Liability Exposures for Insurance Brokers and Agents

Liability Exposures for the Insurance Broker/Agent Presented to the Association of Insurance and Financial Advisors Nassau Club, Princeton, NJ December 18, 2008 Adam M. Smith, Esq.

INTRODUCTION
Adam M. Smith, Esq. is a partner at the law firm of Coughlin Duffy, LLP, specializing in the representation of the insurance industry - insurers, reinsurers and their agents - for 14 years in a wide variety of matters pertaining to liability, property, disability, health and life insurance, as well as commercial matters.
This presentation will provide you with the knowledge and understanding of your legal duties as a broker/agent and to protect yourself and your company from potential E&O liabilities.

AGENDA
Duties an agent owes to an insurer
Duties an agent owes to a consumer/client
Case examples
Avoiding liability – risk management
Q&A

Duties owed to an insurer
As a broker:
Agent of the insured
Insurance Fraud Prevention Act : relates to false statements in underwriting or claims process
As an agent:
Principal/agent relationship

General duties of agent to principal
Duty of care and skill
Duty of good conduct
Duty to keep and render accounts
Duty to act only as authorized
Duty to obey
Duty of loyalty
Duty to maintain confidential information
From: Restatement of Agency, 2d

Duties to insureds/clients
New Jersey does not distinguish between agents and brokers (except as to relationship with carrier)
A broker or agent who undertakes to procure insurance for a client is liable for damage suffered if insurance unavailable when called upon due to producer’s negligence

Relationship between Insurance Producers and their clients
Insurance producers are professionals engaged in fiduciary relationship with their clients
Definition of professional
Definition of fiduciary

New Jersey courts definition of duty
“ One who holds himself out to the public as an insurance broker is required to have the degree of skill and knowledge requisite to the calling. When engaged by a member of the public to obtain insurance, the law holds him to the exercise of good faith and reasonable skill, care and diligence in the execution of the commission . . .

New Jersey courts definition of duty (con’t)
“Liability for breach of that duty can occur if the broker (1) neglects to procure the insurance, (2) if the policy is void, (3) if the policy is materially deficient, or (4) the policy does not provide the coverage he undertook to supply.”

Most Commonly Found Legal Duties of Agent/Broker
Duty to advise client regarding amount and type of insurance necessary
Duty to procure and maintain coverage
Duty to third parties
Duty to ensure solvency of insurer with whom coverage is placed

Case Examples
Avery v. Arthur E Armitage Agency:
Duty to advise of UM/UIM cover up to liability limit
Absent special circumstances, duty only triggered by client initiating contact
Most cases turn on whether client made an inquiry

Case Examples
Carter-Lincoln v. Emar Group
Does an insurance broker have a duty to select a financially secure insurer? Yes. You have a duty to investigate.
Does an insurance broker owe a duty to third parties? Yes. You owe a duty to those in the foreseeable “zone of harm” – loss payees, beneficiaries, claimants

Case Examples
DiMarino v. Wishkin
Broker has a duty to procure coverage promised or warn client at once that it cannot be obtained

Case Examples
Dancy v. Popp
Even where insured signed form indicating availability and rejection of additional UM cover, this is not conclusive evidence that the duty to inform has been discharged.
Dissent: people must be held accountable for their actions!

Avoiding Liability – Risk Management tips
Communication and Documentation
Communicate clearly and frequently with client
Document all communications
Note to file of oral communications
Have a policy for retaining your emails
Know the terms and conditions of you E&O policy

Liability Exposures for Insurance Brokers and Agents

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Liability Exposures for Insurance Brokers and Agents Presentation Transcript