Since I’ve got some cases in Iowa and the Hawks are doing so well in basketball, I thought I would blog about a recent case involving the standards for an insurance agent’s duties in Iowa.1

Owners of a company used a broker to obtain insurance coverage. One company they looked at was State Central Insurance who obtained a quote from Mount Vernon Insurance Company. Coverage was bound on the building (a vacant nursing home) with a policy that had an exclusion for damage due to sprinkler leakage. An owner of the company received a copy of the policy, read it and had no objection to the terms of coverage.

A loss control survey was done and it was recommended that the sprinkler system main drain should be tested regularly. There were additional letters between the insurance company and the broker discussing the sprinkler system, with State Central stating that the sprinklers could be ignored since the structure was vacant and a reply letter denying the same. State Central said that the last test of the sprinkler system was several years ago and that the testing was mandatory.

The policy issued in 2007 and renewed in 2008. A letter was included with the renewal that stated that the policy included coverage for sprinkler leakage. The owners of the policy discussed with State Central their desire to drain the sprinkler system. They were told that draining the pipes would cancel the insurance policy. In December 2008, water pipes and the sprinkler system froze and broke. The company filed a claim for damages which was denied due to an exclusion for damage due to sprinkler leakage. The company filed suit.

The court found that a reasonable person would believe that the sprinkler system had to be in working order since they were required to test it. A jury trial was held which resulted in a verdict for the company. State Central moved for new trial on all issues, which was granted so the company appealed. The district court concluded that no one at State Central held themselves out as an insurance specialist so they were protected from liability.2

An insurance agent’s duties in Iowa have changed over time.3 “Generally an agent owes his principal the use of such skill as is required to accomplish the object of his employment. If he fails to exercise reasonable care, diligence, and judgment in this task, he is liable to his principal for any loss or damage occasioned thereby.”4 An expanded duty exists when the agent holds himself out as an insurance specialist and receives compensation for advice.5 In 2008 State Central had a duty to use reasonable care, diligence, and judgment to procure the requested insurance coverage.6 However, in 2010 the law changed and the fact finder was to consider all circumstances as to what service was to be rendered by the insurance agent and whether that service was performed with the knowledge normally used by an agent in that circumstance.7 This too changed with the codification of Iowa Code section 522B.11 (7), section a:

Unless an insurance producer hold oneself out as an insurance specialist, consultant or counselor and receives compensation for consultation and advice apart from commissions paid by an insurer, the duties and responsibilities of an insurance producer are limited to those duties and responsibilities set forth in Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W.2d 457 (Iowa 1984).

In the case at hand, State Central was shielded from liability.

This is a good case to remember when procuring insurance. Be sure to specifically ask for coverages you know you want and be aware of exclusions you don’t want. The standard of care and eventual liability of an agent should also be considered. Most people think that their insurance agent is a specialist and look to him or her to assist in procuring coverage and advising about the same. Some jurisdictions hold agents to a higher degree of responsibility than others. Get on the same page with your agent so you both understand exactly what coverage you are seeking and then read your policy to confirm that is the coverage you received.

1 3140 LLC v. State Central Financial Services, Inc., 2016 WL 351425 (Iowa Ct. App., January 27, 2016).
2 Sandbulte v. Farm Bureau Mut. Ins. Co., 343 N.W. 457 (Iowa 1984).
3 Collegiate Manuf. Co. v. McDowell’s Agency, Inc., 200 N.W.2d 854, 857 (Iowa 1972).
4 Id.
5 Hardt v. Brink, 192 F.Supp. 879, 880-81 (W.D.Wash. 1961).
6 Sandbulte at 464.
7 Langwith v. American Nat. Gen. Ins. Co., 793 N.W.2d 215, 222 (Iowa 2010).