1. 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.

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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.

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

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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

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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

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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

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

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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 . . .

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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.”

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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

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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

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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

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

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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!

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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

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Q&A