Insurance agents are important. While some courts suggest that policyholders need to understand their insurance policies, even the insurance industry as cited in yesterday’s post, The Insurance Industry Teaches Ethics But Does It Follow What It Teaches, admits policyholders do not understand their insurance policies. Instead, the insurance industry acknowledges that when policyholders read their policy, they “seldom understand what they are reading. Most people buy their coverage based on trust.”

Who do policyholders trust? Their insurance agent.

The entire insurance industry sells a product marketed as one of “trust.” It is no wonder that slogans such as a “Trusted Choice” agency are used to lure people to literally trust the advice provided by these licensed and educated individuals to a public who rarely thinks about insurance. Insurance agents know from their own training that policyholders do not have the time to study the ever-increasing nuances of insurance risk and the cover available in the marketplace. That is what the agents promise to do—take care of our insurance needs of those less knowledgeable. They do it for a price.

However, when an insurance agent is accused of leaving a policyholder underinsured, most insurance agents will then claim they are no different than the order taker at a McDonald’s. They argue the agent was never in a trusted relationship with the policyholder. Leaders of the insurance agent industry talk about “a favorable case” when it limits their industry’s legal exposure. Many actively support laws which refute their industry’s promise of trust anytime they are in a position where they have left a policyholder with a coverage gap or underinsured without warning.

I believe policyholders should hire dedicated and passionate insurance agents. Policyholders should avoid purchasing insurance on price alone and should seek out insurance agents who will take the time to meet with and discuss the best possible insurance plans for the policyholder.

Chapter Ten of my book, PayUP!, is titled, Can You Trust Your Insurance Agent? The chapter contains criteria for selecting a really great insurance agent. And if you happen to be a great insurance agent, I would suggest you cite my book and your credentials because you are a very important person who makes the insurance product work.

So, what is the law about insurance agent duties in Nevada? One insurance industry agent lawyer, Riley A. Clayton, wrote an excellent study on the topic, Agents E&O Standard of Care Project—Nevada Survey:

In Nevada, an agent or broker has a duty ‘to use reasonable diligence to place the insurance and seasonably to notify the client if he is unable to do so.’ Keddie v. Beneficial Ins., Inc., 94 Nev. 418, 420, (1978)…In other words, an insurance agent or broker does not owe the insured any additional duties other than procuring the requested insurance….Although the Nevada Supreme Court has not issued a published opinion on this issue, the Nevada Supreme Court has held in an unpublished opinion that ‘[i]nsurance companies and brokers have no affirmative duty to advise their insureds to procure particular or different kinds of coverage.’ Flaherty v. Kelly, 59582, 2013 WL 7155078 (Nev. 2013) (unpublished). In other words, Nevada insurance agents may be loosely described as ‘order takers,’ and we believe that if the Nevada Supreme Court were to issue a formal opinion on this issue, it would conclude as much.

Again, although not decided by the Nevada Supreme Court, the Nevada federal district
court has held that insurance brokers may assume additional duties in special circumstances. Flaherty, 2013 WL 7155078 (citing Gary Knapp, Annotation, Liability of Insurer or Agent of Insurer for Failure to Advise Insured as to Coverage Needs, 88 A.L.R.4th 249, 256–263 (1991)..In other contexts, however, the Nevada Supreme Court has held that if a person assumes a duty that he may not have otherwise owed, that person must perform that assumed duty with reasonable care, or otherwise be held responsible for any breach…Thus, this general rule may apply to insurance agents who voluntarily assume/undertake duties that they do not otherwise owe in the insurance procurement process.

He noted a number of suggestions for agents so they will avoid errors and omission claims, which include:

  1. Document interaction and policy changes with the customer
  2. If the agent is not able to obtain the coverage requested, confirm that fact in writing.
  3. Follow-up all oral discussions regarding coverage with a brief email/letter confirming the insured’s position on purchasing/declining coverage.
  4. Agents should read, and re-read, their Producer Agreements and have clear understanding of the scope of their principal-agent relationship with the insurer.
  5. Maintain complete and accurate files for all insureds.

Policyholders should select the best insurance agents they can find. Insurance is an important product and many overlook their policies until a loss occurs. When a loss occurs, many find out how poor of an agent they selected because the agent sold “cheap insurance.”

Thought For The Day

The happiness of your life depends upon the quality of your thoughts: therefore, guard accordingly, and take care that you entertain no notions unsuitable to virtue and reasonable nature.
—Marcus Aurelius