Policyholders and public adjusters often come to us with questions about messed up insurance coverages. Their question invariably is whether the policyholder’s insurance agent may be liable for not having advised and sold sufficient coverage to pay for a loss.

While researching an errors and omission matter arising in Washington, D.C., I came across agent defense attorney Aaron Simon’s excellent paper, 2021 Insurance Agent Case Law Year-End Review.1 This publication provides a national discussion of the insurance agent errors and omissions laws. He noted the following:

Most states continue to use the ‘order taker’ standard of care as the general duty applicable to insurance agents under most circumstances. This ‘order taker’ standard of care duty simply requires insurance agents to follow the specific instructions of their insurance customers, and procure for their insurance customers the insurance specifically requested by their insurance customers. Most jurisdictions also have a limited exception to the general order taker duty but only where special circumstances give rise to a special relationship heightened duty to advise, and courts rarely find there are special circumstances giving rise to a special relationship heightened duty to advise.

A decade ago, I noted how wrong the “order taker” laws are because they impose almost no duties on insurance professionals who clearly must have significant knowledge, training, and even licensing to sell complex policies to people who do not understand the product they are purchasing:2

Insurance agents usually promise a bunch of service and sell their trust to policyholders at the point of sale. Most of the time, there is no loss or the loss is less than the deductible so even if the agent blundered and did not obtain the best coverage for the price, the agent’s errors and ommissions are never raised. Insurance experts often realize most agents are taught that their duties to service policyholders are far greater than what agents will admit to if the policy coverages fail to provide indemnity after a loss.

Some jurisdictions place almost no duties on insurance agents other than to procure what is requested. This is very questionable because insurance agents sell a product that is rarely understood outside the insurance industry. Current forms, endorsements and the manner policies can be crafted to fully protect the policyholder are rarely understood by the insurance consumer. This is one reason insurance agents generally advertise their service to determine the needs of the policyholder. Indeed, most agents are taught to encourage rapport and trust, then determine the policyholder’s needs for coverage and then provide solutions for coverage at the best prices available. They are not taught to be a simple order taker which presupposes the policyholder understands the insurance product which is being requested.

From my view, insurance agents have an important job to do. They get paid well and better understand what they are doing. Otherwise, their customers can suffer catastrophic uninsured loss.

The insurance industry teaches its agents and brokers about duties they must accomplish to properly insure their customers. But in states with “order taker” common law, the breach of those duties does not result in liability for not adhering to standards the insurance industry teaches. That is crazy.

Fortunately, Washington, D.C., is a jurisdiction that does not follow the “order taker” rule. Instead, it follows the ordinary negligence “reasonable person” test:

An agent, employed to effect insurance, must exercise such reasonable skill and ordinary diligence as may fairly be expected from a person in his profession or situation, in doing what is necessary to effect a policy, in seeing that it effectively covers the property to be insured, in selecting the insurer and so on.3

I’d like to offer a friendly yet crucial piece of advice about the importance of nurturing a close professional relationship with your insurance agent. Imagine the stress and frustration of discovering you have insufficient coverage when you need it the most. The last thing any policyholder wants is to find themselves in the middle of a legal tangle with their insurance agent over coverage gaps. The most effective way to sidestep such an unwelcome scenario is by thoughtfully choosing an insurance agent who is willing to invest the necessary time to thoroughly discuss, analyze, and pinpoint your specific insurance requirements. This relationship is often the unsung hero in the world of insurance – a complex and significant one that typically doesn’t get the attention it deserves until an unforeseen disaster strikes. By valuing and maintaining this key professional connection, you’re not just buying insurance; you’re investing in peace of mind and securing a safeguard for your future.

Thought For The Day

Insurance is not an investment. It’s a risk management tool.

—Dave Ramsey


1 Aaron M. Simon. 2021 Insurance Agent Case Law Year End Review. Meagher + Geer, P.L.L.P.

2 Chip Merlin. Insurance Agent Experts and Insurance Agent Errors and Omission Cases. Property Insurance Coverage Law Blog. May 17, 2013.  https://www.propertyinsurancecoveragelaw.com/blog/insurance-agent-experts-and-insurance-agent-errors-and-omission-cases/

3 Saylab v. Don Juan Restaurant, 332 F.Supp.2d 134 (D.C. 2004).