Insurance agents and brokers are professionals with limited obligations. They must, for example, acquire the insurance the client required they obtain. They are not, however, obligated to do a close study and determine the coverages the insured needs but does not know enough to ask for, unless the agent or broker and the insured enter into a fiduciary relationship.
In one recent case, the New York state appellate department was asked to impose liability for failure to acquire insurance needed by the plaintiff.
The common-law rule is that an insurance broker acting as an agent of its customer has a duty of reasonable care to the customer to obtain specifically requested coverage within a reasonable time after the request, or to inform the customer of the agent's inability to do so.
Generally, the agent owes no continuing duty to advise, guide or direct the customer insured to obtain additional coverage; however, when a special relationship develops between the broker and client, the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage. The appellate court identified three "exceptional situations" that may give rise to such a special relationship:
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The agent receives compensation for consultation apart from payment of the premiums;
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There was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or
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There is a course of dealing over an extended period of time that would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.
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In the case Waters Edge @ Jude Thaddeus Landing, Inc. v. B & G Group, Inc., the appellate court said that the trial court properly determined that the plaintiffs failed to state a claim against the defendants—B & G Group Inc., Arthur P. Kaplan Agency Inc., and Todd J. Kaplan, individually (collectively the B & G defendants)—to recover damages for breach of a fiduciary duty because the plaintiffs failed to allege the existence of a special relationship above and beyond the ordinary broker-client relationship.
Further, explained the appellate court, the trial court properly determined that the plaintiffs could not state a claim against the B & G defendants to recover damages for fraud because that proposed claim was incorrectly based on the allegations underlying the breach of contract claim, and the allegations were generally insufficient to state a claim for fraud. Accordingly, the appellate court ruled that the trial court properly denied the plaintiffs' request for leave to amend the complaint so as to add the fraud claim, as it properly concluded that such an amendment was clearly without merit.
Insurance agents and brokers are not fiduciaries in the normal course of their business. They can become fiduciaries if they take on the duty. In this case, the agents fulfilled the obligation to obtain the insurance ordered. They couldn't be held liable for not forcing their client to get the insurance really needed because the broker had not taken on that duty.
Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, claims handling, bad faith and fraud. Contact him at zalma@zalma.com.
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