Insurance agents owe a duty to obtain the insurance and the coverage limits the customer requests. But when someone is hurt by the insured's actions, can the injured person, who isn't a party to the contract between the insured and the carrier, sue the agent because there wasn't enough insurance coverage to pay for the damages incurred? That was the question in a recent Ohio case that considered the issue of third-party recovery.

A criminally negligent dump truck driver caused an auto accident in which Lisa Emahiser was killed and her son was injured. It became apparent that the driver's employer, the dump truck company Rickey Paving, was inadequately insured under federal and state regulations as a commercial carrier. Its policy was capped at $50,000 per person and $100,000 per accident.

Lisa Emahiser's estate claimed that Rickey Paving's agency Complete Coverage Insurance (CCI) was liable for “negligent procurement” by failing to have obtained the regulated amount of $750,000 in coverage for its client and that CCI should be responsible for all this accident's damages.

To assert a negligent procurement claim in Ohio, a person must prove first that the insurance agent owed a duty to obtain the coverage its insured requested.

Is the Injury Foreseeable?

There is a basic premise of negligence law regarding foreseeable victims. A duty is extended to a third party who is a member of a limited class whose reliance on a professional's representation is foreseeable. To be successful with the claim, the injured third party must show that he or she relied on the misrepresentation by a specific professional and that the reliance was foreseeable by that professional.

The U.S. District Court for the Northern District of Ohio found that while a third party to bring such a claim against an insurance agent, the plaintiff must prove that he or she was a “direct, intended and specifically identifiable” beneficiary to the policy.

In this case, the plaintiff urged the court to find that the driving public at large is a sufficiently specific intended beneficiary. According to the plaintiff, “that is why legislative and regulatory bodies pass laws and regulations requiring minimum amounts of insurance—to protect the public.”

No Duty to Non-Clients

The court disagreed, noting that imposing such a “far-reaching duty” would impose on agents a duty to a vast number of non-clients—literally “all who reside in or travel in the state.” The court also noted that an insurance agent is not the person upon whom the statutes and regulations impose specific duties; they fall on the trucking company and its driver.

The court found that the defendant insurance agent's alleged negligence created for the plaintiff a risk of economic loss only—that is, a risk that the injured party would be unable to collect on a judgment entered against Rickey Paving. It did not create a right to recover for the injury by the driving public. The court concluded that the Emahiser estate had no standing to pursue a negligent procurement claim against the insurance agent.

Insurance agents owe a duty of professional care to their clients, but not to the public at large who might be injured by an insured's actions. CCI may have avoided lengthy litigation if it had documentation demonstrating that the correct amount of coverage had been offered to the client, but the client choose a different amount of coverage.

Special Reports /

Third-Party Recovery

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