Recent court rulings confirm that agents and brokers do not oweduties to their insureds to provide complete coverage for liabilityand property damage under ordinary circumstances.

In these situations, agent and broker obligations typically stopat providing only coverage that insureds have specificallyrequested, according to a growing body of court decisions—severalof which were outlined in a prior article published in the April 11 print editionNU.

Still, special relationships or circumstances may exist—and workto broaden a broker’s duty to advise:

• When the agent or broker has been asked for specific advice orguidance on a coverage issue and provided it.

• When the agent/broker has undertaken special duties inhandling the customer’s account.

• When the broker has agreed to accept or has charged specialcompensation in addition to the standard commission foradvice/guidance with regard to coverage.

• When the agent or broker has held himself out as an expert,and knows or has reason to believe that the customer is relyingupon his expressed expertise with regard to a coverage issue.

• When the agent/broker and the customer have a relationship ofsuch significance in terms of time, trust and reliance that theagent/broker should know or have reason to know that the customeris relying upon his advice with regard to coverage issues.

Two recent cases examined “special circumstances.”

GREATER DUTY OWED

In Peterson v. Big Bend Insurance Agency, Inc., acouple with a home that was insured against fire loss asked theiragent for help in trying to get their home insured for its fullreplacement value. The agent had advised he would use a computersoftware program “cost-guide estimate” to determine a replacementvalue for the home. However, although the agent took measurementsand photos, and gathered other information about the house, hiscustomer-service representative failed to make use of a standardquestionnaire typically used with the cost-guide software.

Had they been used, the software and questionnaire would havesignificantly increased the estimated replacement value. Moreover, although insurance limits were increased, it was only dueto an automatic increase for inflation. The cost-guide estimate wasnot actually applied at all.

When a fire destroyed the house, the insurance policy paid outthe policy limits—$193,000. The cost-guide estimate, however, wouldhave increased the limits to $213,000 using information the agenthad obtained, and to $240,000 if the questionnaire had beenused.

The actual cost to replace the home was $328,843.

The insureds sued for the difference betweenthe $328,843 cost to replace the home—which they had requested theagent obtain—and the $193,000 paid by the insurer.

Here, because certain services—the calculation of coveragelimits—had been promised but not provided, the trial court heldthat the agent had breached its duty of care to the insureds. Thecourt, however, set the damages at the difference between thecost-guide estimate had it been properly applied and the insurancelimits that were paid.

The insureds appealed, and on March 5, 2009 the Court of Appealsof Washington said that the agent does not have an obligation tofind coverage affording its client “complete liability protection.”Agreeing with the trial court, the appellate court also held thatby undertaking to provide a cost-guide estimate and failing to doso, the agent had breached a special duty of care it hadundertaken.

Nonetheless, there was no evidence that the agent had agreed toconduct a professional real-estate appraisal, or obtain bids andconsult builders or other experts to determine the full replacementvalue of the home. Accordingly, the agent need only be responsiblefor the difference between the insurance limits actually in place,and the limits that would have been in place but for the failure toutilize the cost-guide estimate (and questionnaire), asrepresented, the court affirmed.

IOWA COURT STANDS FIRM

In other special circumstances, where one might arguably suggestthat an agent or broker had access to information to justifyimposing a duty to question the insured about coverage or to offeradvice regarding possible coverage changes or options, recentdecisions have shown circumspection in taking that leap.

In a very recent decision, Merriam v. Farm BureauInsurance, the Supreme Court in Iowa considered the questionof whether an agent had breached a duty of care to a self-employedtruck driver by assisting him with certain insurance coverages butnever recommending that the driver buy self-employment workers’comp coverage.

This case is significant because in the context of theinteractions between the agent and customer, the court had ampleopportunity to find a basis for concluding that there was ajustified reliance upon the agent’s expertise, and to conclude theagent had a broader duty to advise regarding possible coverageconcerns and options.

In Merriam, the agent worked for Farm Bureau Insuranceand had been assigned to the account of the Merriams, a marriedcouple who had insurance on their primary residence with FarmBureau. He met with the Merriams in early 2005 to discuss insuringa second residence they were purchasing for Mr. Merriam’smother.

During this meeting, the agent suggested the Merriams considerinsuring their personal vehicles with Farm Bureau. At the sametime, the Merriams indicated an interest in obtaining insurance ontheir horses, and the agent agreed to get them a quote. They alsoasked about getting a quote on insurance on the husband’s guns, aswell as adding their new garage and chicken coop onto theirhomeowners policy and obtaining life insurance on Mr. Merriam’smother.

The agent was aware that Mr. Merriam was aself-employed truck driver and, in fact, Mrs. Merriam mentionedthat he had a million-dollar policy in place if he was killed inhis truck. But there was no discussion regarding whether he hadunemployment insurance, and the agent neither asked questions aboutit nor suggested it as a consideration.

Just a few weeks later, Mr. Merriam sustained severe injuries tohis arm, which was crushed by a dump truck he was operating whilehe was patching the driveway where he parked his truck.

In the absence of workers’ comp insurance, the Merriams suedFarm Bureau, alleging the agent was negligent in failing to advisethem that, as a self-employed truck driver, Mr. Merriam had noworkers’ comp insurance unless he purchased it himself.

The Merriams claimed that the agent “was in a position ofsuperior knowledge pertaining to available insurance products andwas negligent for failing to initiate a conversation with themregarding this issue.”

In this case, the agent had admitted he was aware that Mr.Merriam was self-employed because in rating their personal vehicleshe needed to know what their occupations were, where they worked,how far it was to and from work, etc. The Merriams argued that theagent’s awareness of his self-employment status and his lifeinsurance policy, combined with his unsolicited recommendation forother insurance coverage, supported a conclusion that the agent washolding himself out as an insurance specialist and thereby assumeda greater duty of care to the Merriams, including a duty to makerecommendations regarding the workers’ comp coverage.

In rejecting this argument, the Iowa Supreme Court noted thatthe Merriams had made no specific inquiry with respect toself-employed workers’ compensation insurance, and did not eitherexpressly or impliedly seek the agent’s assistance in assessing anyof their insurance needs other than those specificallyrequested.

Further, there was no evidence of a longstanding relationshipbetween them that would support an implied agreement to expand hisduty to include assessment of the Merriams’ other insurance needs,no evidence that he had advised them that he was an insurancespecialist, no evidence he offered to consult with them regardingadditional insurance needs, and no evidence he had received anyadditional compensation above his commission.

Summing up, the court stated:

“The plaintiffs contend [the agent] Stonehocker’s knowledge of[Merriam’s] self-employed status and million-dollar life insurancepolicy was sufficient to trigger a duty of inquiry on Stonehocker’spart. The fact that Stonehocker was a trained and licensedinsurance agent with arguably ‘superior knowledge as to whatinsurance products someone in [the client’s] position would requireto be adequately protected from injury or loss’ cannot be the basisto find an implied agreement to expand Stonehocker’s duty. If thatwere the case, then every trained and licensed insurance agentwould have a duty to provide an assessment of all of the insureds’insurance needs, whether requested or not.”

See Related Article: Courts Shield Agents, Brokers From Added Duties To ProcureCoverage