The Page Report, Vol. 1, No. 2 April, 2010
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The Paige Report®
A Plain Language Explanation of the Legal Liability of Insurance Agents and Brokers
Digest of Important Decisions from 2009.
California court finds that insurance broker ordinarily has no duty to suggest that insured purchase additional insurance coverage.
A continuing issue that has reappeared for years is the question of whether an insurance broker has an obligation to speak out and suggest to an insured that he should be purchasing more or different insurance. The courts have split on this question in different jurisdictions. As a latest example, a California court found that the defendant insurance agent did not have a duty to volunteer that an insured should procure different or additional coverage. Instead, as is the trend in many jurisdictions, the court stated that a duty to advise on additional insurance only arises under very specific circumstances. In California, the court found an expanded duty to advise arises when only one of three conditions is first met: (1) when the agent misrepresents the nature, extent or scope of the coverage being offered or provided, (2) when there is a request or inquiry by the insured for a particular type or extent of coverage, or (3) when the agent assumes an additional duty by either express agreement or by holding himself out as having expertise in a given field of insurance being sought by the insured.
Implications for Agent/Broker Liability: The continuing issue addressed in this decision is whether insurance brokers have an obligation to give advice, and not simply to purchase the coverage requested. As will be addressed in later Reports, other states have implied that an insurance broker has a duty to speak up and advise an insured to take action when it is clear to the broker that the client is acting unwisely. Perhaps one of the biggest issues to be addressed is whether the differing state standards are surprising to insureds who find themselves without the advice that they thought was implied in their relationship with their broker.
* Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc., 177 Cal. App. 4th 624, 98 Cal. Rptr. 3d 910 (2009). PLEASE NOTE: Full copies of court decisions may be available through counsel or through various internet links and paid services.
Purpose of The Paige Report®
To inform the insurance agent and broker community regarding court decisions of interest and developing national trends in the constantly developing legal landscape of agent/broker liability. Taken from the perspective of my more than twenty years as an attorney, licensed insurance broker, recognized expert and insurance executive, The Paige Report provides a summary of national trends in plain language, bridging the gap between technical legal decisions and the needs of the professional insurance brokerage community.
For Further Information:
Contact: David Paige
Cell: 917-572-4211
Email: DHPaige@aol.com
Visit: Expert-Witness-Paige.com
Notes for The Paige Report [for non-attorneys]
Court decisions interpret and supplement the legal standards created by statute and by common law.
When determining the value of a court decision as precedent for future liability of insurance agents and brokers, it is important to keep in mind that courts have a specific function in our legal system: to fill in the “gaps” by applying a combination of statutory law, regulations and prior court decisions to the facts before them. When legislatures do not make law on a particular subject, it is the courts’ obligation to draw from prior court decisions and the custom and practice of the community to develop legal standards on its own. The tradition of court-made law, called “common law” was adapted from the British legal system, and works well in the country as well.
Individual court decisions are sometimes “result oriented” and do not identify a trend.
While it is sometimes tempting to draw a conclusion [either positive or negative] from a particular court decision, it is often the case that courts will feel the need to interpret the law in a manner that obtains a desired result for a plaintiff or to “punish” a defendant who the court believes has acted improperly. It is for this reason that a real “trend” in court decisions can only be accurately identified when a series of decisions begins to show a shift in the standards that create legal liability.
What are the distinctions between and insurance “agent” and an insurance “broker”?
Most courts make a basic distinction: that insurance “agents” are representatives of insurers, while insurance “brokers” represent insureds. This is only sometimes true in the reality of how the commercial insurance environment operates. For example, some insurers prefer the term insurance “producer” to refer to any retail insurance sales professional who brings business to the insurer, while some states continue to adhere to the term insurance “solicitor” as a descriptive term for some insurance sales people. For those who have studied this subject in the context of how the insurance industry actually works, many of us understand that both brokers and agents at times in a transaction may act as representatives of the insurer, while at other points they represent the interests of the insured. This confusion persists and can make court decisions on this point seem out of touch with the realities of the day-to-day insurance marketplace.
Different state courts have developed different policy positions concerning the legal obligations of insurance agents and brokers
Remember: state courts interpret their state’s insurance law, and have different histories. For example, some states are pro-consumer, and that tendency is reflected in their tendency to rule more frequently in favor of insurance consumers. Other states hold consumers to have read and understand the terms of their insurance policies in most circumstances.
© 2010 David H. Paige
This Report reflects the opinions of the author and is not a substitute for obtaining legal advice.
