I don't know how many hundreds of thousands of insuranceprofessionals there are in the U.S., but I am constantly surprisedat how small the insurance world really is. For example, severalyears ago I was on my way from New York to Atlantic City on a coldrainy night. Approaching the bridge that goes on from Staten Islandto New Jersey my car stalled and wouldn't start. I put on myflashing emergency lights, and shortly somebody stopped and askedif he could help. It was the son of a good insurance friend ofmine. Well, another example of the small world of insurance hasjust occurred.

Barry Zalma wrote a terrific article for this site titled“Don't bet the farm.” The essence ofthis case is that the plaintiff, Scruggs, replanted seeds that wereweed resistant and patented by the Monsanto Chemical Company. Thepractice of replanting seeds is an age-old practice, used byfarmers who harvest their crops and save some seeds to be replantedthe following growing season. There's nothing wrong with thepractice except that these seeds were patented by Monsanto, andfarmers who purchased the seeds were explicitly directed not toreplant them.

Monsanto sued and the Mississippi Supreme Court eventually foundthat Scruggs' actions were both intentional and illegal, andtherefore uninsurable. The court also opined that the producer andthe agency had some duty to recognize Scruggs' need for patentinfringement insurance. They failed to inform Scruggs that heneeded it, but they couldn't be held liable for that omission,according to the court. I don't think anybody will be surprisedthat Scruggs then sued the insurance agent and agency.

Related: Case analysis: Do agents owe a duty to the generalpublic?

I was the insurance expert for Scruggs, and I offered theopinion that the Mississippi Supreme Court was wrong, and that theinsurance producers and the agency did have a duty toadvise and counsel Scruggs. As the expert testifying for theplaintiff I asserted the opinion that there is no such thing as asmall amount of “duty.” You either have an obligation to advise andcounsel or you don't.

The scope of my assignment was limited to commenting on thestandard of care expected of licensed professional insuranceproducers and agencies. My judgment is not based on someegotistical sentiment but rather on the real reason that Monsantoand the agency received a favorable judgment, which relied on twodistinct factors, resulting in a claim that was not collectiblebecause of the facts of the case.

(Photo: Shutterstock.com)

The essence of the court's decision is that no coverage wasavailable to Scruggs under any circumstances. The court opined“based on the allegations contained in the Monsanto complaint nocoverage existed under any provisions of Scruggs insurancecontract.” The court concluded that Scruggs' actions wereintentional and as such uninsurable. Generally speaking, people andbusinesses (with certain exceptions) can't purchase insurance forillegal activities.

Agents as industry experts

Briefly stated, I opined that the insurance review to beundertaken by the defendants was to identify the risks the farmerfaced as a result of the farm's business operations and to buy theappropriate coverage to mitigate that risk. The agency acceptedthis assignment. After the review, the farmer agreed to purchase anagribusiness comprehensive insurance contract. Based on the reviewconducted by the agency, the farmer believed that the insurancecontract he purchased would respond to any reasonably foreseeableliability risk that his business organization might face. Becauseof the agency's advertised skills as agribusiness experts, thefarmer thought it reasonable to believe that the agents werewell-qualified agribusiness insurance professionals, not merelyinsurance sales representatives completing insuranceapplications.

Related: Client relationships: the good, the bad, and theworse

Every agency and every insurance producer should know what hasto be done with each client:

• Don't take on risks with which you're not familiar withoutexpert help
• Document everything
• Use standardized forms and
• Explain the key exclusions, especially when selling “all risk”policies.

Failing to do so means less in commissions in the short run andpotential litigation in the long term. For example, the producer inthis case, by failing to properly explain and advise his client,missed out on a patent infringement coverage sale that would haveresulted in a minimum four-figure commission. 

(Photo: Shutterstock.com)

Additional sales opportunities

There's an even a better result: Think about the way yourinsurance client would view your insurance expertise when yourecommend the purchase of patent infringement coverage, explaining“This is why I urge you to buy this protection.”

Related: Selling is not telling: 4 tips to offer betterinsurance solutions

Over the years I have had more than 150 consulting assignments,and a substantial majority of these assignments have a commonthread. My observation is that it's rare for an insuranceprofessional to intentionally offer an incomplete insurance programor inappropriate coverage for the risk to be insured. Rather,insurance producers get themselves into trouble by notunderstanding their professional obligations to the client orfailing to do the most complete risk analysis that he or she cando.

The moral of the story is that it doesn't matter whether you'rea big-city insurance producer with multiple agents or a one-personinsurance office, the question is, are you employing best practicesin your agency? Simply stated, ensure that you have done everythingyou have agreed to do for your clients, including identifying allpotential risks.

Richard Mintzer, CLU, is managing partner of Richard MintzerAssociates LLC, a firm based in Boulder, Colo. that specializes inlitigation support to the insurance industry. For more information,contact him at [email protected].