I don't know how many hundreds of thousands of insurance professionals there are in the U.S., but I am constantly surprised at how small the insurance world really is. For example, several years ago I was on my way from New York to Atlantic City on a cold rainy night. Approaching the bridge that goes on from Staten Island to New Jersey my car stalled and wouldn't start. I put on my flashing emergency lights, and shortly somebody stopped and asked if he could help. It was the son of a good insurance friend of mine. Well, another example of the small world of insurance has just occurred.

Barry Zalma wrote a terrific article for this site titled “Don't bet the farm.” The essence of this case is that the plaintiff, Scruggs, replanted seeds that were weed resistant and patented by the Monsanto Chemical Company. The practice of replanting seeds is an age-old practice, used by farmers who harvest their crops and save some seeds to be replanted the following growing season. There's nothing wrong with the practice except that these seeds were patented by Monsanto, and farmers who purchased the seeds were explicitly directed not to replant them.

Monsanto sued and the Mississippi Supreme Court eventually found that Scruggs' actions were both intentional and illegal, and therefore uninsurable. The court also opined that the producer and the agency had some duty to recognize Scruggs' need for patent infringement insurance. They failed to inform Scruggs that he needed it, but they couldn't be held liable for that omission, according to the court. I don't think anybody will be surprised that Scruggs then sued the insurance agent and agency.

I was the insurance expert for Scruggs, and I offered the opinion that the Mississippi Supreme Court was wrong, and that the insurance producers and the agency did have a duty to advise and counsel Scruggs. As the expert testifying for the plaintiff I asserted the opinion that there is no such thing as a small amount of “duty.” You either have an obligation to advise and counsel or you don't.

The scope of my assignment was limited to commenting on the standard of care expected of licensed professional insurance producers and agencies. My judgment is not based on some egotistical sentiment but rather on the real reason that Monsanto and the agency received a favorable judgment, which relied on two distinct factors, resulting in a claim that was not collectible because of the facts of the case.

(Photo: Shutterstock.com)

The essence of the court's decision is that no coverage was available to Scruggs under any circumstances. The court opined “based on the allegations contained in the Monsanto complaint no coverage existed under any provisions of Scruggs insurance contract.” The court concluded that Scruggs' actions were intentional and as such uninsurable. Generally speaking, people and businesses (with certain exceptions) can't purchase insurance for illegal activities.

Agents as industry experts

Briefly stated, I opined that the insurance review to be undertaken by the defendants was to identify the risks the farmer faced as a result of the farm's business operations and to buy the appropriate coverage to mitigate that risk. The agency accepted this assignment. After the review, the farmer agreed to purchase an agribusiness comprehensive insurance contract. Based on the review conducted by the agency, the farmer believed that the insurance contract he purchased would respond to any reasonably foreseeable liability risk that his business organization might face. Because of the agency's advertised skills as agribusiness experts, the farmer thought it reasonable to believe that the agents were well-qualified agribusiness insurance professionals, not merely insurance sales representatives completing insurance applications.

Every agency and every insurance producer should know what has to be done with each client:

Don't take on risks with which you're not familiar without expert help
Document everything
Use standardized forms and
Explain the key exclusions, especially when selling “all risk” policies.

Failing to do so means less in commissions in the short run and potential litigation in the long term. For example, the producer in this case, by failing to properly explain and advise his client, missed out on a patent infringement coverage sale that would have resulted in a minimum four-figure commission.

Risk Ahead road sign

(Photo: Shutterstock.com)

Additional sales opportunities

There's an even a better result: Think about the way your insurance client would view your insurance expertise when you recommend the purchase of patent infringement coverage, explaining “This is why I urge you to buy this protection.”

Over the years I have had more than 150 consulting assignments, and a substantial majority of these assignments have a common thread. My observation is that it's rare for an insurance professional to intentionally offer an incomplete insurance program or inappropriate coverage for the risk to be insured. Rather, insurance producers get themselves into trouble by not understanding their professional obligations to the client or failing to do the most complete risk analysis that he or she can do.

The moral of the story is that it doesn't matter whether you're a big-city insurance producer with multiple agents or a one-person insurance office, the question is, are you employing best practices in your agency? Simply stated, ensure that you have done everything you have agreed to do for your clients, including identifying all potential risks.

Special Reports /

Duty without limits: Fully advise your clients about all possible risks

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