As part of the process, the agent sends you a signed insurance application containing information concerning the insured customer's business. You had absolutely no involvement in preparing the insurance application. As a wholesale broker, you relay the application to various insurers in an attempt to find the right coverage for the agent's customer. An insurer contacts you in response to the application and gives you authorization to provide a quotation to the retail agent. In turn, the retail agent relays the quotation to his customer, who agrees to accept coverage.
During the transaction and term of the policy, you acted as an intermediary between the retail agent and the insurer, nothing more. You never provided any advice to the insured customer nor did you have a contract, either oral or written, with the insured customer. In fact, nobody associated with your company ever had any contact or communication with the insured customer. You never instructed the retail agent on how to operate his business nor did you have any right to control the retail agent's operations. Likewise, the retail agent had no right to, and did not, control your business operations. More importantly, you never provided the retail agent with any authority to cause the insured customer to believe that his agent had the authority to act on your behalf.
Fast forward several months. You arrive home from a busy day at the office and want to relax. The doorbell rings and you open the door only to find a stranger dressed like a deliveryman. The man states your name and asks if you reside at the location. "Yes," you reply. The man then hands you a pile of papers and proclaims, "You have been served." You read through the mess of papers to find that the insured customer has filed a lawsuit against you and his retail agent for negligent procurement of insurance, breach of fiduciary duty, and breach of contract.
What has transpired is that the insured customer has suffered a loss that was not covered by the procured policy. As a result, the insured customer alleges that you, as the wholesale broker involved in the transaction, had a duty to procure proper insurance coverage for his business.
Who, Me?
The central issue in this scenario is whether a wholesale insurance broker acting as a conduit between the retail agent and the insurer owes a duty of care to the insured customer. Although no Florida appellate court has discussed an independent wholesale broker's potential liability for the actions of an unrelated retail agent, courts from other jurisdictions have held that a wholesale broker does not owe a duty of care to the insured and certainly does not act as a fiduciary for the insured.
A Florida court does not have to accept these decisions as binding precedent, but a court will likely find these decisions to be persuasive.
A case in point is Broadus v. Essex Ins. Co., 621 So. 2d 258 (Ala. 1993), where the insured sued the retail agency, wholesale broker and the insurer after a claim was denied based on a policy exclusion. The Alabama Supreme Court held that no liability could be maintained against an independent wholesale insurance broker because he did not exercise control over the insurance agent in the case. The court concluded that "[t]he insurance agent and the wholesale broker merely cooperated with each other so as to secure insurance coverage for the insured. By passing information between the insurer and insurance agent and performing certain administrative duties in connection with the policy on behalf of the insurer, the wholesale broker did not create the kind of relationship with the insurance agent that would subject it to liability."
A similar fact pattern occurred in Calhoun v. Pennsylvania Nat. Mut. Ins. Co., Inc., 676 So. 2d 1332 (Ala. 1996) and Gauert v. Chris-Leef General Agency, Inc., 123 S.W. 3d 270 (Mo. Ct. App. 2003), in which the court held that an independent wholesale broker who did not exercise control over the insurance agent or manner in which he ran his insurance agency could not be held liable for the insurance agent's alleged negligence.
Basic Principles of Agency Law
The sole issue underpinning the foregoing decisions relates to the basic principles of agency law. The Florida Supreme Court has adopted the Restatement (Second) of Agency as an expression of the Florida law of agency. Essential to the existence of an actual agency relationship is 1) acknowledgement by the principal that the agent will act for him; 2) the agent's acceptance of the undertaking; and 3) control by the principal over actions of the agent.
In Florida, when one considers an action based on actual agency, it is the right to control, not actual control, which may be determinative of the actual legal relationship between the parties.
Applying the law of agency to the hypothetical situation discussed above, the relationship does not rise to that of an agency relationship. First, the relationship between the wholesale broker and the retail agent is completely independent. Second, the wholesale broker merely passed information between the retail agent and the insurer. Third, the wholesale broker had no control over the retail agent and did not provide the retail agent with any authority to act on his behalf.
Finally, the wholesale broker did not provide the retail agent with any authority to cause the insured customer to believe that the retail agent had the authority to act on the behalf of the wholesale broker. Thus, no principal-agent relationship could have been formed under Florida law and the insured should not be able to maintain an action against the wholesale broker.
Typically, wholesale brokers consider their customer to be the insurer that the agent's customer is placed with or the retail agents who seek their aid. In this regard, wholesale brokers are hesitant to interact with the insured.
The possibility exists that a wholesale broker may be found to be an agent of the insured on the correct facts, but such a finding is doubtful. Even more doubtful is the possibility that a wholesale broker could be held vicariously liable for the negligence of a retail agent.
However, until a Florida appellate court decides the issue, an independent wholesale broker confronted with a claim by the insured is left with applying Florida's agency law to the facts at issue.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.