Insurance Agent Responsibilities – Part 2

Here is some information about ways of holding an insurance agent responsible for his actions or in-actions.

Does an agent have a duty to explain policy terms and coverages to customers?  Does an agent have a duty to offer higher limits or additional coverages?  Generally, the courts have said the answer to these questions is “NO.”  As is the case with most E&O loss exposures, however, an agent can get sued for failing to explain or offer coverages, even if there is no legal duty to do so based on previous court decisions.  That’s why loss prevention measures are so important.  An important think to realize here is that each case must be looked at for it’s individual set of facts.  When a agent is specifically asked a question about coverage, the agent has the responsibility of answering properly.

Client relationships can affect the success or failure of a client’s claim against the agency.  An established “special relationship” with an insured can affect the degree of the agent’s legal responsibility to the insured.  This has to do with “past dealings” with the customer.  In other words, what has the agent done for the customer in the past.

If an agent counsels the insured on policy terms or needed coverages, for example, a judge or jury may say that the agent has established a “special relationship” with the client and may hold the agent liable for failing to explain a coverage or exclusion, or for failing to mention a coverage that the insured does not have at the time of the loss.  This is much like the previous.

Without this special relationship, however, the courts have fairly consistently refused to blame the agent for a policyholder’s failure to read and understand his or her policy, or for not providing coverage for every conceivable loss.

An insurance agent may be liable to an insurance company for negligence or a breach of contract that causes loss or damage to the company.  In particular, the agent owes the insurer loyalty, fairness and honesty, and a duty to act in good faith and to keep the insurer informed of material matters that relate to the insurance or to the agency / company relationship.  An agency may also be liable for the negligent or fraudulent acts of agency employees and solicitors.

The agency / company contract creates a “special relationship” between the agent and insurer, thereby increasing the required degree of care.  In addition, an agent has a fiduciary relationship with an insurer that requires an extraordinary degree of care.  An agent’s duty of care to an insurer is illustrated by the following common types of errors:

  • Making mistakes.  – An agent owes a duty to use reasonable diligence and care in conducting business with its insurers.  An insurer may be held liable for an agent’s error in processing an insured’s request for coverage, but the insurer may then have a right to seek indemnification from the agent.
  • Failing to follow company instructions.  – An insurance agent owes a duty to comply with a an insurer’s instructions promptly and fully and may be liable for any loss the insurer incurs as a result of the agent’s failure to do so.
  • Failing to disclose information.  – An agent has a fiduciary duty to the insurer to disclose any pertinent information related to the policies the insurer assumes for the agent.
  • Delay in forwarding information.  – An agent owes a duty to use reasonable diligence in forwarding information that has been requested by the insurer or is material to the insurance.
  • Exceeding the express or implied authority the company gives the agent.  – An agent owes a duty to understand and comply with binding authorities granted by the insurer and comply with all other terms of the agency/company agreement.