Carl D. Little unsuccessfully appealed from summary judgments entered in favor of Kentucky Farm Bureau Mutual Insurance Co., Beth Clemons, and Michael R. Fannin Insurance Inc. in Little v. Kentucky Farm Bureau Mutual Insurance Co., No. 2009-CA-001030-MR (Ky. App. 08/20/2010), whom he had sued for failing to convince him to buy underinsured motorist coverage.

Read Barry Zalma’s previous column, “Expensive to defraud the U.S.”

Little was involved in an automobile accident. He unsuccessfully argued that the trial court erred by concluding there is neither statutory duty nor a common law or fiduciary duty to provide a specific amount of underinsured coverage. Before the accident he had purchased an automobile insurance policy from Beth Clemons, who was acting as an agent for Michael R. Fannin Insurance and Farm Bureau. The policy provided liability limits of $100,000 per person and $300,000 per accident. The policy contained underinsured limits of $25,000 per person and $50,000 per accident. Little claimed that he requested underinsured coverage up to the liability limits.

Little brought suit against the tortfeasors and against Farm Bureau for underinsured motorist benefits. He settled his claim against the tortfeasors for the tortfeasors’ policy limits and then amended his complaint to assert negligence and vicarious liability claims against Clemons and Fannin Insurance for failing to provide him the underinsured motorist coverage he requested. Little asserted that Farm Bureau, Fannin Insurance and Clemons breached statutory, common law and fiduciary duties by failing to sell him the underinsurance coverage he requested, although Little admitted that Farm Bureau told him he would not be sold underinsured coverage at the limits he requested. Little also admitted he knew the limits were not the limits he requested prior to the accident underlying this case.

Farm Bureau filed a motion for summary judgment, contending it had no statutory duty to sell any particular amount of underinsured motorist coverage. The trial court agreed. Later, Fannin Insurance and Clemons filed a separate motion for summary judgment which, like the motion of the insurer, was successful.

The order reserved ruling on Little’s common law and fiduciary duty claims. Finally, Farm Bureau filed a motion for summary judgment, asserting it had no common law or fiduciary duty to sell any particular amount of underinsurance coverage. This motion was joined by Fannin Insurance and Clemons. The trial court granted summary judgment in favor of Farm Bureau, Clemons and Fannin Insurance, holding there is no common law or fiduciary duty to sell a specific amount of underinsured coverage. Little filed a motion to alter, amend or vacate the summary judgments, which the trial court denied. This appeal followed.

Every insurer doing auto insurance business in Kentucky must provide underinsured motorist coverage to any insured who requests the coverage. The coverage offered must be consistent with that required by statute. That means the insurer agrees to pay its own insured for uncompensated damages he could recover because of an injury due to a motor vehicle accident that exceeds the limit available from the insurer of the responsible party.

Little maintained that Farm Bureau should have sold him a policy of underinsured coverage at the limits he belatedly requested because he was willing to pay a reasonable premium for such coverage.

Little correctly claimed the statute requires insurers to make underinsured coverage available only if requested.

The Court of Appeals concluded, contrary to Little’s desire, that an insurance agent ordinarily only assumes those duties found in an agency relationship. An agent owes his principal the obligation to deal in good faith and to carry out the principal’s instructions. Other jurisdictions have found that generally, an insurer may assume a duty to advise an insured when:

• The insurance agent expressly undertakes to advise the insured

• The insurance agent impliedly undertakes to advise the insured.

The insured has the burden of proving that the insurer assumed such a duty. The implied expanded duty can only be proved when:

• The insured pays the insurance agent consideration beyond a mere payment of the premium

• There is a course of dealing over an extended period of time which would put an objectively reasonable insurance agent on notice that his advice is being sought

• The insured clearly makes a request for advice.

This is another case where an insured attempted to get more coverage than agreed to by the agent, broker or insurer by claiming a fiduciary duty on the part of the insurer and the broker (see the August 2010 “Down to Cases”.) Insureds continue to attempt it and insurance agents, brokers and insurers should be cautious and protect themselves by having the documentary evidence necessary to prove their defense.

The court wisely acknowledged that insurance is a contract that must be agreed to by both parties and the insured cannot unilaterally dictate the terms an insurer is willing to take. Little was not upset by the coverage he had until he incurred a loss. Had there been no accident he would not have complained that his insurer erred. As a California Court once said:

An insurance company is entitled to determine for itself what risks it will accept, and therefore to know all the facts relative to the applicant’s physical condition. It has the unquestioned right to select those whom it will insure and to rely upon him who would be insured for such information as it desires as a basis for its determination to the end that a wise discrimination may be exercised in selecting its risks. (Robinson v. Occidental Life Ins. Co. (1955) 131 Cal. App. 2d 581, 586 [281 P.2d 39].)” (64 Cal. App. 3d at p. 273.)

Little’s suit failed because he did not provide the information his insurer needed to make a wise discrimination on the risk it was asked to take.