As amazing as it may sound, insurance brokers in California have no duty at law to their customers when procuring insurance to advise of adequate coverage. This includes giving a customer advice on what appropriate policy limits may be, what type of exclusions a policy may contain and appropriate additional living expenses or business income coverage limits. After the outbreak of numerous wild fires in California over the past few years, many insureds have found that they were grossly underinsured. Insureds are presumably asking the question: ‘Why didn’t my broker tell me I did not have sufficient insurance coverage to rebuild my home? Surely my broker must be liable, this is my broker’s only job.’ Unfortunately, in all likelihood, the broker is off the hook.
There are, however, three circumstances that create a California insurance broker’s duty to procure proper and sufficient insurance. Those circumstances are:
- The broker misrepresents the nature, extent or scope of coverage the insurance policy contains.
- The insured makes a specific request for or inquires about a particular type or extent of coverage.
- The broker holds himself out as having expertise in a given field of insurance being sought by the insured.
An insurance broker claim is strongest when the circumstances creating an insurance broker claim are in writing. When evaluating whether you currently have a potential insurance broker claim, examine emails to see if you have the proof. When obtaining a new insurance policy, the best practice is to make specific requests for insurance in writing. As to the specific circumstances, they are more fully summarized as follows:
- Misrepresentation of coverage – Once an insurer represents the coverage he or she will provide, the broker has a duty to procure that insurance policy. Once the representation is made, the insured does not have a duty to ensure the correct policy was procured. A broker cannot allege as a defense that the insured did not verify the correct coverage was procured. Furthermore, a broker’s misrepresentation will apply to all future renewals.
- Failure to procure requested coverage – A broker’s failure to obtain the type of insurance requested by an insured will constitute actionable negligence. This negligence claim can include a broker’s failure to procure a policy with adequate policy limits. Please note, however, there must be a specific request for coverage limits. Vague requests that, “we want to be fully protected,” are not enough. Statements that, “we want $1 million limits,” are much stronger. It should also be noted for commercial policies, where the broker has “a long-term relationship” with the insured and knows the risks involved in the insured’s business and the insured’s concerns for adequate coverage, the broker may owe a duty of care to procure a policy with coverage for those risks or at least to explain that the insurance obtained excluded those risks.
- Holding self out as expert – Insurance brokers who hold themselves out as experts in a particular field of insurance being sought by the insured may be personally liable for losses suffered by the insured in reliance on negligent advice given by the broker. A practice tip is to look at an insurance broker’s web page and see how the broker promotes herself. In particular, see if you can find an archive of the web page at the time the policy was procured.