Civil-trial attorney Stacy A. Carpenter, shareholder at Polsinelli Shughart's Denver office, provides some advice for insurance agencies—which she says are facing an increasing number of lawsuits as they get dragged into policyholder coverage disputes with insurance carriers.

What are some of the biggest or newest legal risks facing insurance agencies today?

Increasingly, alternative claims are being filed against agencies. In this situation, the insured sues the carrier for breach of contract and bad faith and argues the claim should be covered. The insured simultaneously sues the insurance agent and argues that if there is no coverage, the agent failed to procure the proper insurance.

Lawsuits that include both the agency and the insurance company as defendants can present difficult strategic decisions for the agency. The agency may choose to argue for coverage as a defense to a failure-to-procure claim. However, this strategy often puts the agency in the position of having to support the plaintiff's case and arguing against the insurance company—and it is never ideal for defendants in a lawsuit to point the finger at each other.

Alternatively, the agency may align itself with the co-defendant insurance company, arguing there is no coverage and the agency did not err when it failed to obtain the coverage. This defense also presents risks because the insurance company may be able to obtain a legal ruling that there is no coverage by way of a dispositive motion. If that happens, the insurance company is dismissed from the lawsuit and the agency may be left as the sole defendant.

What are your top pieces of advice for agencies as they work to minimize legal liabilities?

There are three main pieces of advice that can help minimize legal liability:

Pay attention to detail when making statements about or summarizing the coverage provided. Typically these statements are found in proposals and certificates of insurance. When drafting proposals, be careful to include all information regarding limitations of coverage that were provided by the carrier in the quotation.
Execute more detailed policy reviews—particularly when procuring coverage for large risks. When there is significant loss exposure, a more in-depth review of actual policy provisions by a technical specialist who understands the client's business should be considered.
In contractual agreements, be precise when describing the scope of services provided and agency qualifications. Because the agency is not providing legal advice and cannot control coverage decisions once a claim is made, the contract between the agency and the client should not suggest otherwise.

What are some of the current/pending/recent regulations agency leaders should be aware of?

Regulatory compliance is one of the most cumbersome issues for any agency that operates in multiple states. Agencies must be diligent in reviewing regulations from each state in which they do business, as they can differ.

As social media continues to gain in popularity and agencies increase their use of this form of advertising, it will be important for agencies to review and understand state regulation of advertising. State-by-state advertising regulations vary greatly, with some states having extensive advertising regulations and some states having almost none.

—Interviewed by Chad Hemenway

Special Reports /

Legal Liability: Stacy A. Carpenter on How Agents Can Stay a Step Ahead

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