AGENT/BROKER DUTIES TO A CUSTOMER
Insurance brokers or agents that sell insurance policies can make mistakes. Unfortunately, their obligations to a customer are not straightforward. Property owners in Minnesota and Wisconsin who feel their broker or agent made a mistake, such as discovering the property is underinsured, should be aware of the two scenarios where they can be held liable for the error.
To clarify the terminology, an insurance agent or broker is the person who sells the insurance policy. This is not the same person as the insurance adjuster that will adjust an eventual claim. This article is centered on the liability of agents or brokers.
The law does not assume an insurance broker or agent has a duty to advise a customer, as would a doctor or accountant their patient or client. The law assumes doctors and accountants need to figure out what’s going on in the body or understand all tax deductions available beyond the ideas of a patient or client. The law does not assume such a relationship between agents and brokers and their customers, rather the law assumes an arms-length transaction. Yet the facts can overcome this assumption.
If an insurer holds himself or herself out as an advisor in customer insurance needs the duty to the customer changes. Now the duty is to be thorough and render proper advice. The following outlines what happens in two scenarios of agent/broker liability.
ARMS-LENGTH TRANSACTION
If there are no facts to support a fiduciary duty, or special relationship, whereby the agent or broker renders advice, then the question becomes whether the agent or broker followed the customer’s instructions. If the customer said, “I need insurance to cover repair costs”, and the insurer wrote a policy that does not cover repairs costs, the agent/broker did not follow the customer’s instructions. In that scenario, the agent/broker can be held liable.
In this scenario the agent/broker can be held liable even though it did not give advice. This scenario is no different than asking any retail business for a product, being promised that product, and the retailer fails to deliver it. Liability follows failing to follow instructions.
As I previously mentioned, in an arms-length relationship the agent/broker does not hold a legal duty to analyze the customer’s insurance needs and make a proper recommendation. The agent/broker must affirmatively do something to make the relationship something more than arms-length.
SPECIAL ADVISORY RELATIONSHIP
An arms-length relationship evolves into a special relationship when an agent/broker promises to render advice about a customer’s insurance needs. In the law, this is often referred to as a fiduciary duty or special relationship. Here, just like other professions, the agent/broker has a duty of care. There is an industry standard for how to be thorough, analyze insurance needs, and make a good recommendation. Agents/brokers that take on this responsibility need to follow through and render good advice.
When does an agent/broker take on this duty? They can do so with a verbal statement to a customer. Yet if the verbal statement is not found in writing the customer must prove his version of the story is right. While that is not always possible it is preferable to have some written event too. Often that written evidence can be found in the agent/broker’s advertising.
Agents and brokers often have websites that advertise their services. They sometimes advertise with brochures and other printed material. These publications will often try to entice customers by discussing their insurance advising. They often make statements like how they analyze a business to meet its insurance needs. Statements like this, no matter where they are found, can buttress a customer’s claim the agent/broker agreed to properly advise him.
I always ask potential clients to review their text messages and emails from the broker/agent to see what was said about services to render. That would include any signature blocks and links to a website that states the services to be rendered. All this information is relevant to what the customer understood the broker/agent will provide.
The preceding is only a summary. Please email me if you would like more detail about how Minnesota and Wisconsin law operates in this realm. My email address is: ed@beckmannlawfirm.com.