PropertyCasualty360.com regularly highlights independent agents and brokers, so let’s declare today “Independents’ Day!”
I’ve been defending agents and brokers for 36 years. The cases I’ve seen fall into two main groups: failure to place coverage and failure to exercise independent judgment. Here, I’m focusing on the second type of alleged error from the plaintiff’s point of view.
Independence in this context is purely contractual: If the professional is able to offer only the products of the one insurer with which they are contracted (a captive or career agent, as they are sometimes called) the agent is not independent. But many agents have nonexclusive agency agreements with multiple carriers, and they may also act as brokers in representing applicants to insurers with which they have no agency agreements.
When a policyholder becomes an E&O claimant, the focus is on the functional definition of independence: whether the professional was trying to procure the best coverage terms for the client’s known needs at the best available price. Or, did the professional’s loyalty to anyone other than the client, including self-interest, cause the agent to detour from that goal? Was the result an insurance policy that didn’t cover the client’s known needs, or covered them less adequately than other available policies at or near the same premium?
Expert witnesses in E&O cases routinely differ as to whether the agent or broker met the standard of care to the client. For the plaintiff’s counsel, the easiest way to define that standard is to show the jury what the agent or broker promised in writing to do.
For purposes of this article only, I’m using the example of the Independent Insurance Agents and Brokers of America, Inc. (IIABA or the “Big I”), which states on its website:
Whether you are searching for Personal or Business insurance, a Trusted Choice® Independent Agent is free to shop multiple providers on your behalf. More freedom means more options and more savings for you.
The IIABA also links to its Pledge of Performance, which reads in part that Trusted Choice® agents will, among other things:
- Work with you to identify the insurance and financial services that are right for you, your family or your business and use our access to multiple companies to deliver those products.
- Guide you through the claims process for a prompt and fair resolution of your claim.
- Return your phone calls and e-mails promptly and respond to your requests in a timely manner.
- Use our experience and multiple company relationships to customize your coverage as needed.
- Conduct our business in an ethical manner.
We pledge this to you, our clients and ask that you let us know if we fail to meet our commitment, so we may take corrective action. (Italics in original)
This well-written and comprehensive pledge of service to customers is also a blueprint for building the plaintiff’s case. Here is the way the promises might be challenged in an E&O claim:
- “More options and more savings;” “use our access to multiple companies[.]” What if only one option for coverage was investigated or presented, when another one with a smaller premium was also available?
- “Identify the insurance and financial services that are right for you, your family or your business[.]” What if the agent is only licensed to sell insurance, but not securities? How far into the extended family or its businesses does the promise apply?
- “Guide you through the claims process for a prompt and fair resolution of your claim.” Agents and brokers can provide guidance and some advocacy, but they can’t generally write checks on insurers’ bank accounts. Prompt, fair resolutions are the goal, but are outside the agent or broker’s control.
- “Return your phone calls and emails promptly[.]” This promise is within the insurance professional’s control. A late response to a call or email usually causes no real harm, other than to the client relationship. It’s that recorded call at 2:00 a.m., accepting an offer to bind a policy on the night before a fire that gets missed the next morning.
- “Customize your coverage as needed[.]” Insurance policies often need customizing. For example, it may be impossible to find a jeweler’s block policy that covers off-site sales or inventory left in display cases overnight.
What coverage is “needed” depends on who is speaking. If it’s the broker, who wasn’t told about the applicant’s home-based business, a rider or separate policy for that business didn’t seem “necessary” when the homeowner’s policy was placed. If the speaker is the policyholder on the day after an uncovered business loss, the “necessity” of the coverage is clearer in hindsight.
- “Ethical manner[.]” To most people “ethical” behavior means putting the client/customer’s interest on at least a par with the professional’s. Did self-interest lie behind the broker’s decision to recommend Surety Company A’s policy over Company B’s? Does Company A pay just slightly higher commissions, or have a larger book of business with the broker, putting production incentives within reach?
Issues not unique to IIABI
Issues such as these are not unique to the IIABI’s high standards. Many agents’ and brokers’ own websites, ads and brochures make similar promises, including the most elusive one, “peace of mind.”
An insurance broker or agent procures for the client a financial product then provides limited protection against specified losses in some circumstances. That’s a far less persuasive sales pitch than offering “peace of mind,” but it’s more accurate. If you want peace of mind, try meditation, chanting, hiking in Yosemite, or whatever puts you at ease. Chances are you won’t get the same experience from buying insurance.
Louie Castoria (firstname.lastname@example.org) is a partner in the national law firm of Kaufman Dolowich & Voluck LLP, and co-chairs the firm’s Professional Liability Practice Group and its San Francisco office.