A Michigan insurance agent has a duty to procure insurance coverage requested by an insured. Generally, unless a special relationship exists between a policyholder and the agent, a Michigan insurance agent has no duty to advise about the adequacy of insurance coverage.

A recently decided Michigan case discussed these insurance agent duties in the light of the following facts:1

Juliana Reineke (Julie Reineke) and her husband, Leland Matthew Reineke (Matt Reineke), are the principal agents for Five Waters. In 2017, Matt Reineke worked with defendant Mark Bone, an independent insurance agent employed by Bailey Agency Inc, to procure a commercial insurance policy for Five Waters. Bone testified that Matt Reineke requested insurance for his business. He did not recall the specific language of the request. In order to determine adequate coverage amounts, he visited Five Waters’ facility and walked through it with Matt Reineke. According to Matt Reineke, he determined the value of the equipment and provided that information to Bone. The coverage limits were determined using replacement value. Like Bone, Matt Reineke did not testify as to any specific language that he used when requesting insurance for Five Waters. Following the on-site meeting, Bone procured a commercial insurance policy for Five Waters that had replacement coverage for Five Waters’ equipment in the amounts determined by Matt Reineke.

Five Waters’ commercial insurance policy was renewed in 2018, 2019, and 2020. Each year they received correspondence inviting them to schedule a review of Five Waters’ policy with defendants. They did not do so. Moreover, they did not fully read the policy procured for Five Waters by Bailey Agency.

After the 2020 flooding, Matt Reineke contacted Bone. It was at that time that he learned from Bone that Five Waters did not have flood insurance. He stated that he was ‘completely shocked’ because he thought that the business was covered. He later read his policy, however, and it clearly provided that damages caused by flooding, including flooding damage occurring as the result of a dam failure, was expressly excluded from the policy. Five Waters filed a claim with their insurance company, but, because the damage caused by the flood was excluded from its coverage, the claim was denied.

…Five Waters brought a claim against defendants, alleging negligence against them arising from its lack of insurance coverage for flood damage to its Midland business property.

In its analysis, the court noted that:

An insurance agent, however, may owe a duty to advise if ‘an event occurs that alters the nature of the relationship between the agent and the insured.’  In Harts, our Supreme Court described four events that give rise to a ‘special relationship’ between the insurance agent and the insured such that there is a duty to advise on the part of the agent: (1) the agent misrepresents the nature or extent of the coverage offered or provided, (2) an ambiguous request is made that requires a clarification, (3) an inquiry is made that may require advice and the agent, though he need not, gives advice that is inaccurate, or (4) the agent assumes an additional duty by either express agreement with or promise to the insured.

The court further explained that this rule is the same regardless of whether the licensed agent is a captive or independent agent:

Further, the [Harts] Court discussed MCL 500.2116 and how it treats captive agents the same as independent agents with regard to order-taking functions, as well as MCL 500.1232, which restricts those who can give advice about insurance policies to licensed insurance counselors, aside from ‘the customary advice offered by a licensed insurance agent.’ .. Hence, the Court in Harts concluded, a licensed insurance agent may give ‘customary advice,’ but is not under any duty to do so….Additionally, we note [that] nothing in the Court’s opinion in Harts specifically indicated that the Court only intended to address captive agents, rather than independent agents, with regard to the duty at issue. And, although plaintiffs cite cases such as [Genesee Foods Servs, Inc v Meadowbrook, Inc, 279 Mich App 649; 760 NW2d 259 (2008)], for the idea that independent agents owe a fiduciary duty to the insured, those cases do not expressly mention a duty to advise the insured about the adequacy of coverage.2

The Michigan court then ruled in favor of the insurance agent, finding:

Because there is no special relationship between defendants and Five Waters, we conclude that defendants did not have a duty to advise Five Waters as to the adequacy of its coverage.

Five Waters argues that—regardless of what specific coverage it requested—as an independent insurance agent Bone owed it a fiduciary obligation to obtain the broadest coverage available. In support Five Waters directs this Court to Genesee Foods, 279 Mich App 649. That case, however, held that in the case of an independent insurance agent, the defendants ‘fiduciary duty of loyalty rested with [the insured], who could depend on this duty of loyalty to ensure that defendants were acting in [its] best interests both in terms of finding an insurer that could provide them with the most comprehensive coverage and in ensuring that the insurance contract properly addressed their needs.’…. Nothing in Genesee Foods indicates that the duty to provide the ‘most comprehensive coverage’ includes a duty to provide insurance coverage that has not been requested by the insured or to provide the ‘broadest coverage available.’ In this case, Five Waters never requested flood insurance. And, as indicated above, defendants did not have a duty to advise Five Waters that its coverage might be inadequate as the result of not obtaining flood insurance.3

Insurance agent negligence cases are complex and often depend on the nature of the relationship between the parties and what was said between them. The greater the agent is asked to review and advise about the coverage or the greater the agent promises to do so, the greater the exposure is to the agent to obtain or at least advise about obtaining the coverage.

For public adjusters offering a service to review a client’s or potential client’s policy, what type of exposure are you assuming? Is it even legal to do so? Stay tuned for a blog about that topic.

Thought For The Day   

Promises may get thee friends, but non-performance will turn them into enemies.

—Benjamin Franklin

1 Five Waters Prop. v. Bone, No. 366075, 2024 WL 748484 (Mich. App. Feb. 22, 2024).

2 Id., at *4, (citing Janovski v. S J Ferrari Ins Agency, Inc., No. 326457 [unpub. op.] (Mich. App. May 24, 2016)).

3 Five Waters, at *5.