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Avoiding or Minimizing Claims That The Broker Obtained Insufficient Coverage
Avoiding or Minimizing Claims That The Broker Obtained Insufficient Coverage
By Marc J Zimet, Esq. of Jampol Zimet LLP
A common claim against an insurance broker or agent is that he/she failed to procure the kind or extent of coverage that the client requested or needed. Brokers are often provided with general instructions to match an existing policy or simply to obtain “sufficient” or “appropriate” insurance for the client. These kinds of general requests can lead to problems when a loss occurs that is uncovered in whole or part by the policy that the broker obtained.
Ordinarily, a broker has no obligation to anticipate the client’s needs, particularly if they are unique or specialized. The broker’s duty is to use reasonable care to perform his services for the client. What constitutes reasonable care in any given set of circumstances is usually dependent upon the particular facts involved and can be proven at trial only by the testimony of an expert (usually another broker).
However, the broker’s duty is heightened if he/she (i) has promised the client that the client’s particular needs will be met or that the broker will purchase a specific kind or scope of coverage, (ii) holds himself/herself out to the client or to the public as a specialist in a given area of coverage, or (iii) has a long term or particularly close relationship with the client so that the client is justified in relying on the broker to make sure that the client has sufficient and correct coverage. These requirements, and the general standard of care applicable to brokers, was laid out by the California Court of Appeals in a case that has been cited by many courts, Jones v. Grewe (1987) 189 Cal.App.3d 950, 234 Cal.Rptr. 717.
The vast bulk of claims against brokers are at least in part based upon oral instructions to the broker or brief written communications between the broker and the client. The client will often “remember” after the loss occurred that he asked the broker to procure a specific kind of coverage or in a specific or minimum amount. The questions become:
whether the client made a specific request to the broker;
whether the broker made a promise or representation to the client that the necessary or requested coverage would be obtained;
whether the broker knew of the client’s requirements (which often involves the broker’s knowledge of the details of the client’s business operations);
whether any of the circumstances justifying a higher duty by the broker mentioned above existed at the time, and
whether the coverage that would have paid the loss was reasonably obtainable at the time the broker procured the client’s policy.
These matters can be made easier to establish after the fact by careful attention by the broker to documenting communications with the client both at the time of the request by the client and the procurement of the policy by the broker. The broker should, as a regular custom, create and maintain memoranda, written communications with the client, or notes that establish:
information that the broker had at the time as to the operation of the client’s business or, if personal insurance, the particular situation of the client,
specific requests or questions by the client (expressly or by implication),
promises or statements by the broker as to what coverage he/she could or would
obtain for the client,
what efforts were made by the broker to secure the requested coverage,
any approval by the client of the coverage procured or to be procured by the broker.
Brokers often point to an application signed by the client as confirming the client’s request for or approval of coverage, but in the courtroom, such reliance is often unavailing. Clients who have suffered uncovered losses often contend that they signed blank applications or assumed that the application contained all of the information they now state that the broker was given or should have requested. Jurors are easily confused by complicated applications for insurance, and it is always better to have separate confirmations from the client as to what coverage was requested or required for the client’s business or personal needs.
One effective method we have seen is a computerized system for tracking meetings and communications with the client as well as actions of the brokerage in meeting the client’s request for insurance. Such a computerized log, if carefully maintained, will probably be believed by jurors, who themselves use computers. In a dispute between the broker and the client as to whether something was said or occurred (e.g. a meeting between the broker and the client), the substance of the entry or even the absence of an entry will often be persuasive as to what occurred or that something did not happen.
The broker should keep a record of efforts made to secure any requested coverage. Often, a client will suffer an uncovered loss and later find a policy that would have covered the loss had it been in force at the time. The questions are then whether that coverage was available at the time and, if so, whether a reasonable broker in the circumstances would have been expected to know about it and be able to obtain it. Whether the client would have paid for it is also a question in many cases, but it is easy for the client, after a loss, to cavalierly contend that he/she would have paid “whatever was necessary” to obtain the coverage.
Careful attention to creating records of actions and communications with clients and insurers or other brokers (e.g. wholesalers) combined with a program of retaining those records will help to prevent misunderstandings that result in claims against the broker and go a long way in enabling the broker and, if necessary, his/her lawyer to successfully meet claims by clients that the broker was negligent in failing to provide sufficient or proper insurance coverage for the client.
For additional information, contact Marc at mzimet@jampolzimet.com or (213) 689-8500
