A long-established rule for securities brokers is the aEURoeknow your customeraEUR? rule. This rule has long been considered important for the securities broker, because only by knowing his or her customer can the broker correctly advise the customer as to an appropriate investment program or decision. For insurance brokers and agents, there is a aEURoeknow your customeraEUR? rule in some, but not all situations. However, even where such a rule might not legally apply, following it will still pay dividends to brokers in avoiding or minimizing claims by disappointed clients.

Generally, an insurance intermediary is responsible for carrying out the requests of the client for insurance. While specific rules might vary from state to state, generally there is no inherent obligation on the part of the broker to suggest or advise specific coverage for a client unless (i) the broker is requested to do so and promises to do so, (ii) the broker presents himself/herself as a specialist in a field of insurance, or (iii) a long relationship with a client tends to create a reasonable expectation on the part of the client that the broker will advise as to necessary or recommended coverage.

However, the reality is that a consistent thread in claims against insurance brokers is a claim that the broker negligently failed to procure the aEURoecorrectaEUR? or aEURoeappropriateaEUR? coverage for the client. This usually occurs when a client submits a claim to an insurer for what the client believes (how reasonable that belief is is a separate issue) that the claim is covered, only to have his or her claim properly denied by the insurer. At that point, the client will often aEURoerememberaEUR? conversations in which he or she told the broker of the specific kind of coverage desired or was promised by the broker (i.e. the coverage that the client assertedly just discovered was not in the policy).

One way to prevent or minimize claims based upon the asserted failure to secure the aEURoecorrectaEUR? or aEURoeproperaEUR? coverage is to make sure to know enough about the clientaEUR(TM)s business to appreciate what kind of insurance, at least in a general sense, the client should have. That in turn requires the broker to have an understanding of what kinds of coverage are available for that kind of business or, if the broker is not sufficiently knowledgeable about such coverages, seek the advice of another broker or a wholesale broker who regularly deals with that kind of business. There are specialists who deal in specific lines and areas who can and should be approached for assistance in securing the appropriate coverage for a customer in a specialized field.

A couple of examples of claims against insurance brokers that we have defended will illustrate the need to give at least some attention to the nature of the clientaEUR(TM)s business in securing insurance for that client. In one case, the broker secured a general liability policy for a contractor that had an exclusion for claims based upon water damage. It did not, in the opinion of even our expert, take extraordinary knowledge to appreciate that a water exclusion was probably inappropriate for a company named aEURoeHydro-Tech.aEUR? In another case, a broker was asked to and did secure a replacement general liability policy for a new client. The policy had an exclusion for claims of copyright infringement, which is a common exclusion to the advertising injury coverage of general liability policies. The broker, however, did not take sufficient notice of the fact that the client was a magazine publisher aEUR" for whom copyright infringement coverage was clearly a prime requirement.

The usual defense of the broker is that he/she is merely aEURoean order-takeraEUR? (we have heard more than one broker affirmatively assert this to a jury in the expectation, usually disappointed, that the jurors would find that he/she had no duty to the client) and cannot be obligated to figure out what the client aEURoerequired.aEUR? However, the current trend is reflected in a recent issue of Business InsuranceaEUR(TM)s online newsletter, which had this statement about commercial brokers: aEURoeBusiness Insurance believes pure placement does not reflect the full role of a broker, which is to provide advice before, during and after the placement transaction. That advisory role is intrinsic to what good brokers do.aEUR?

Thus, there is, at least in the commercial world, a general feeling that brokers are hired to do more than take orders or place business. Brokerage is a service business, and the clients demand and expect the broker to perform valuable services in exchange for his or her commission. However, even if the general rule that a broker is not, absent special circumstances, obligated to advise the customer as to the customeraEUR(TM)s needs is held to be applicable, that often is an insufficient response to a claim. Plaintiffs in broker malpractice claims routinely contend that the broker was told of the need of the customer for specific coverage or, at the very least, was told enough to require the case to go to the jury. Jurors tend to have little sympathy for the mere aEURoeorder taker.aEUR?