Captive agents are only allowed to sell products from the insurer with whom they have contracted. As a result, the markets available to them are limited because most insurers that use captive agents limit the type of insurance they can sell. Regardless, the captive agent owes a duty to the insured to acquire the insurance requested if available from the insurer with whom they've contracted.
The Supreme Court of Illinois was asked to determine whether an insurance company's agent had a duty to exercise ordinary care and skill in procuring the specific insurance coverage requested by his customer. The appellate court held that the Illinois Code of Civil Procedure imposes a duty on an insurance agent to act with ordinary care under the circumstances presented in this case. In Skaperdas v. Country Cas. Ins. Co., the Supreme Court analyzed the statute and state court precedent before deciding the obligation owed by a captive agent to the insured.
Case background
In 2006, Country Casualty Insurance Co. through its agent Tom Lessaris, issued an automobile insurance policy to Steven A. Skaperdas. Skaperdas's fiancée, Valerie R. Day, was subsequently involved in an accident while driving one of his vehicles. Country Casualty covered the loss but required Skaperdas to change his policy to include Day as an additional driver.
Skaperdas met with Lessaris to request coverage for Day under the insurance policy. Lessaris prepared the policy, but identified only Skaperdas as a named insured. Day was not included as a named insured under the policy. The declarations page for the policy, however, identified the driver as a "female, 30–64."
Following issuance of the policy, Day's minor son, Jonathon Jackson, was struck by a vehicle while riding his bicycle and seriously injured. The driver's automobile insurance policy limit of $25,000 was insufficient to cover Jackson's medical expenses. The plaintiffs, therefore, made a demand for underinsured motorist coverage under the Country Casualty policy. Country Casualty denied the claim on the ground that neither Day nor Jackson was listed as a named insured on the policy.
Skaperdas and Day, on behalf of herself and as representative of Jackson, filed a complaint alleging in count I that Lessaris was negligent in failing to procure the insurance coverage requested by Skaperdas. They alleged that Lessaris breached his duty to exercise ordinary care and skill in renewing, procuring, binding, and placing the requested insurance coverage as required by the code. In count II, the plaintiffs also alleged that Country Casualty was responsible for the acts or omissions of its agent under the doctrine of respondeat superior. That doctrine says that an employer or principal is legally responsible for the wrongful acts of an employee or agent, if those acts occur within the scope of the employment or agency.
Lessaris moved to dismiss the negligence claim, arguing that he did not owe the plaintiffs a duty of care in obtaining the requested insurance coverage. Country Casualty also filed a motion to dismiss the claim based on respondeat superior, asserting that it was not liable for the alleged negligence of Lessaris because he did not owe plaintiffs a duty.
The appellate court held that a plain reading of the statute together with the definition of "insurance producer" established that "any person required to be licensed to sell, solicit, or negotiate insurance has a duty to exercise ordinary care in procuring insurance." Accordingly, the appellate court concluded that as an insurance producer, Lessaris owed the plaintiffs a duty of care in procuring insurance coverage for them. The appellate court, therefore, reversed the trial court's dismissal of counts I and II of plaintiffs' complaint and remanded for further proceedings.
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Illinois Supreme Court analysis
On appeal to the Illinois Supreme Court, Lessaris contended that the statute did not impose a duty of ordinary care on a "captive insurance agent" to procure a specific type or amount of coverage for a client. A captive agent of an insurance company owes a duty to the company, not to the insured. Lessaris argued that only insurance brokers owe a fiduciary duty to an insured by virtue of being employed by the insured, and the statute is intended to limit the liability of insurance brokers in a fiduciary relationship. Thus, according to Lessaris, the statute applied only to insurance brokers. Lessaris contended that the statute was not intended to create a new duty for captive agents to insureds. Accordingly, as a captive agent of Country Casualty, he owed no duty to the plaintiffs.
In interpreting a statute, no part should be rendered meaningless or superfluous. The court noted that Section 2–2201 of the Code provides:
"Ordinary care; civil liability. (a) An insurance producer, registered firm, and limited insurance representative shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured."
This court has observed that insurance law distinguishes between an agent and a broker, stating "'A broker is an individual who procures insurance and acts as a middleman between the insured and the insurer, who solicits insurance business from the public under no employment from any special company and who, having secured an order, places the insurance with the company selected by the insured, or in the absence of any selection by the insured, with a company he selects himself. An agent is an individual who has a fixed and permanent relation to the companies he represents and who has certain duties and allegiances to such companies.'" (Zannini v. Reliance Insurance Co. of Illinois, Inc.)
The terms of subsection (a) may reasonably be applied to both captive agents and brokers, the court said. According to subsection (a), an insurance producer must exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured. Reviewing its prior opinions, the Illinois Supreme Court explained that it has long held that "every person owes a duty of ordinary care to all others to guard against injuries which naturally flow as a reasonably probable and foreseeable consequence of an act, and such a duty does not depend upon contract, privity of interest or the proximity of relationship, but extends to remote and unknown persons." Therefore, the court held, the statute imposes a duty that requires an insurance producer to exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.
The court found that the statute did not require an agent to obtain the best possible coverage for a customer, but only required the agent to exercise ordinary care and skill in obtaining the coverage requested by the insured or proposed insured. "If an agent's company does not offer the coverage requested," the court said, "the agent may satisfy the duty by simply notifying the customer that he or she should look elsewhere for the requested coverage."
In ruling on the motion to dismiss, the court explained that "the well-pleaded allegations of a complaint must be taken as true." In this case, the plaintiffs alleged that Lessaris failed to exercise ordinary care in procuring the insurance coverage they specifically requested. The declarations page showing the addition of a driver "female, 30–64" indicated that Skaperdas actually requested the extension of coverage to Day. The plaintiffs allege that Country Casualty required Skaperdas to add Day as an additional driver on the policy after she was involved in an accident while driving one of his vehicles. Taken as true, those allegations show that a specific request for coverage was made in this case.
Insurance agents, whether independent or captive, like every person in the United States, owe a duty of ordinary care to not cause harm to another. It is the general duty owed by every person to every other person. A captive insurance agent is not absolved of that duty simply because he or she is a captive of an insurer or by a convoluted interpretation of a statute.
In this case the court assumed that the pleadings are true. The plaintiffs will still need to prove that the agent failed to exercise ordinary care and provide the coverage requested.
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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