When an insurance agent or broker promises to obtain a particular type of insurance for a customer, he must keep that promise. If the agent or broker fails to keep the promise, he will be found liable to the person insured to provide the protection promised. This was first stated in a reported decision in Carter v. Boehm (S.C. 1 Bl.593, 3 Burr 1906, 11th May 1766), where Lord Mansfield opined:

The reason of the rule which obliges parties to disclose, is to prevent fraud, and to encourage good faith. It is adapted to such facts as vary the nature of the contract; which one privately knows, and the other is ignorant of, and has no reason to suspect. The question therefore must always be “whether there was, under all the circumstances at the time the policy was underwritten, a fair representation; 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 transacting insurance must treat the other parties fairly and in good faith or be punished if the other is damaged.

In Busey Truck Equipment Inc. v. American Family Mutual Insurance Co. (No. ED93091 [Mo.App. E.D. 11/24/2009]), the Missouri Court of Appeals Eastern District found that an insurance agent (“Agent”) made promises to the plaintiff that she did not keep. As a result the Agent was held responsible for failing to keep a promise made to insure Busey Truck Equipment Inc. (“Busey”).

The suit resulted because the court believed the allegations of Busey that its representatives met with the Agent and requested an insurance policy to cover its facilities' “contents,” which included tools, equipment, customer property, inventory and supplies. Subsequent to this meeting, Busey purchased and received an insurance policy from the insurance company. The Agent represented to Busey that the policy covered Busey's contents. It was 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 demanded payment of “the full amount of lost Contents resulting from the fire,” the insurance company refused to pay the full value of Busey's claim. In its negligence claim, Busey alleged that the Agent had a duty to ensure that Busey's insurance policy would cover the contents of its facilities, that Agent breached that duty by negligently and carelessly advising Busey that the policy would cover its contents, and that, as a result of the agent's negligence, Busey suffered damages.

Missouri courts have long held that a broker or agent who undertakes to procure insurance for another for compensation owes a duty of reasonable skill, care and diligence in obtaining the requested insurance. An agent or broker who unjustifiably and through his or her fault or neglect fails to obtain the requested insurance will be held liable for any damages resulting from such failure.

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 from the insurance company

2. The agent failed to procure the agreed-upon insurance and, in so 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 for Agent's failure to advise Busey of the types of coverage it needed for its business and the types of coverage available. Agent cited multiple cases for the proposition that agents do not have a general duty to advise customers about their particular insurance needs or the types and amounts of coverage that may be available. Agent also emphasized that an agent or broker does not have an obligation to explain the policy to the insured.

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

The Agent also claimed that her duty to act with reasonable care, skill and diligence in obtaining the insurance requested terminated when the insurance company executed and delivered the policy to Busey. The cases Agent relied on for this proposition are inapposite because the plaintiffs in those cases did not allege that the agents with whom they dealt failed to provide the insurance coverage they requested.

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

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

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

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

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