When an insurance agent or broker promises to obtain aparticular type of insurance for a customer, he must keep thatpromise. If the agent or broker fails to keep the promise, he willbe found liable to the person insured to provide the protectionpromised. This was first stated in a reported decision inCarter v. Boehm (S.C. 1 Bl.593, 3 Burr 1906, 11th May1766), where Lord Mansfield opined:

The reason of the rule which obliges parties to disclose, is toprevent fraud, and to encourage good faith. It is adapted to suchfacts as vary the nature of the contract; which one privatelyknows, and the other is ignorant of, and has no reason to suspect.The question therefore must always be “whether there was, under allthe circumstances at the time the policy was underwritten, a fairrepresentation; or a concealment; fraudulent, if designed; or,though not designed, varying materially the object of the policy,and changing the risks understood to be run.

The covenant first reported in 1766 applies to today's insurers,brokers, agents and insureds. Everyone involved in transactinginsurance must treat the other parties fairly and in good faith orbe punished if the other is damaged.

In Busey Truck Equipment Inc. v. American Family MutualInsurance Co. (No. ED93091 [Mo.App. E.D. 11/24/2009]), theMissouri Court of Appeals Eastern District found that an insuranceagent (“Agent”) made promises to the plaintiff that she did notkeep. As a result the Agent was held responsible for failing tokeep a promise made to insure Busey Truck Equipment Inc.(“Busey”).

The suit resulted because the court believed the allegations ofBusey that its representatives met with the Agent and requested aninsurance policy to cover its facilities' “contents,” whichincluded tools, equipment, customer property, inventory andsupplies. Subsequent to this meeting, Busey purchased and receivedan insurance policy from the insurance company. The Agentrepresented to Busey that the policy covered Busey's contents. Itwas this promise that was the basis of the suit since, on July 27,2006, there was a fire at Busey's facility in Jackson, Mo.

Busey suffered significant losses as a result of the fire,including the loss of tools, equipment, customer property,inventory and supplies. When Busey reported the loss and demandedpayment of “the full amount of lost Contents resulting from thefire,” the insurance company refused to pay the full value ofBusey's claim. In its negligence claim, Busey alleged that theAgent had a duty to ensure that Busey's insurance policy wouldcover the contents of its facilities, that Agent breached that dutyby negligently and carelessly advising Busey that the policy wouldcover its contents, and that, as a result of the agent'snegligence, Busey suffered damages.

Missouri courts have long held that a broker or agent whoundertakes to procure insurance for another for compensation owes aduty of reasonable skill, care and diligence in obtaining therequested insurance. An agent or broker who unjustifiably andthrough his or her fault or neglect fails to obtain the requestedinsurance will be held liable for any damages resulting from suchfailure.

To prevail on a claim of negligent failure to procure insurance,the plaintiff must plead and prove that:

1. The agent agreed to procure, for compensation, insurance fromthe insurance company

2. The agent failed to procure the agreed-upon insurance and, inso doing, failed to exercise reasonable care and diligence

3. As a result, the plaintiff suffered damages.

The Agent characterized Busey's claim as a cause of action forAgent's failure to advise Busey of the types of coverage it neededfor its business and the types of coverage available. Agent citedmultiple cases for the proposition that agents do not have ageneral duty to advise customers about their particular insuranceneeds or the types and amounts of coverage that may be available.Agent also emphasized that an agent or broker does not have anobligation to explain the policy to the insured.

The court noted that the precedent cited by the Agent wascorrectly stated, the statements of law were of no assistance tothe Agent because the Agent failed to keep the promise made.Busey's claim for negligent failure to procure insurance was basedupon the Agent's failure to obtain the coverage Busey requested andthe Agent promised to acquire. In fact, the Agent represented thatthe coverage promised was obtained. The suit was not based upon anyfailure of the Agent to advise about optional coverage or explainthe coverage provided.

The Agent also claimed that her duty to act with reasonablecare, skill and diligence in obtaining the insurance requestedterminated when the insurance company executed and delivered thepolicy to Busey. The cases Agent relied on for this proposition areinapposite because the plaintiffs in those cases did not allegethat the agents with whom they dealt failed to provide theinsurance coverage they requested.

The Agent further contended that Busey's “failure to read itsown insurance policy is fatal to its cause of action.” A review ofthe cases cited by the Agent revealed, however, that in none did afailure to review an insurance policy preclude the insured fromstating a claim for negligent failure to procure insurance.

Finally, the Agent seems to argue that as a “captive” insuranceagent, she had a lesser duty to Busey than an independent insuranceagent or broker might have. We find the distinction between abroker and an agent is not material to an insurance agent's duty toeither procure the insurance that her client requests or notify theclient of her failure to do so.

Not only has Missouri abolished the defense of contributorynegligence, but even when it recognized the defense, itsapplication depended upon a court or jury considering evidence ofthe plaintiff's “maturity, experience and knowledge regarding therealm of human behavior in which his unwise or unreasonable acts orfailure to act arise.”

The Agent in this case failed to fulfill the essence ofinsurance–that each insurance transaction is conducted with theutmost of good faith. That means that the benefits of insurance forwhich the insured contracted are provided.