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Sheila M. Burke, Esquire
Burke Cromer Cremonese, LLC
Pittsburgh, PA
Nicholas A. Gumpel
Vice President – Claims
The Plus Companies
Bridgewater, NJ
Thomas Paschos, Esquire
Thomas Paschos and Associates, P.C.
Haddonfield, New Jersey
Philadelphia, Pennsylvania
Stephen D. Straus
Traub Lieberman Straus & Shrewsberry LLP
Hawthorne, NY
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General Rule--Broker is typically only liable for
failing to procure coverage that was available
◦ (i) in the marketplace and
◦ (ii) to the particular would-be Policyholder.
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General Rule—Agent of the insurer may be held
liable for failing to bind coverage but such liability
typically may only be to its principal—i.e., the
policy issuing company.
Exceptions
◦ Dual agency relationships
◦ Certain disclosed principals
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Duty to Obtain Only Coverage Requested by
Insured
Duty to Volunteer Advice
◦ The “Special Relationship”
◦ Holding Oneself Out as an Expert
Duty to Insured after Delivery of Policy
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Must use reasonable care, diligence, and
judgment in procuring the insurance
No duty to advise on specific insurance matters
Burden on the insured to inform the agent of
insurance he requires.
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Barry Wallman et al v. Benjamin Suddock Etc., et
al, No. B224601 (Cal.App. Dist.2 11/17/2011)
Sadler v. Loomis Co., 776 A.2d 25 (Md. Ct. App.
2001)
◦ an insurance intermediary can neither compel an
insured to provide personal financial information
nor verify the accuracy of any information
voluntarily provided, so responsibility for the
amount of coverage ought to fall on the insured.
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Assume Greater Duty:
◦ by holding himself/herself out to be more than
an “ordinary agent” or by misrepresenting
policy’s terms or extent of coverage.
◦ If agent responds to inquiries regarding
sufficiency of limits, a special duty arises
requiring them to use reasonable care.
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Limited duty to provide unsolicited advice
where the insured and the agent or broker
share a “special relationship.”
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Have an affirmative duty to notify the customer
of any premature termination or cancellation of
the policy.
Must notify the customer of any financial
problems with the company issuing the policy,
such as insolvency, the placement of the
insurance company in rehabilitation or other
questionable financial information subsequently
received.
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Specify desired coverage to broker
Reading the policy to ensure requested coverage
obtained
Majority Rule :
Insurance Agent/Broker Can be Liable
to Insured Who Failed to Read Policy
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Cannot avoid liability for failure to procure the
correct insurance by claiming that the insureds
have a duty to read their insurance policies.
Comparative fault defense is unavailable.
Majority Rule
:
Morrison v. Allen, 338 S.W.3d 417 (Tenn. 2011)
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Claim on life insurance policy denied because
application was improperly filled out.
Insured alleged agents negligently failed to
properly procure insurance. Agent argued
insureds did not read application.
Court would not allow agents to shield their own
negligence with the fact that clients didn’t catch
their mistakes.
Majority Rule
:
Aden v. Fortsh 169 N.J. 64, 776 A.2d 792 (2011)
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Court held broker, not the insured, is the expert
and the client is entitled to rely on that expertise
Comparative negligence principles could be
applied where client’s alleged negligence
contributed to or affected the professional’s
failure to perform according to the standard of
care of the profession.
Failure to Read May Amount to Comparative
Negligence
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Some jurisdictions recognize.
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Was it unreasonable for the insureds not to have
read the policy?
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Fillinger v. Northwestern Agency, Inc. of Great
Falls, 283 Mont. 71, 938 P.2d 1347 (1999).
◦ held insureds do not have an “absolute” duty to read
their policy, but their failure to do so may amount to
contributory negligence.
Minority View:
Insurance Agent/Broker Not Liable to
Insured Who Failed to Read Policy
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Insured’s duty to read an insurance policy is
absolute and may protect an insurance broker
from a claim for failure to procure adequate
insurance.
Minority View:
MacIntyre & Edwards v. Rich, 599 S.E.2d 15
(Ga.App. 2004)
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Court held insured had a duty to read policy and
barred recovery against agent.
If insured had reviewed the documents they
would have been aware that they did not have
the coverage they had requested.
Minority View:
Canales v. Wilson Southland Ins. Agency 583 S.E.2d
203 (Ga. App. 2003)
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Exception to the minority view that insured is
obligated to examine an insurance policy
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Rule does not apply when:
◦ (1) broker has held himself out as an expert and the insured
has reasonably relied on broker’s expertise to procure the
requisite insurance or
◦ (2) there is a “special relationship” of trust which would
prevent or excuse the insured of his duty to exercise
ordinary diligence.
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First Reaction…. No!
Agents are not personal financial counselors, risk
managers or guarantors of their client’s liabilities;
Agents are not uniquely aware of their client’s
personal assets or liabilities;
Agents do not have the ability to bind the insured
to a particular coverage or policy without the
insured’s consent (i.e purchasing power)
However…
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Is there a “Special Relationship”?
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Agent receives compensation direct from insured, not
just commission;
Agent performs tasks outside of just procuring
coverage (provides opinions on coverage, risk
management, claim management etc…);
◦ Stephens v. Hickey – Finn & Co, Inc., 691 N.Y.S.2d 411 (N.Y.
App. Div. 1st Dep’t 1999)
◦ Stern Family Real Estate Partnership v. Pharmacists Mutual Ins.
Co., Civ. No. 09-130, 2007 U.S. Dist. LEXIS 2296 (D. Pa. Mar.
27, 2007)
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Repeated representations by Agent that they are
“specialized” or “highly skilled” & insured’s
reliance on statements;
Course of dealing over extended period in which
Agent placed on notice that their advice is being
specifically relied on.
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Agent procures coverage out of his/her normal
expertise or highly specialized area
◦ AAS – DMP Management L.P. Liquidating Trust v. Acordia
Northwest, Inc., 63 P.3d 860 (Wash. App. Div. 1, 2003), review
denied, 79 P.3d 445 (Wash. 2004);
◦ Wanner Metal Worx, Inc. v. Hylant – Maclean, Inc., 2003 WL
1826558 (Ohio App. 5 Dist. Apr. 7, 2003) appeal denied, 792
N.E.2d 201 (Ohio 2003);
◦ Ray v. State Farm Mutual Automobile Ins. Co., 2007 U.S. Dist.
Lexis 4176 (D. Minn. Jan. 1, 2007)
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Agents have fiduciary-like qualities but will not
impose true fiduciary standard…
◦ Workman's Auto Insurance Co. v. Guy Carpenter & Co.,
Inc., No. B211660 (Cal. Ct. App. 2nd District May 4,
2011);
◦ Murphy v. Kuhn, 682 N.E. 2d 972 (NY 1997).
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Eliminates need for Plaintiff to prove breach of
contract for failure to procure coverage if establish
special relationship established;
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May eliminate contributory negligence defense in
otherwise pure negligence case;
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In “duty to read” states, lower standard of proof
against agent;
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Complicates case with additional causes of action;
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No longer equal “arm’s length” relationship – Agent is
“expert” - insured is unknowing buyer.
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Broker’s E&O insurer as de facto underlying
insurer
◦ Failure to procure
◦ Special concerns regarding long-tail claims
(e.g., failure to obtain worker’s compensation
insurance for business client)
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Policyholder claims against insurance agents
◦ Standing issues
 agent of disclosed principal (the insurer)
 liability where intermediary acts in dual
capacities as agent and broker
◦ Misrepresentations regarding coverage by
insurer’s agent
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“Typical” E&O claims remain steady
◦ Failure to obtain proper coverage
◦ Failure to obtain adequate limits
◦ Failure to include location, driver, car etc..
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Mother’s Nature’s Effect
◦ Superstorm Sandy
◦ Regulatory Issues
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Level of Complexity Has Increased…
◦ Claims In Addition to Negligence/Breach of
Contract
◦ Parties Involved (E&S Broker, Captive, Multiple
Carriers)
◦ Assignment of Claims After Settlement or Verdict
◦ Declaratory Judgment Actions
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Potential Damages Have Increased
◦ Amount of Coverage +
◦ Additional Economic Losses +
◦ Attorney Fees =
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Mediation/ADR/Early Resolutions