet modern code requirements, and the cost of code compliance can be significant. Asking clear, direct questions and requiring specific written explanations of what is and isn’t covered can help avoid surprises after a loss occurs.
Second, organizations must be proactive in seeking coverage that addresses known risks. One essential endorsement often overlooked is ordinance or law coverage, which includes three parts: loss to the undamaged portion of a building, the cost of demolition, and the increased cost of construction due to code changes.
In this case, the Association had only $100,000 in ordinance coverage. After the loss, when Church Mutual issued a renewal policy, they increased that limit to $2 million. This was an implicit acknowledgment of the risk that had gone unaddressed. Nonprofit boards and policyholders in general should view that as a lesson and ensure they evaluate the adequacy of such sublimits before a loss, not after.
Leaders should remember that the duty to identify coverage gaps may ultimately rest with the policyholder in many jurisdictions. While insurers and agents may offer advice, unless they explicitly take on the role of advisor, courts in many jurisdictions will not impose a duty upon them to fill in the blanks. Officers of boards and leaders of entities who assume they are fully protected without confirming the details in writing do so at the organization’s peril.
Board members should ensure that they or their designees carefully review policy declarations, endorsements, and exclusions. When in doubt, ask the insurance professional for specific recommendations and advice and then document those conversations. I suggest that the agent be asked if they will provide advice about the best coverage that will not leave protection gaps in the event of a catastrophe. If the agent refuses, go to a different agent.
Hiring a competent insurance advisor who agrees in writing to be an insurance advisor is a first step. Asking the right questions, obtaining the correct endorsements, and documenting those discussions and decisions are the best ways to protect the mission and operations before a loss occurs.
For those interested in Michigan insurance agent negligence law, I suggest reading What Are the Duties of An Insurance Agent to the Policyholder—A Michigan Case Example. For those interested in the “special relationship” standard, I suggest reading Florida Insurance Agent Standard of Care and the “Special Relationship” They Share with the Insured.
Thought For The Day
“The single biggest problem in communication is the illusion that it has taken place.”
— George Bernard Shaw
1 Piatt Lake Bible Conference Assoc. v. Church Mut. Ins. Co., No. 2:23-cv-73 (W.D. MI. July 11, 2025).