One of the first topics anybody should consider before claiming an insurance agent is negligent is the specific state law on the topic. Since virtually all states require people that sell any type of insurance to be licensed, many find it surprising that some states only impose a duty of care as an “order taker” rather a “professional advisor.” So, in Massachusetts, what duty does the law impose?
Answer: Order Taker.
However, the analysis, like in practically all states, has exceptions. There is an excellent summary discussion about Massachusetts insurance agent negligence and some of the exceptions to the “order taker” status on the Kenney and Sams website:
In Massachusetts, an insurance agent is usually considered an “order taker.” This means that an insurance agent must get its customer the insurance that the customer requested or the insurance that the agent promised to obtain. If the agent is unable to do so, then the agent must tell the customer.
In certain situations, however, the agent is expected to act as an insurance advisor to its customers — and not merely as an “order taker.” When an agent markets itself as an “expert” or “specialist” in a certain area of insurance or business, then that agent is potentially increasing his or her legal duties (and, therefore, legal liability) from that of an order taker to the higher standard expected of an advisor.
The difference can have huge consequences for agents and customers in the event that there is an accident or loss that insurance does not cover. What if, for example, an insurance agent claims to be a specialist in writing insurance for restaurants but then fails to recommend the customer purchase business auto insurance to cover the restaurant’s delivery drivers? Or never mentions the need for liquor liability coverage? If the restaurant’s employee injures a pedestrian while its driver is delivering food, and there is no insurance in place to cover the restaurant, is the agent liable?
While there is no one factor that will automatically raise an insurance agent’s duty from that of “order taker” to advisor, the case law gives us some guidance on what the law requires of insurance agents. The complexity of the insurance, the customer’s level of sophistication and experience with insurance, and even whether the agent and customer socialize or golf together are several factors that courts will consider in determining the legal duty an insurance agent owes its customer.
These cases are often fact intensive regarding the relationship and factual promises made by the agent to the policyholder about the degree of service requested to, agreed to be performed by, advertised to provide, and sometimes volunteered by the insurance agent.
When speaking with potential clients, I’m usually looking up the agency on the Internet to see what services they advertise as providing. I then ask for all written communications in correspondence and emails between the insured and the agent. Certainly, the discussions between the agent, the agent customer service representatives, and the insured have to be factually ascertained.
A prominent insurance agent defense attorney, Aaron M. Simon, wrote an in depth 50-State analysis on the duties of agents. Simon quoted a Massachusetts agent negligence case:
The general relationship between an insurance agency and its policyholder customer does not impose a duty on the agency to investigate the customer’s needs for particular coverage or to advise about the availability of insurance products to meet those needs. …However, an insurance agent or broker may acquire a greater duty of investigation, advice, and assistance to an insured by reason of ‘special circumstances.’…Such ‘special circumstances of assertion, representation and reliance’ may create a duty of due care. . . .1
Insurance agent negligence cases are usually a lot more complex than most think. Determining whether the basic duty is “order taker” or “professional advisor” is the first step.
Thought For The Afternoon
Ignorance and prejudice make for bad advisers.
1 Guida v. Herbert H. Landy Ins. Agency, Inc., 84 Mass. App. Ct. 1105, 991 N.E.2d 188 (2013).