In most professions, the generalist, the so-called “jack of alltrades,” has become an endangered species. TV's kindly generalpractitioner Dr. Marcus Welby could treat everything from ahangnail to a hematoma. He has been replaced by caustic Dr. GregoryHouse, with a huge supporting cast of highly specialized interns,each of whom sees the patient's symptoms through the myopia of hisor her area of expertise.
Neither Dr. Welby's nor Dr. House's TV patients ever receive a billfor services, but in real-life professional offices, includinginsurance brokerage firms, we are running a business whilepracticing a licensed occupation. The natural desire to be helpful,as well as the financial incentive to increase revenues, can temptbrokers and other professionals to stray outside their areas ofexpertise, but doing so can lead to increased risk for the broker.The temptation is especially strong in an economic downturn and asoft insurance market, when premiums and commissions are unlikelyto remain stable, let alone increase.
A fish story
Let's say “Sam the Broker” has been the producing broker for alocal seafood restaurant, Joe the Fishmonger, for several years,and procuring the general liability, employer's liability, workers'compensation and business auto policies to Joe and his shop. Oneday Joe calls Sam: “I've got this great opportunity to startimporting sea urchins in bulk from Argentina and reselling them torestaurants throughout the area. Am I covered for it?”
Not wanting to appear uninformed or to lose a potential businessopportunity, Sam tells Joe, “That kind of international businesscan pose different risks. You'd better let me look over theproposal so we can decide if you need expanded coverage.” Sam laterassists Joe in getting broader coverage for his new urchinimporting venture, and Sam earns increased commissions on the newlyplaced coverage. Joe is a happy customer–until two years later whenan earthquake destroys the Argentine urchin-processing dock,bringing the urchin trade to a sudden halt. Joe's business takes anose dive, and he is surprised to learn from his insurer that hehas no coverage for a business interruption caused by an earthquakeloss in a foreign country.
The sad tale of Joe the Fishmonger is loosely based upon a realcase I defended some years ago, with the names, locations and lineof business changed. Sam the Broker didn't really have theexperience to procure coverage for the esoteric kind of risk posedby Joe's urchin importation business. Sam wanted to keep his clienthappy, and not to let another brokerage, one experienced inbusiness interruption insurance for businesses with internationalsuppliers, get between Sam and Joe.
The moral of the story is a simple one: Stay within yourstrengths.
We have our standards
The general rule in professional liability cases is that one whoholds himself out as an expert in a particular, specialized area ofpractice will be held to the standard of care that applies to realexperts in that area. That principle may not be surprising. Few ofus would be pleased to learn that a medical doctor who told us thatshe was a board-certified brain surgeon did not really have thatcertification, after we went under the knife in reliance on herrepresentation. In the insurance world, the licensing andcertification standards are not as specific as they are inmedicine. In contrast, with some exceptions, a licensedproperty-casualty broker doesn't need a set of specialist'sinitials on his or her business card to place any form ofproperty-casualty business with an admitted carrier.
In general, the insurance-buying public does not look at thediplomas and industry association memberships on brokers' walls asclosely as they might scrutinize a surgeon's qualifications. Apatient might ask, “How many surgeries like this one have you donebefore?” In the case of Joe v. Sam, Joe didn't ask Sam if he hadprocured coverage for a sea urchin importing business before. Joetook the fact that Sam proceeded to make the placement assufficient evidence that Sam considered himself competent to do thejob. In many broker E&O cases, the alleged “misrepresentation”of the broker's qualifications is not made affirmatively–”I am anexpert in procuring shellfish import insurance”–but by implication.The general rule used by courts and juries is if you take on workthat requires an expert's knowledge, you are held to an expert'sstandard of care. In other words, it is not a complete defense tosay, “I only dabble in that area, so I should be held to a lesserstandard.” Dabblers are usually held to the same standards asfull-time specialists.
What is the “expert” standard of care? In areas outside of the layjuror's experience, that standard is determined by the jury withthe aid of expert witnesses paid by both sides of the case.Observers of the U.S. legal system find the use of paid experts tobe one of our more perplexing practices. In some other systems,expert witnesses are called, if at all, by the trial judge and arenot paid by any party. Science fiction icon Arthur C. Clarke couldhave been describing the U.S. civil justice system when he wrote,“For every expert there is an equal and opposite expert.”
Although expert witnesses are not all equal in qualifications or inpersuasive skills, there is certainly no shortage of them. Oneorganization of expert witnesses, the Forensic Expert WitnessAssn., lists 13 experts under the heading “insurance broker.” Thereare many such organizations, and many more experts who workindependently from any organization. I googled the terms insurancebroker and expert witness together and received 16,100 hits.
It used to be said that medical doctors refused to testify againsteach other as experts–the so-called “conspiracy of silence.” Thatparticular professional courtesy evaporated long ago. In myexperience, there never was a similar reticence to testify amonginsurance professionals. It is fair to say that in any brokerE&O case, even the one you think is the clearest slam-dunkdefense winner, the plaintiff will be able to find a qualified“expert” who will gladly testify that he or she is “shocked” by thedefendant's breach of the professional standard of care. It is upto the lay jury to determine the standard of care, based upon thebattling experts' contradictory testimony and the jurors'collective take on the experts' relative credibility.
Some tips on expansion
There are ways for small- to medium-size brokerage firms to expandinto new areas of expertise, and while none of them are riskless,they entail less risk than claiming to have experience that thefirm actually does not.
One way to expand is education. We all learn new skills in ourprofessions, and sometimes we even reinvent ourselves to meet achanging marketplace. The insurance industry has many resources tohelp certify brokers and agents in numerous specialties throughorganizations such as the Insurance Educational Association,Professional Liability Underwriting Society and AICPCU. (Fulldisclosure: I am on the Board of the IEA, and have chaired threenational PLUS education events, so I admit my partiality to thoseorganizations.) Receiving a new certification, plus a littlehands-on work with the guidance of an experienced mentor, can bluntthe plaintiff's accusation that you were swimming out of yourdepth.
Another way to expand a professional practice is by bringing in newpeople who have needed expertise, either as permanent staff or onan ad hoc basis. One cautionary note: When adding an experiencedbroker to a firm, especially one who brings in existing business,it is important not to buy an unfair competition lawsuit by his orher former employer, along with that new expertise andbusiness.
There also is the option that Sam the Broker refused to consider inthe tale of Joe the Fishmonger–referring the customer to anestablished expert for the exotic lines of coverage, whilemaintaining the existing relationship on the vanilla coverages.Yes, there is a risk that the sea urchin import insurance guru willtry to woo Joe away as a client for all of his insurance needs.That is how some people in today's business world return a favor,but the smartest professionals recognize that a referral is not aninvitation to become a poacher. If you do refer, consider askingthe guru for references from other producers he or she has workedwith. What do they say about letting her near theircustomers?
We all have our strengths, and we succeed best when we play tothem. In my legal practice, I defend financial professionals andhandle insurance coverage assignments. If someone asked me todefend a serious personal injury case, I'd introduce them to mypartners who are great personal injury defense lawyers.
There are very few generalists left in this world. Even MarcusWelby is only seen in reruns. Louie Castoria defends brokersand other professionals, and is a humorist in his spare time. He isa partner in Wilson Elser Moskowitz Edelman & Dicker LLP in thefirm's San Francisco office. The views expressed herein are theauthor's, and are not legal advice.