Insurance agents provide extraordinarily important services to policyholders. Without the service they provide, consumers would have a difficult time finding the proper coverage at the best available price. Insurance policies are complex, and insurance agents explain the coverages available and why consumers need certain products, so customers can make informed choices and purchase the insurance products that best fit their needs. An agent’s skill, knowledge, advice and service are often overlooked by customers who focus on price alone.
Many of my colleagues lose insurance agent error and omission cases because the degree of the duty and service promised by the agent is not proven. Generally, proving duty is the key to establishing accountability in an insurance agent case. Merriam v. Farm Bureau Insurance, 793 N.W.2d 520, 525 (Iowa 2011) is an example of this. The Iowa Supreme Court stated the general standard in most states for proving duty of an insurance agent:
absence of circumstances indicating the insurance agent has assumed a duty beyond the procurement of the coverage requested by the client, the insurance agent has no obligation to advise a client regarding additional coverage or risk management.
The key to a successful case is often centered on showing the special circumstances which establish a duty. Absent such circumstances, many courts will rule that an insurance agent has a duty similar to the person taking an order at a fast food restaurant–give the price for the coverage specifically requested and provide that product if ordered.
In Merriam, the customer asked about home, auto and life insurance. There was no discussion or promise by the agent to analyze workers compensation coverage. Thus, the claim that the agent failed to provide or advise regarding workers compensation insurance failed. Promises, oral or in writing, by the agent are key to establishing a definite duty. Advertisements or claims to be a specialist, expert and advisor regarding insurance perils which are related to risk management duties are very valuable in proving negligence or a breach of contract.
The Iowa Supreme Court listed circumstances relevant to proving an error or omission case:
[I]t is for the fact finder to determine, based on a consideration of all the circumstances, the agreement of the parties with respect to the service to be rendered by the insurance agent….
Some of the circumstances that may be considered by the fact finder in determining the undertaking of the insurance agent include the nature and content of the discussions between the agent and the client; the prior dealings of the parties, if any; the knowledge and sophistication of the client; whether the agent holds himself out as an insurance specialist, consultant, or counselor; and whether the agent receives compensation for additional or specialized services.
…the client bears the burden of proving an agreement to render services beyond the general duty to obtain the coverage requested.
Consider "duty" when determining whether an insurance agent can be held liable for a lack of coverage.