No ESP: Avoiding Fruitless E&O Claims
When an insurer denies coverage, it is a common impulse for business insureds to sue both the insurer and the agent. In theory, the claim against the agent serves as a "back up," if the court rejects the coverage claim.
However, claims against agents are often a frustrating dead end, costing significant time and attorney's fees, but producing no legal recovery. This is especially true if the insured did not tell the agent about the exposure beforehand, or request the particular coverage. There are two basic reasons for this:
First, an agent's duty is normally limited to carefully following the insured's coverage instructions. Law of Commercial Insurance Agents and Brokers, Section 2:1 (Thomson West 2007). There is generally no affirmative duty to advise - to recommend additional coverage. "[W]hile it may be good business for an insurance agent to make such suggestions ... the failure to do so does not constitute either negligence or breach of contract." Nelson v. Davidson, 456 N.W.2d 343, 345-46 (Wis. 1990).
Second, even in unusual cases where the agent does owe a duty to advise, that duty is only triggered if the insured has informed the agent of the uninsured exposure. "[E]ven agents holding themselves out as experts are not charged with prescience." Business Flying Enterprises, Inc. v. Wenk Aviation Insurance Agency, Inc., 5 Fed. Appx. 512 (7th Cir. 2001). Insureds still have the "right and obligation" to ask the agent for "the type of coverage desired and the ramifications arising therefrom." Kilmore v. Erie Ins. Co., 595 A.2d 623, 627 (Pa. Super. 1991).
So it is prudent to carefully discuss these issues with an experienced agents E&O attorney, before filing suit. It can save much time and expense ... time better invested in productive business endeavors!
Brit Weimer is a commercial insurance attorney in Bloomington, Minnesota.
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9 年Britt: How timely given this today: "Worrisome to agents and brokers is a trend of increased frequency and severity of agents’ E&O claims. “Courts are expanding the duty of agents to advise their clients and eroding the duty of the insured to read a policy. Agents are no longer seen as just order-takers, and carriers are more willing to litigate against agents,” says Gary Mann, E&O practice group leader at Allianz." ... https://www.propertycasualty360.com/2015/12/09/professional-liability-gets-crowded?eNL=566889cb150ba0b71ea78aa4&utm_source=PC360_Daily&utm_medium=EMC-Email_editorial&utm_campaign=12092015&_LID=171913227&t=es-specialty&page=2 More importantly, who is in a position to more about Insurance- the Agent/Broker or the consumer? While it may be that one doesn't hold oneself out as an expert or engage in other other actions that could create a "special relationship" with a duty to advise, expecting the consumer to be more knowledgeable as to needs seems a bit harsh yet it is the legal reality. Equally true , however, is the fact that even in those instances, where the agent is truly an order taker, he still must prove that, and will still get sued with the associated costs and renewal problems.. So what's better, giving advice and avoiding a lawsuit, or not doing so, and having to win a lawsuit?
Corporate Strategist-Insurance Manager-GRC Specialist
9 年Having served as a coverage attorney at AIG and CNA and reviewing similar issues to advise of the likelihood of coverage for legal and environmental matters at BNSF, this piece is right on point Brit. The agent is rarely held responsible for the insureds ultimate coverage choices or insurer's coverage decision. Thanks for enlightening those who may need our input in this area.