For the most part, this clear distinction no longer applies. As independent brokers entered into agency agreements with multiple carriers, the brokers were permitted to accept applications and premiums on the carrier's behalf and sometimes even bind coverage. The line between these traditional characterizations became blurred. The independent broker became an agent of several different insurance carriers.
By entering into these agency relationships, brokers can more efficiently shop for attractive premiums and coverages, and are well positioned to promote themselves to prospective insureds. The dual-agency relationship that brokers have with carriers and insureds is recognized and permitted widely, providing there are no conflicts of interest, which typically there are not. The insured wants to buy coverage, the carrier wants to sell it, and the broker facilitates the transaction. In reality, however, the moment the independent broker becomes an agent of the insured, the relationship becomes considerably more complex.
Order-Taker or Consultant?
Most often, brokers are sued when the insured has a loss and has no coverage for the resulting loss. In such cases, the insured typically claims that the broker should have more fully explained the insured's existing coverages and recommended additional insurance that, in hindsight, would have covered the loss. Ascertaining the circumstances and conditions of the broker's engagement–after the insured realizes there is no coverage for a particular claim, and after the broker has been sued–is subject to interpretation. However, defining the broker-insured relationship and corresponding duty owed by the broker is often the most important–and overlooked–aspect of any lawsuit filed against the broker. The insured will try to define the broker's role as broadly as possible, and the broker will do the exact opposite, claiming he or she properly performed a relatively narrow task for the insured.
It is generally accepted that brokers must exercise reasonable care, skill and diligence when they procure insurance coverage for their clients (A.G. Edwards & Sons Inc. v. Drew, 978 S.W.2d 386, 394-95 [Mo. Ct. App. 1998]). Some courts have held that brokers must follow the client's instructions, provide the coverage they undertake to supply and secure a policy that is not materially defective (President v. Jenkins, 853 A.2d 247, 257 [N.J. 2004]). While these broad statements provide a starting point to examine the relationship between the broker and client, the statements offer no practical assistance in defining the broker's specific duties.
Typically, insurance brokers also are said to owe a fiduciary duty to their clients (Perelman v. Fisher, 700 N.E.2d 189, 192 [Ill. Ct. App. 1998]). Some of the markers of this fiduciary relationship have been identified:
o One party being subservient to the dominant mind and will of the other party as a result of age, state of health, illiteracy, mental disability or ignorance
o Things of value such as land, monies or a business, which are the property of the subservient party, being possessed or managed by the dominant party
o A surrendering of independence by the subservient party to the dominant party
o An automatic and habitual manipulation of the actions of the subservient party by the dominant party
o The subservient party placing trust and confidence in the dominant party.
Does this mean courts rule that the broker-insured relationship typically involves these onerous characteristics? Many brokers would disagree, particularly regarding their more sophisticated commercial clients. So what exactly does this fiduciary relationship mean in the broker-insured setting, and when considered against the background of the factors that normally define a fiduciary relationship, can it provide the insured with ammunition to argue that the broker owed the duties of affirmatively explaining or recommending coverages?
Some courts have found that such a "super duty" to explain coverages ordinarily does not exist, because a situation will leave someone uninsured (Wang v. Allstate Ins. Co., 592 A.2d 527, 531 [N.J. 1991]). However, those same courts have specifically left the door open, finding that a "super duty" could exist if a special relationship exists between the parties that indicates reliance by the insured on the broker.
Other courts have offered guidance regarding the elements of such a relationship, noting that it can be evidenced by a broker:
o Exercising broad discretion in serving the client's needs
o Counseling the client about specialized insurance coverage
o Holding herself out as a highly skilled insurance expert coupled with the insured's reliance on her expertise
o Receiving compensation beyond any ordinary commission for the advice or guidance provided (Court View Centre, LLC v. Witt, 753 N.E.2d 75, 87 [Ind. Ct. App. 2001]).
Generally, we can conclude that a broker is not automatically required to recommend or explain coverages to the client. To the contrary, such a duty generally is not imposed on the broker. However, where the broker has taken it upon herself to counsel her client about specialized insurance coverages, held herself out as an expert to her client, or received extraordinary compensation from her client for services provided, a jury may be allowed to consider whether recommending or explaining coverages to her client falls within the scope of her agency, and thus her fiduciary duty owed. Defending the Lawsuit–Can You Blame the Client?
When brokers are sued in these "failure to recommend" or "failure to advise" lawsuits, their conduct invariably is placed under a microscope and their actions second-guessed. But what about the client? Does the client have certain obligations that, if unfulfilled, can successfully be asserted as affirmative defenses or bars to recovery?
In most jurisdictions there are no "absolutes" regarding either the scope of the duty owed by an insurance broker to the insured, or regarding the insured's obligations in dealing with the broker or becoming familiar with his coverage. Relevant considerations in defining both are the specificity of the insured's request, the nature and history of the relationship between the broker and insured, what duties the broker has assumed voluntarily, the nature of the insurance coverage at issue and how sophisticated the insured is. The analysis is clearly fact-specific, and therefore the insured/plaintiff often can defeat the broker/defendant's motion for summary judgment. This is particularly true when the plaintiff has retained an expert to opine that the broker was negligent for failing to recommend or explain coverages to the client. To minimize the plaintiff's (and his expert's) ability to do this, and maximize the broker's ability to prevail at summary judgment or trial, the defense attorney must establish favorable facts during the discovery process. Comprehensively questioning the plaintiff at his deposition is crucial.
Perhaps the most common scenario facing insurance brokers in "failure to recommend" or "failure to advise" cases is the client's contention–after the fact–that he wanted "full coverage" or "the best coverage," regardless of cost. Chances are that the broker never agreed to act upon such a vague request, so the broker's attorney should explore exactly what the client means by "full coverage." Did he really want to be insured for every possible risk under the sun? Does he truly believe that is even possible? What were the client's reasonable expectations regarding his insurance, and were they fulfilled? When confronted with the endless insurance coverages available for purchase, certain boundaries of this full coverage will come into focus. It will demonstrate how the client, not the broker, is the best judge of his own exposure. Insurance brokers are not personal financial counselors and risk managers–clients are in a better position to know their personal assets and liabilities to protect themselves (Murphy v. Kuhn, 682 N.E.2d 972, 976 [N.Y. 1997]). The insured should be questioned about the terms and conditions specifically included in the policy that was placed. Did he read the policy? How educated is he? What previous insurance coverages did the client have in place, perhaps with a different broker? If the same policy was in place for years on a renewal, a stronger argument can be made that the client should have been familiar.
This will often lead to the client's assertion that he relied upon his broker's advice for all of his insurance needs. Perhaps he will portray himself as too busy to read his policy, or too accomplished to be bothered with the minutiae of insurance issues, and so he delegates them to his broker. The client's version of the relationship should be challenged. Did the insured pay the broker any fee apart from the commission earned on the policy placement? Had the broker ever recommended any specialized coverages for the insured before? Did the client really expect the broker to read and explain every provision of the policy? Had the client made specific requests for policy changes, thus reflecting some understanding of what his policy did and did not cover? Eliciting information from the plaintiff on these issues can be difficult, because most good brokers do make recommendations to their clients and do hold themselves as having superior knowledge of insurance issues. After all, it is a business and there is plenty of competition. Preparing the broker for a deposition by ensuring that the broker can specifically define the circumstances of her engagement regarding the insurance coverages at issue is equally or more important on these issues.
All of this is done with an eye toward convincing a judge or jury not only that the broker was not negligent, but that the actions the insured claims the broker should have taken were not even within the scope of the broker's duty. This serves as both a factual argument for the jury and legal argument for the judge–because the existence of a duty is a matter of law–that also will preserve the right to appeal. If an undesirable verdict results from trial, perhaps an appellate court can be convinced, under the established facts, that such a duty claimed by the plaintiff should not even exist.
Imposing a duty upon an insurance broker to recommend or explain coverages to her client effectively allows the client to insure himself after the fact by claiming he would have bought additional coverage had it been offered. As one court noted, this "turns the entire theory of insurance on its ear" (Farmers Ins. Co. Inc. v. McCarthy, 871 S.W.2d 82, 86-87 [Mo. Ct. App. 1994]). People take an "intellectual gamble" when purchasing insurance, as they weigh the expense of insurance against the amounts of coverage they purchase. Allowing people to seek coverage post-occurrence circumvents this risk. When the client realizes he lost his intellectual gamble and blames it on the insurance broker, why not try to shift the focus of the analysis to the conduct of the client instead of the broker? After all, sometimes the best defense is a good offense.

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