By Britton D. Weimer, J.D.
As previously noted, E&O litigation is an upside-down world. To expand your business, you would like to advertise yourself as an insurance "counselor" or "advisor" or "professional." However, those are the very sorts of words that make it very difficult to defend an E&O claim. They are ammunition for the insured, who will claim you have undertaken an affirmative duty to advise and to recommend all necessary coverages.
Ordinarily, an insurance agent’s only duty is to carefully follow the customer’s coverage instructions. There is no duty to volunteer insurance advice, or to recommend "necessary" coverages.
However, through your words and actions, you can voluntarily expand your duty. You can voluntarily undertake a broader role – the duty of an insurance advisor. While that sounds good from a business perspective… it is deadly from a legal perspective. Once you are in the legal camp of an "advisor," you essentially have a perpetual duty to know your customer’s insurance needs inside out, and to recommend all beneficial insurance options. That is an impossible standard to consistently meet.
If you are in the legal category of an "insurance advisor" and you are sued, you will almost certainly lose. The reason: the impetus for the lawsuit is some uncovered loss. The insured will claim that he/she would have purchased that coverage, had you only fulfilled your duty to advise and recommended that coverage. Even if you did verbally recommend the coverage, the insured will not remember that conversation, and you will be in a trial where your credibility is at issue. Since juries do not like to see people suffering an uninsured loss, they will often find against the agent.
So the bottom line is that you do not want to be in the legal category of an insurance advisor. So, from a legal perspective, you want to eliminate any representations or promises that you will recommend the "right" coverages. In particular written promises, which you can never avoid at trial! In short:
"Do not advertise yourself as an insurance ‘counselor’ or ‘advisor’ or ‘professional’ or similar words suggesting an active duty to investigate a customer’s insurance exposures."
This avoids the difficult-to-defend claim that you understood a perpetual duty to identify all the insured’s coverage "needs."
Britton Weimer is an insurance-defense attorney in Minneapolis, and has defended insurance agents and brokers in E&O litigation for over 20 years. He is the co-author of the new Thomson-West treatise, The Law of Commercial Insurance Agents and Brokers.