Some agents and brokers have been viewed as order takers ratherthan insurance professionals. When does an order taker morph into atrusted advisor? As so often happens in the evolution of legalprecedents, a phrase such as “special relationship” starts as anarrow exception to the general rule, and over time begins toswallow the rule.

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This year, the Indiana Supreme Court took its turn at crafting alitmus test for a special relationship. In IndianaRestorative Dentistry v. Laven Insurance, the courtdealt with a truly extended period of time. IRD, a dental practice,had opened in 1978, and worked with the same agent for thefollowing 29 years. In 2009, a fire completely destroyed the dentaloffice. The coverage for office contents had a limit of $200,000,but the loss of contents was valued at $700,000, thus a $500,000underinsured loss.

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I'll summarize the facts so you can decide whether you wouldfind a special relationship:

  • The dentist and the agent spoke by phone a few times each year,mainly near renewal time, but they had never met in person untilafter the fire.

  • The agent sent an annual letter to IRD before each policyrenewal, summarizing the existing coverage and asking for anychanges in the dental practice or specific changes that IRD wantedto make.

  • In the final renewal before the fire, the dentist sent back theletter, suggesting for the first time that the policy limits beincreased, though no specific amount was requested.

  • The agent renewed the policy with the same limit, sending therenewal policy with a cover letter asking the dentist to “take amoment to look these policies over and be sure that they have beenissued to your liking.” But the dentist did not read the letter orrespond; the renewal policy went straight to the filingcabinet.

  • The agency sent a “generic valuation guideline” for dentaloffice contents with one if its letters.

  • Every calendar quarter, the agent sent a third-party's “riskreview” newsletter to the dentist. One such newsletter stated:“A professional insurance agency is trained in risk analysis,which involves evaluating risk exposure to measure the potentialloss to your business. With your specific business and property inmind, your agency can recommend appropriate insurancecoverage.”

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Jurors, what's your verdict?

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The Indiana trial court had ruled in the agent's favor, findingas a matter of law that a special relationship did not exist basedon these facts. A somewhat tortured six-year appellate processfollowed, with the result of the Indiana Supreme Court sending thecase back to the trial court for a trial by jury.

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What should an agent or broker take away from this year'sspecial relationship debate? Here are some practical tips, though Idon't go so far as to say that they are the standard of care:

  • Read what you send before you send it. The agent's use ofthird-party risk management materials is not unusual, but note howa seemingly innocuous comment about what a professional agentcan do was used as evidence of what theagent should have done.

  • Isn't it odd that the customer read the newsletter, but not thecover letter asking that he review the renewal terms? Selectivereading can become epidemic when a dispute gets near a courtroom.If a written communication is important, the time taken to be surethat it has been read, and that the customer's silence means “nochanges,” (with a confirming letter following that discussion)could be the stitch in time that saves $500,000.

  • One size doesn't fit all. A standard business practice worksfine for the majority of customers, but can fail to prevent anoutlier—the one customer who says or does something unusual andthen, as dictated by Murphy's Law, has a large loss.

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