My post on Tuesday, Establishing Duty is the Key to Agent Negligence Case, was inspired by an insurance agent negligence case I am involved in out of Ft. Smith, Arkansas. I have the pleasure of representing a hotel management company and owners of a hotel resort with a claim against their former insurance agent. The insurance agent is from Iowa. While researching for a follow-up to that post, I came across articles written by an attorney who represents insurance agents and brokers in errors and omission cases. Surprisingly, our thoughts are similar.

Peter Biging wrote two articles on this topic over the past week, Courts Shield Agents, Brokers From Added Duties To Procure Coverage, and Special Circumstances May Mean Agents, Brokers Owe Greater Duties. Both should be read and placed into research files if you have an interest in these cases. His checklists are excellent.

Biging wrote that courts are not expanding insurance agent duties to procure coverage without proof of a special circumstance:

It follows then, as a general rule, that absent special circumstances, an insurance agent or broker has no special duty to advise customers what coverage to obtain, or to provide continuing advice or guidance with regard to coverage procured.

An insurance agent or broker’s basic duty of care is simply to obtain the coverage that has been requested. If the agent or broker cannot procure the requested coverage within a reasonable timeframe, then the producer must tell the customer that he or she cannot do so. But that’s it.

The rationale that guides this general principle is that the agent or broker should not be placed in the position of being the guarantor of the sufficiency of the customer’s coverages. (See related textbox, “Becoming Special.”) While insureds are making efforts to get courts to read the basic duty of care more expansively, recent decisions indicate courts are not taking the bait.

While I do not think many unsuccessful agent error and omissions cases presented sufficient evidence of the respective agent’s duties and the training and reasonable expectations that were the impetus for such duties, Biging’s checklist, though from a conservative point of view, is an excellent list of factors policyholder attorneys can use to determine if a case is viable. It provides:

  • When the agent or broker has been asked for specific advice or guidance on a coverage issue and provided it.
  • When the agent/broker has undertaken special duties in handling the customer’s account.
  • When the broker has agreed to accept or has charged special compensation in addition to the standard commission for advice/guidance with regard to coverage.
  • When the agent or broker has held himself out as an expert, and knows or has reason to believe that the customer is relying upon his expressed expertise with regard to a coverage issue.
  • When the agent/broker and the customer have a relationship of such significance in terms of time, trust and reliance that the agent/broker should know or have reason to know that the customer is relying upon his advice with regard to coverage issues.

From a public policy standpoint, insurance agents should not be viewed as mere order takers. Most agents are licensed and trained and are expected to do something more than simply take orders from a largely ignorant consuming public. Obtaining factual information that establishes an agent’s duty and special circumstances that show a client’s reasonable reliance on that duty is paramount to establishing whether an insurance agent can be held accountable when coverage does not exist.

Most insurance agents claim to provide special service: determining the needs of customers and "making certain" customers are insured for the unexpected. Unless an agent is selling on price alone, it would seem that many agents are promising to provide one type of relationship at the point of sale and avoid accountability for it later. The following ad is typical of what many good, hardworking and accountable agents promise to do — at a minimum — for their clients: