Does an Insurance Agent have a Duty to Advise its Customer?
By: James Shaw, DLD Lawyers, Miami Florida
Throughout most of the United States, an insurance agent is only required to obtain the insurance that the customer requested within a reasonable time. Barnes v. Metropolitan Life Ins. Co., 612 S.W.2d 786 (Mo. Ct. App.E.D 1981); and Tiara Condominium Association, Inc. v. Marsh, 2014 WL 109140. Typically, the agent has no obligation to, on its own, evaluate a customer’s insurance needs or give the customer advice regarding the coverage that the customer should purchase. Like any other party to a contractual relationship, an agent is not obligated to do more than what the agent has agreed to do, and if all that the agent has agreed to do is afford standard brokerage services, the agent has not agreed to evaluate the customer’s needs or give the customer advice regarding the coverage that the customer should have. Id.
However, under certain circumstances, courts throughout the country are expanding the traditional ministerial role of the insurance agent. In certain instances, courts are holding that an insurance agent also has a duty to offer its customer advice regarding the types of coverages that are available and necessary to meet that customer’s needs.
Is there a special relationship?
When a customer is able to establish that she and the agent have a “special relationship” courts are holding that the agent’s duty to the customer expands, and that the agent has a duty to offer the customer advice regarding the insurance necessary to fulfill the customer’s needs. Although courts throughout the country have not outlined a uniform test for determining the existence of a special relationship between an agent and his customer, courts are frequently finding the existence of a special relationship when:
• the insurance agent misrepresents the nature of the coverage being afforded or provided;
• when the agent voluntarily assumes the role of selecting the appropriate coverage for the customer;
• when the agent offers the customer advice related to the type of coverage available and the exclusions to that coverage;
• when the agent holds herself out as a specialist;
• when the agent and the customer have a longstanding relationship; and
• when the customer paid the agent for the agent’s advice. Peter v. Schumacher Enterprises, Inc. 22 P.3d 481 (Alaska 2001).
In Marsh the Southern District of Florida, applying Florida law, endeavored to determine whether, and under what circumstances, an agent may have an enhanced duty to advise and make recommendations to a customer on the specific types and amounts of coverage reasonably and prudently needed to meet the customer’s complete insurance needs. Id. at 109143. While recognizing the general rule in Florida that there is no duty for an agent to offer advice to his customer, the Court in Marsh recognized that when the agent and his customer have a “special relationship” the agent has a duty to give the customer advice. The Court then laid out a multiple factor analysis to determine whether an agent shared a special relationship with the customer: 1) did the agent make representations to the customer about its expertise; 2) did the agent make representations about the breadth of the coverage obtained; 3) did the agent and customer have a longstanding relationship; 4) how involved was the agent in aiding the customer’s decision about his/her insurance needs; 5) did the agent volunteer advice to the customer; and 6) was the agent paid additional compensation for advisory services.
In Seascape of Hickory Point Condominium Association, Inc. v. Associated Insurance Services, 443 So.2d 488 (Fla. 2d DCA 1984), an agent’s customer alleged that the agent had a duty to provide competent insurance planning services because the agent held themselves out as professional insurance planners, had served the customer’s insurance needs for several years, and the customer sought, and obtained, specific advice related to seawall insurance. While the trial court granted the agent’s motion to dismiss, the appellate court held that the customer had sufficiently pled circumstances evidencing that the agent owed the customer a duty of reasonable care in rendering advice regarding insurance matters.
Today, with complicated insurance policies that often vary state by state, and an enumerable number of endorsements that often change typical coverages insurance agents need to be especially careful to ensure that they do not step into the shoes of an insurer who properly denies coverage. An insurance agent must carefully toe the line between that of a typical agent fulfilling the customers’ requests, and that of fiduciary owing the customer a duty to properly advise regarding the appropriate coverages that will satisfy the customer’s insurance needs.
The following are some suggested practices for agents to avoid becoming, in effect, an insurer of last resort:
(1) Have each customer sign a contract that clearly specifies the services that the agent will provide, and the services that the agent will not provide (of course, have your attorney review that contract);
(2) Avoid holding yourself out as a specialist unless you truly are a specialist and are, therefore, prepared to answer coverage questions regarding your area of expertise;
(3) Train employees not to offer advice unless they are qualified;
(4) Have each customer specify, in writing, exactly what coverages they are requesting, and complete a detailed form explaining the nature of their insurance needs;
(5) Follow up to ensure that the insurance carrier sends the customer a copy of the insurance policy requested; and,
(6) Do not be afraid to contact an attorney or another agent that specializes in the type of insurance sought for guidance or to provide the customer with the insurance requested.
Implementing these practices may help prevent agents from paying a customer’s loss that was properly denied by the insurer the agent obtained.
James Shaw is a partner with DLD Lawyers in its Miami office. Mr. Shaw focuses his practice on property & casualty defense, professional malpractice defense, errors & omissions litigation, premises liability defense, along with general civil liability defense.