Long ago, when I was a newbie to the insurance industry, I was told that the definition of an expert was simply someone who knew more than the person he was talking to. Unfortunately, in our current litigious society, this definition is not satisfactory and it probably never was. Today, insurance professionals who hold themselves out as experts in one or more areas of insurance are held to a much higher standard.
Virtually all insurance organizations want their members to be viewed as professionals who offer expert advice and counsel to their clients and prospective clients. Specialization is one of the best ways to differentiate your insurance team. Specializing in one or more areas of our complex insurance market, such as marine insurance, workers’ compensation, international trade or life and health insurance takes extra effort and education, but the effort is well worth it.
In today’s technical and complex insurance market, you cannot qualify as an expert simply by knowing more than the person with whom you are talking. Becoming an expert requires continuing education, training and strict attention to the responsibilities of your particular niche of the insurance industry. And don’t think you’re exempt if you specialize in personal insurance: 80 percent of the litigation I am involved in deals with auto or homeowners policies. If you hold yourself out as an expert in any particular form of insurance, you may have created for yourself and your agency a heightened duty to advise and counsel your clients.
Here’s an example involving marine insurance, an actual case I was involved in as an expert witness.
The insured purchased a yacht that had a replacement value of approximately $1 million, and with all of the additional electronics and fishing equipment, the yacht had a replacement value in excess of $1.5 million. During the sales process, the boat seller highly recommended a particular insurance professional and identified the agent as a marine insurance specialist. The agent had substantial credentials as an insurance professional with an expertise in recreational vessels in general and in particular the type of yacht being purchased.
The yacht policy included a lay-up warranty and was renewed annually for 5 years without any communication between the parties except for renewal notices and annual invoices between the client and the agent. Subsequent to the fifth renewal, a fire damaged the yacht. The fire occurred in mid-winter when the yacht was supposed to be out of the water. The damage from the fire resulted in a total loss of the yacht. The insurer investigated and declined coverage based on a breach of the lay-up warranty included in the insurance contract. As a result of the declination, the insured sued the agent based on the fact that he was never advised to a lay-up warranty and the original application never requested a lay-up warranty. The bottom-line response to the plaintiff’s allegations was that the insured had a duty to read his policy and if he had any questions he should have contacted his agent.
This case settled just days before it was due to go to trial and resulted in a very favorable settlement for the insured. I really wish it had gone to trial because it might have provided a guidepost as to what was expected of an expert insurance professional.
This litigation revolved around the question of whether an insurance agent or agency that holds itself out to be a professional with special expertise insurance places a special burden on the producer to advise and counsel the client. Keep in mind that the duty to advise and counsel is somewhat murky and varies substantially from state to state. In my judgment, the greater the expertise, the greater the right of the insurance client to rely on the chosen insurance professional.
The Defense Research Institute has a similar opinion. Its various bulletins clearly indicate that "courts have made clear that an agent holding himself or herself out as a professional with special expertise will be charged with greater responsibility than simply filling out application forms."
Like most other situations that arise in litigation, once one question is answered, several more arise—and these require serious attention. Every insurance agent who fails to do so exposes himself or the agency to legal liability.
For example, when an insurance agent provides insurance coverage in a specialized area, does he or she have an additional obligation to do it completely and properly? This provokes an answer as to what constitutes sufficient information that would allow a prospective insured to make an informed decision. There is no specific answer because the answers that are available are a moving target. However, a good place to start is to understand that what is required varies from client to client. I believe the information the agent must provide to the client varies with the sophistication of the client, the complexity and nature of the risk to be insured, the relationship between the agent and the client and the qualifications of the agent. At a minimum, the agent must provide accurate and sufficient information that a reasonable person would consider sufficient to enable the client to make an informed decision.
One thing is crystal clear: In the context of the definition of providing sufficient information, this is not accomplished by asking a client or prospective client to fill out an application and then providing them with a quotation. When an agent with special expertise makes an offer, that agent must give an accurate and complete explanation of the coverage offered.
Another interesting issue arose in this litigation involving the general practices of the agent in explaining to the client the terms and conditions of an insurance contract. In this matter it was the agent’s normal practice to provide a thorough explanation of the terms and conditions of the yacht policy in general and in particular the effect of a lay-up warranty. The producer may be held responsible if it is determined that no explanation was given. Unlike New Year’s resolutions, this resolution must be honored by yourself and your associates.
Another issue is the industry-accepted standard of care of the agent or agency. In this particular case, the agent did not take the insurance application personally but turned that responsibility over to his CSR. Although the CSR testified that she did not remember who provided her with the information to complete the application, she remembered sending out a policy specification sheet indicating that there was no lay-up warranty to be included in the yacht policy. Clearly one does not need to be an expert to realize that this type of behavior does not come close to meeting the standard of care expected of a professional insurance organization.
The significance of this inquiry is that high-level quality control procedures must be in place before submitting applications and when policies are received. A recent survey by one of the large national insurance agencies indicated that 40 percent to 60 percent of the endorsements and policies came back to their office with errors. Never forget that the agency or the agent are responsible for the actions of their employees.
The standard of care for agents is to exercise good faith and reasonable skill and diligence. The plaintiff in the above case alleged the concept that it is the agent’s duty to place the insurance on the best terms he or she is able to obtain, and to know about the different companies and terms available. On its web page, the agency indicated that a prospective client can obtain up to 15 different quotes from the insurance companies they represent. In this case, the agent approached only one carrier. In his deposition testimony, the agent testified that he represents at least three other companies with more liberal insuring terms. The availability of information via the Internet, social networking and all forms of documentation by your clients makes it essential that you keep your promises.
It would be beneficial if every agent could attend a trial involving the professional responsibility of insurance organizations. The defense counsel goes to great lengths to demonstrate that the producer has no responsibility other than completing an application and offering a premium quote, collecting the premium and delivering the policy. If this is accurate, insurance professionals with years of training are little more than order takers. To put it another way, if you went to the supermarket and asked for 5 pounds of Idaho potatoes and received russet potatoes instead, the supermarket could be held liable for providing the wrong product. Take the time to attend a trial and you will get a good idea the liability exposure faced by insurance producers in today’s insurance marketplace.
All members of our industry would like to be viewed as professionals and insurance experts; but to qualify as an insurance professional and insurance expert, you must take your time, carefully explain and make sure that your client understands all relevant policy conditions. Make sure that when your experience and training qualifies you as an expert, do everything necessary to ensure that your expertise is not undermined by a poor quality control system.