By Thomas Paschos, Esq. of Thomas Paschos & Associates, P.C
In Pennsylvania, the basic elements of a cause of action founded upon negligence are (i) a duty, or obligation, recognized by the law, requiring the actor to conform to a certain standard of conduct, for the protection of others against unreasonable risks; (ii) a failure on his part to conform to the standard required; (iii) a reasonably close causal connection between the conduct and the resulting injury and (iv) actual loss or damage resulting to the interests of another.[28]
Pennsylvania uses the familiar professional malpractice standard of “reasonable skill by a similar practitioner under similar circumstances.” Specifically, in Pennsylvania, the duty owed by an insurance agent or broker to an insured is to obtain the coverage that a reasonable and prudent professional insurance agent or broker would have obtained under the circumstances. If the agent or broker fails to exercise such care and if such care is the direct cause of loss to his customer, then he is liable for such loss unless the customer is also guilty of failure to exercise care of a reasonably prudent businessman for the protection of his own property and business which contributes to the happening of such loss.’[30]
An insurance agent's/broker's recognized duty to act with reasonable care, skill, and judgment extends to selection of the insurer and ascertaining whether it is reputable and financially sound and informing the insured of findings if investigation reveals evidence of financial infirmity, but the agent/broker nonetheless intends to place a policy with that insurer.[31] Where an insurance agent or broker promises, or gives some affirmative assurance, that he will procure or renew a policy of insurance under such circumstances as to lull the ‘insured’ into the belief that such insurance has been effected, the law will impose upon the broker or agent the obligation to perform the duty which he has thus assumed.'[32]
Proving Causation
The plaintiff must show that the defendant's breach of duty caused the plaintiff's underlying injuries. Pennsylvania courts have expressed support for the view that to successfully maintain a negligence action against an insurance broker, the policyholder must prove by a preponderance of the evidence that the requested coverage was then generally available in the insurance marketplace.[33] According to this view, a plaintiff is not required to show that a particular insurance company would have written such coverage but only that it was available from some insurer.[34]
Damages Recoverable
In an action against a broker or agent where the broker neglects to procure insurance, or does not follow instructions, or if the policy is void or materially defective through the agent's fault, the broker, in cases of default, is liable ‘[t]o the same extent as the insurer would have been liable had the insurance been properly effected.’[35] Pennsylvania courts have held that negligence actions against insurance agents and brokers do not allow for recovery of damages for emotional distress.[36]
An insured may bring a private cause of action against an insurer or an insurance producer under Pennsylvania’s Consumer Protection Law (CPL).[37] An insured asserting a private right of action under the CPL must prove that he or she suffered an ascertainable loss as a result of the producer’s prohibited action.[38]
Defenses
Defenses to claims against an insurance agent or broker in Pennsylvania include many of the standard professional malpractice defenses including: failure to proffer expert testimony establishing the standard of care and failure bring a claim within the statute of limitations. In Pennsylvania, the applicable statute of limitation for a claim of negligence against an insurance agent or broker is two years.[39]
The Pennsylvania Supreme Court has stated that “the policyholder has no duty to read the policy unless under the circumstances it is unreasonable not to read it.”[40] The reasoning is that when the insured informs the agent of his insurance needs and the agent's conduct permits a reasonable inference that he was highly skilled in this area, the insured's reliance on the agent to obtain the coverage that he has represented that he will obtain is justifiable.[41] The insured does not have an absolute duty to read the policy, but rather only the duty to act reasonably under the circumstances.[42] As such, the comparative negligence statute does not apply to negligence actions where the defendant failed to procure an insurance policy for the plaintiff and failed to notify the plaintiff that the insurance had not been obtained. Rather, the doctrine of contributory negligence, which operates to completely bar the plaintiff from recovery if his negligence contributed to the result, applies in these cases.[43] Under this principle, the plaintiff’s action will be barred, no matter how slight his or her contributory negligence.[44]
Pennsylvania’s Certificate of Merit statute does not apply to insurance professionals.
For additional information contact Tom at TPaschos@paschoslaw.com or 215.636.0555
[28]Fennell v. Nationwide Mut. Fire Ins. Co., 412 Pa.Super. 534, 603 A.2d 1064 (Pa.Super. 1992)
[29]Fed. Kemper Ins. Co. v. Yacomes, 641 F. Supp. 276 (E.D. Pa. 1986); Indust. Valley Bank & Trust Co. v. Dilks Agency, 751 F.2d 637 (3d Cir. 1985); Fiorentino v. Travelers Ins. Co., 448 F. Supp. 1364 (E.D. Pa. 1978); Rempel v. Nationwide Life Ins. Co., 227 Pa. Super. 87, 323 A.2d 193 (1974), aff’d, 471 Pa. 404, 370 A.2d 366 (1977), not followed by Sturm v. Humber, 15 Pa. D. & C. 4th 33 (Pa. Com. Pl. 1992).
[30]Consolidated Sun Ray, Inc. v. Lea, 276 F.Supp. 132, 134 D.C.Pa. 1967 (quoting Talley v. Hoffman, 18 Pa.Dist. & Co.R.2d 725, 729 (1959)).
[31] Al's Cafe, Inc. v. Sanders Ins. Agency, 820 A.2d 745 (Pa.Super. 2003)
[32]Avondale Cut Rate, Inc. v. Associated Excess Underwriters, Inc., 406 Pa. 493, 178 A.2d 758 (Pa. 1962)
[33]See Philadelphia Suburban Development Corporation v. The Stoll Agency, Inc., 1990 WL 902405 Pa.Com.Pl. 1990 (citing Bayly, Martin & Fay, Inc. v. Pete’s Satire, Inc., 739 P.2d 239 (Colo. 1987)).
[34]Id.
[35]Laventhol & Horwath v. Dependable Ins. Assoc., Inc., 396 Pa.Super. 553, 579 A.2d 388, 391 (1990), appeal denied, 527 Pa. 648, 593 A.2d 420 (1991); Consolidated Sun Ray, 401 F.2d at 657.
[36]Fennell, 412 Pa.Super. 534, 603 A.2d 1064.
[37]Pekular v. Elich, 355 Pa. Super. 276, 513 A.2d 427 (1986)
[38]Toy v. Metropolitan Life Ins., 593 Pa. 20, 928 A.2d 186 (2007))
[39]42 Pa.C.S.A. § 5524(7)
[40]Rempel v. Nationwide Life Ins. Co., 471 Pa. 404, 370 A.2d 366, 369 (1977) (Cf. McKenna v. Metropolitan Life Ins. Co., 126 Fed.Appx. 571 (3d Cir. (Pa.) 2005) (court held under Pennsylvania law, it was unreasonable for insured not to read life insurance policy, such that insured’s affirmative duty to read policy precluded his claim that he purchased policy based on insurer’s misrepresentation.)
[41]Fiorentino v. Travelers Ins. Co., 448 F.Supp. 1364 (D.C.Pa.,1978)
[42]Id. (noting that “[t]he circumstances vary with the facts of each case, and depend on the relationship between the agent and the insured.)
[43]Rizzo v. Michener, 401 Pa.Super. 47, 584 A.2d 973, 976 (1990); Wescoat v. Northwest Savings Assoc., 378 Pa. Super. 295, 548 A.2d 619, 621 (1988).
[44]Wescoat, 378 Pa. Super. 295, 548 A.2d 619.
Review articles and blog posts by our list of insurance experts!
Click Here For Participating Firms