Duty Of An Insurance Agent

Many times an insurance agent makes mistakes and those mistakes cost his customer, the insured.  An experienced Insurance Law Attorney should be able to recognize when an agent violates a duty he owes to his customer.

There are arguably several duties that exist for insurance agents in Texas, among them:

(1)  Duty to Procure, which requires an agent to actually obtain the coverage entrusted to his care, or failing to do so, to immediately notified the insured of this fact.  This includes leading a client to believe he has coverage for a particular peril which he in fact does not have.  This is discussed in the 1948, El Paso Court o f Appeals opinion, Burroughs v. Bunch.  More recently, one Texas appeals court articulated this as two distinct duties: (i) the duty to use reasonable diligence in attempting to place the requested insurance, and (ii) the duty to inform the client promptly if unable to do so.  This is from the 2004, Tyler Court of Appeals opinion, Critchfield v. Smith.

(2)  Duty to Keep Insured Informed, which is a component of the duty to procure, requiring that agents keep their insureds fully informed about the current status of a policy’s in-force status.  This is discussed in the 1977, Beaumont Court of Appeals opinion, Trinity Universal Ins. Co. v. Burnette.

(3)  Duty to Acquaint Oneself with the Insured’s Business, which requires an agent to understand the underwriting needs according to coverage peril, but not the coverage level.  This is best illustrated by a case in which an agent knew his client transported oil field equipment, but failed to get coverage for the unloading of the equipment at the job site.  It is a 1987, Corpus Christi Court of Appeals opinion, Frank B. Hall & Co. v. Beach, Inc.

(4)  Duty of Selection of Company, which requires that agents (who have not received a directive from the insured to use a particular company) use reasonable diligence and care in selecting a carrier.  This is the 1919, Beaumont Court of Appeals opinion, Shippers’ Compress Cp. v. Northern Assurance Co.

(5)  Duty to Review Policy, which requires an agent, upon receiving a policy, to review the policy to make sure that the coverage afforded comports to the coverage ordered by the insured.  This is 1960, Houston Court of Appeals opinion, Continental Casualty Co. v. Bock.

(6)  Duty to Extend Insurance. which requires an agent to add locations or property to coverage when notified by the insured.  An example is where the agent is aware that the insured has purchased a second vehicle but fails to add it to the existing automobile insurance policy.  This is from the 1992, Tyler Court of Appeals opinion, Critchfield v. Smith, and others.

(7)  Duty to Investigate Solvency, which, despite its name, does not require an agent to actively investigate a carrier’s solvency, but instead imposes a duty upon the agent to avoid placing policies with a company the agent knows to be insolvent.  This is from the 1915, Dallas Court of Appeals opinion, Hancock v. Wilson.

(8)  Duty to Investigate Insured’s Business, which to date is limited to the situation in which an insured company (along with its prepaid insurance) is sold to another company.  In such a case (provided the agent is aware of the sale) the agent is charged with the duty to investigate the terms of the company’s sale to determine if the insurance coverage is indeed transferable.  This is from the 1978, Fort Worth Court of Appeals opinion, Houston General Ins. Co., v. Lane Wood Industries, Inc.

(9)  Duty to Follow Explicit Agreement, which requires agents to actually obtain the coverage set forth in a set of instructions from the insured.  This is discussed in the 1992, Texas Supreme Court opinion, May v. United Services Association of America.  This is akin to a breach of contract case, which has been favored by the Texas Supreme Court.