Insurance carriers issue countless policies ranging from car insurance for an individual all the way to insurance for business interruption for large corporations. When policyholders purchase their policies, they typically go through an insurance broker, who may shop for a policy amongst different carriers, or through an insurance agent, who works for a specific carrier. Typically, policyholders find that brokers can be beneficial, as a broker may "shop for the best price" amongst a sea of varied policies. Ultimately, when shopping for a policy, many clients rely on a broker’s expertise and opinion not only to find the best price, but for advice as to the appropriate policy to cover their needs.
When it is time for policyholders to make a claim with their carrier, it’s always under unfortunate circumstances. At that time, having an appropriate policy to rely upon and a cooperative insurance company is crucial to the livelihood of individuals and businesses alike. During these times of need, finding out that the broker did not procure a policy which met the policyholder’s needs, can be devastating.
In California, a broker is held to a reasonable standard of care. Courts have consistently identified that a broker must:
- Understand a client’s needs when providing a policy;
- Match the proper policy to the client’s needs;
- Explain to the client whether the policy meets the coverage needs and disclose coverage possible coverage gaps;
- Explain to the client any possibilities of coverage disputes.
Actions for lack of appropriate coverage, gap in coverage, or that the coverage is not what was represented by the broker are possible. A broker’s failure to deliver the agreed-upon coverage may constitute actionable negligence and can constitute the proximate cause of an injury. Butcher v. Truck Ins. Exchange, (2000) 77 Cal App. 4th 1442, 1461.
Californian policyholders may rely upon the broker’s representations regarding the appropriate purchase of a policy and the amount of coverage needed. An agent or broker who fails to procure insurance as requested will be liable for any resulting damage. Hydro-Mill Co. v. Hayward, Tilton & Rolapp Ins. Associates, (2004) 115 Cal.App. 4th 1145,1153. Although it is good to know that California Courts consistently recognize that a broker has an affirmative or greater duty to the client, and better still, holds brokers liable for the resulting damages, it ultimately behooves the policyholder to understand his or her own coverage needs. Being diligent in making sure that your broker chooses the right policy for your needs can make the difference between mere unfortunate circumstances and a nightmare.