August 17, 2022 - It's 2020 — a young couple with a child is working from their apartment during the pandemic and they want to buy a home. They hire a realtor who finds them a small house with a nice yard. The couple gets a loan and closes escrow.
Two years later, they have twins. And, no longer working from home, both parents take new jobs, miles from the house their realtor helped them buy. They need a larger house, in a different town.
Although real estate agents and brokers get sued, it usually isn't because they failed to anticipate their clients' future housing needs. Few people would seriously consider suing a real estate agent just because the realtor failed to predict how subsequent developments would impact their clients' future housing needs.
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In contrast, insurance agents and brokers who help individuals and businesses buy insurance do get sued; and quite often it is for failing to predict the future — failing to forecast what types and amounts of insurance their insurance clients might need down the road.
•"My agent messed up: my auto insurance liability limit was only $250,000 per person. When I hit the young surgeon and she fell from her bicycle, she broke her surgery hand."
•"My agent messed up: when I wrote the letter saying my neighbor was selling drugs, I had no idea it was just Amway. Why didn't my insurance agent tell me I would need a policy that covers libel?"
Accurately predicting the future is hard. As Hall of Fame catcher Yogi Berra supposedly said, "The future ain't what it used to be."
Are lawsuits against insurance agents and brokers meritorious? Typically, they are not. For example, the Texas Supreme Court in the 1992 decision, May v. United Servs. Ass'n, cited to the 1987 California appellate decision, Jones v. Grewe, in holding that "neither a request for 'sufficient' coverage nor the agent's assurance of the adequacy of liability coverage could support such a broader agreement; allowing such an inference 'would in effect make the agent a blanket insurer for his principal.'"
A recent New York trial court decision in 2018, Fox Paine & Co., LLC v. Houston Cas. Co., also cited California's Jones v. Grewe and held that "Absent exceptional and particularized circumstances based on the brokers' conduct or by express or implied contract, a broker's duty is limited to obtaining the requested coverage and there is no fiduciary relationship between an insurance broker and the client ... ."
Emphasizing the usually limited nature of an insurance agent's duty, the California Court of Appeal in Murray v. UPS Capital Ins. Agency, Inc. in 2020 explained that "an insurance agent assumes only those duties found in any agency relationship such as reasonable care, diligence, and judgment in procuring the insurance requested by an insured."
What this means is that a person or business shopping for insurance cannot count on their agent to accurately predict their future (or even their current) insurance needs. Instead, in most situations, the agent only needs to be as good as the party seeking coverage requires them to be.
An insurance purchaser that tells their insurance agent about special risks they may encounter or the need to protect substantial assets is more likely to get the broader coverage or higher policy limits they need. But if you merely tell your insurance broker that you want auto insurance because you cannot drive without it; homeowners insurance because your mortgage company insists on it; or business liability insurance because some customers will not let you work for them without it, you may not end up with the scope or extent of insurance coverage you were hoping for.
Like almost every rule, the limited duty rule has its exceptions. The major exceptions to the limited insurance agent and broker duty rule are that the agent or broker may be liable to the insured if:
(1) the agent misrepresents the scope of coverage being purchased to the policyholder; or
(2) the policyholder requests or asks about a specific type of insurance coverage; or
(3) the agent holds him or herself out as having particular expertise in a given field of insurance being sought by the insured.
Unless a misrepresentation, specific coverage request, or claims of special expertise are made in writing, these exceptions can be hard to prove.
As explained in the 2021 California appellate decision, Vulk v. State Farm General Ins. Co., merely requesting "the best policy" or "full coverage" is not enough to satisfy the request for a specific type of coverage criteria.
Similarly, an insurance agent probably will not be deemed to have held themselves out as having a particularized area of expertise based on the length of their relationship with the insured, or the agent's generally superior knowledge regarding insurance in general. Again, however, a more involved and communicative insurance purchaser — especially one that communicates by text, email or letter — is more likely to establish that the agent's duties were expanded due to misrepresentations as to the scope of coverage the agent secures, requests for specific coverages, or purported expertise.
For example, policyholders who specifically request the particular type of coverage they want may be expanding the agent's duties.
The specific expertise exception was addressed in the 2020 California appellate decision, Murray v. UPS Capital Ins. Agency, Inc., where a policyholder wanted to transport $40,000 of computer equipment from California to Texas by UPS. The equipment was damaged during shipment. The claim was denied because the policy only covered catastrophic losses, not damages from mishandling.
The court reversed a summary judgment for the insurance agent, allowing the case to head to trial because, among other things, a UPS agent had recommended UPS Capital and suggested that UPS Capital was the industry's acknowledged "go-to" broker for inland marine shipping needs.
A case from Wisconsin, on the other hand, shows how the agent's duties are narrowed when the insured shows little interest in its insurance. In the 1994 decision, Lisa's Style Shop v. Hagen Ins. Agency, the Wisconsin Supreme Court noted that the policyholder ignored its insurance needs until it suffered a loss.
Then the court explained its refusal to expand the agent's duties:
imposing such a duty on agents "could afford insureds the opportunity to insure after the loss by merely asserting they would have bought the additional coverage [or, in this case, increased their liability limits] had it been offered." Lisa's is now attempting to do just that. In the six years prior to the fire, Lisa's ignored its insurance needs. [Lisa's president] admitted that she never reviewed Lisa's policies. In addition, she did not seek advice or assistance. Now that Lisa's has suffered a loss, [Lisa's president] cannot claim that she would have purchased more insurance if [the agent] had only advised her to do so.
When it is time to buy insurance, consider taking some advice from the Wisconsin Supreme Court — discuss your insurance needs with your agent or broker. Don't wait for a loss or claim to start thinking about the insurance you wish you had.
Erin Mindoro Ezra is a regular contributing columnist on insurance coverage for Reuters Legal News and Westlaw Today.