By W. Burke Coleman, Demotech, Inc.
Agents owe various duties to their clients. At the heart of the agent-insured relationship is the expectation that the agent will procure for the client the requested coverage using reasonable care and diligence, or inform the client of his inability to do so. Absent any further “special relationship,” agents generally have no duty to advise the insured of the adequacy of coverage. But policyholder beliefs about their insurance coverage do not always align with the coverage actually provided by the policy. In many cases a dispute arises between the insurer and insured over the nature of certain policy provisions or the reasonable expectations of the insured. But in other cases, the agent becomes the target of the policyholder’s claim, often with the policyholder—who finds themselves with no coverage—alleging that the agent failed to procure the necessary coverage. The responsibility of agents and scope of their legal obligation was recently tested in Atlantic Casualty Insurance Company v. Norton, 2015 U.S. Dist. LEXIS 35731 (E.D. Tenn., Mar. 23, 2015).
The case arose after a patron of a grill and pub was beaten to death after a dispute with other patrons in the bar’s parking lot. The bar owner looked to his insurer for coverage, but the insurer noted that the policy explicitly excluded coverage for assault and battery. The owner then asserted that his agent failed to procure the necessary coverage as the agent “knew or should have known that it was procuring insurance coverage for a tavern and it was reasonable to expect coverage for assault and battery claims.”
The court noted that “a cause of action for failure to procure insurance is separate and distinct from any cause of action against an insurer or proposed insurer…‘the agent, rather than the insurance company is independently liable.’” The claim requires the policyholder to show that the agent undertook or agreed to procure insurance; that the agent failed to use reasonable diligence in attempting to place the insurance and failed to notify the client promptly; and that the agent’s actions warranted the client’s assumption that he or she was properly insured.
The grill and pub owner had used an independent insurance agency to acquire coverage for his bar for over twenty years, and testified that in the course of the relationship had asked his agent to procure insurance coverage for “liability for the bar and the parking lot.” In response, the agent had procured a property and commercial liability policy, which universally exclude coverage for assault and battery. The owner admitted that he never requested “full coverage,” never specifically requested coverage for assault and battery, and never read his policy, but nevertheless thought the agent should have known and should have acquired such coverage for the bar.
The court was not interested in extending agent liability so far. According to the court, under Tennessee law “an insurance agent does not owe a duty to sell customers more coverage than requested or selected. The agent’s obligation to the customer ends when the coverage requested by the customer is obtained.” Upon receipt of the policy, the insured is presumed to have read, understood and assented to the policy. In this case, it was presumed that the bar owner read, understood and assented to his property and commercial liability policy and its plain exclusion for assault and battery claims, especially given the policy renewals over twenty years. As the court stated, “Although [the bar owner] may have assumed the policy procured for him would provide coverage for any and all contingencies, it was an unreasonable assumption and was not based on any representation of [the agent]. Further, it was an assumption contrary to the language of the policies provided to him. An agent will not be held liable for failure to procure the proper insurance coverage when the client fails to inform the agent about the type of coverage required.”
The case shows that courts remain reluctant to impose liability on agents. Agents must still exercise reasonable skill, care and diligence in procuring policies for their clients, but absent additional representations or the finding of a “special relationship” between the agent and the insured, the agent generally has no duty to continue to advise, guide or direct the customer. In particular, a claim for failure to procure requires more than the insured’s desire to alter or revise his policy. And, although New York’s highest court last year expanded agents’ exposure to liability by broadening its interpretation of a “special relationship” between an agent and insured in Voss v. The Netherlands Insurance Company, 8 N.E.3d 823 (N.Y. 2014), the majority of courts have been unwilling to expand agent liability or make agents into “insurers of last resort.” This decision reinforces that position.