A basic duty of an insurance agent or broker is to providerequested coverage within a reasonable time period, but the dutydoesn't exist until the producer agrees to procure the coverage, acourt ruled last year.

This may seem like a fairly straightforward proposition.

However, in Avery v. Diedrich, the question of exactly when anagent has a duty to procure coverage was considered by theWisconsin Supreme Court in the following context: a very specificrequest was made for an agent to procure a certain level ofcoverage; there was uncontradicted evidence of this request; butthe agent, nevertheless, failed to obtain the coverage.

Arguably, is that not the very essence of a failure-to-procureclaim? Not so fast.

In Avery, the insureds were owners of a summer home they hadprocured property insurance for through an agent they had used astheir insurance agent in purchasing various coverages for sixyears.

After initially placing property coverage for the home in theagreed amount of $150,000, they requested on renewal that heincrease the coverage by $100,000.

The agent was unsure whether the proposed increase in theinsured value was appropriate, thought the carrier would view theincrease with suspicion, and suggested that the insureds have aproperty appraisal prepared before the increase was requested. Inthe meantime, the property remained insured at the $150,000level.

While the insureds did, in fact, receive a verbal appraisal inexcess of $250,000, they never received a written appraisal, andnever advised the agent of the appraisal.

The house was then destroyed by fire, and the cost of replacingit ended up exceeding $250,000, while coverage was limited to the$150,000 in place.

The insureds, finding themselves without sufficient coverage,sued the agent, claiming he had acted negligently in failing toprocure the coverage they requested. They argued that he had a dutyto do so once they had determined the value they wanted insured andinstructed him to obtain the coverage–notwithstanding hisdisagreement about the value at which to insure the property.

Noting that this was a case of first impression, the WisconsinSupreme Court concluded that an agent cannot have a duty imposed onit unilaterally by the insured. The duty can only arise when theagent has actually agreed to procure the coverage.

Accordingly, because there was no dispute that the agent had notagreed to procure the coverage at the requested $250,000 limit, theagent was entitled to summary judgment dismissing the claimsasserted against him.

In other notable court decisions in 2007, lawyers successfullydefended insurance agents and brokers facing errors and omissionsclaims by relying on long-standing arguments that continued toshield producers from liability.

One typical issue arising in E&O cases relates to the dutiesof insureds to read their policies.

In most states, there is a presumption that if an insuredreceived a policy, then he or she knows the contents of it, and afurther presumption that the insured has assented to the policy'scontents if he or she does not complain about coverage afterreceiving it.

In 2007, brokers relying on this defense were generallysuccessful. Examples are Stone v. Rullo Agency Inc., decided by theAppellate Division of New York, Third Department, and W. N. McMurryConstruction Co. v. Community First Insurance Inc., decided by theWyoming Supreme Court.

The defense failed, however, in one notable instance where aninsured was able to show that it had not, in fact, received thepolicy until after the accident giving rise to the claim in issue.In that case, Aspen Specialty Ins. Co. v. Muniz Engineering Co.Inc., a Texas district court, in refusing to hold the insuredresponsible for the coverage in place as a matter of law, notedthat an insured could logically have “no duty to read a policy itdid not have.”

Another typical issue arising in agent or broker E&O casesis the issue of “proximate cause.” In order to have a finding ofagent or broker malpractice, there must be a showing that theinsured would have been in a better situation “but for” the claimedmalpractice.

In recent cases considering proximate cause, courts in US PackNetwork Corp. v. Travelers Property Casualty (App. Div. 1st Dep't2007) and Royal Indemnity Co. v. King (D. Conn. 2007), each grantedsummary judgment motions by brokers dismissing E&O claims.

In each case, the question of whether or not a duty of care hadbeen breached by the broker was trumped by a conclusion that anybreach by them did not matter. There would not have been coverageanyway, so there was no proximately caused harm to plaintiffs as aresult.

Turning to claims by retail brokers against wholesale brokers,in Bleecker Street Health & Beauty Aids Inc. v. Granite StateIns. Co. (App. Div. 1st Dep't Mar. 6, 2007), the court found thatthe retail broker, with nothing more than a breach-of-contractclaim against a wholesale broker, could not seek common-lawindemnity or contribution from the wholesaler.

In this case, the insured was denied coverage for a fire lossclaim based upon an alleged misrepresentation in its policyapplication that there was no establishment in the buildingutilizing a deep fryer. In fact, there was.

The insured blamed the retail broker, claiming he only saw thesignature page of the application.

The retail broker, in turn, sued the wholesale broker, trying toget contribution or indemnity from the wholesaler.

The wholesale broker, however, procured coverage based upon theapplication it was provided by the retail broker. Therefore, itcould not have been responsible for any lack of coverage resultingfrom misrepresentations in the application.

Even though the retail broker tried to couch its claims againstthe wholesaler in terms of negligence, the fact was that however itmight try to characterize it, a breach-of-contract claim was all ithad.

See related article, “What Can Insurance Customers Expect?” fora discussion of agents' duties.