It used to be much easier to classify insurance aEURoebrokersaEUR? and aEURoeagents,aEUR? as they were distinguished from each other and their roles were defined: aEURoeagentsaEUR? were salaried employees or exclusive agents of an insurance company, aEURoebrokersaEUR? were independent agents of an insured, and their duties were to their respective principals. In large part, however, this clear distinction no longer applies. As independent brokers enter into agency agreements with multiple carriers that permit them to accept applications and premiums on the carrieraEUR(TM)s behalf, and sometimes even bind coverages, the line between these traditional characterizations becomes blurred. The independent aEURoebrokeraEUR? becomes an aEURoeagent,aEUR? at least in some sense of the term, of several different insurance carriers.

By entering into these agency relationships, the broker is able to more efficiently shop for attractive premiums and coverages, and thus is well-positioned to promote herself to prospective insureds. The dual-agency relationship brokers have with carriers and insureds is widely recognized and permitted, providing there are no conflicts of interest, which typically there are not: the insured wants to buy coverage, the carrier wants to sell it, and the broker facilitates the transaction. In reality, however, the moment the independent broker becomes an agent of the insured, the relationship becomes considerably more complex.

Order-Taker or Consultant?

Most often, brokers get sued when something goes wrong for the insured and he realizes he has no coverage for the resulting losses. In such cases the insured typically claims the broker should have more fully explained the insuredaEUR(TM)s existing coverages, and recommended additional insurance that, in hindsight, would have covered the loss. Ascertaining the circumstances and conditions of the brokeraEUR(TM)s engagement aEUR" after the insured realizes there is no coverage for a particular claim, and after the broker has been sued aEUR" is highly subject to interpretation, to say the least. However, defining the broker-insured relationship and corresponding duty owed by the broker is often the most important aEUR" and overlooked aEUR" aspect of any lawsuit filed against the broker. The insured will try to define the brokeraEUR(TM)s role as broadly as possible, and the broker will do the exact opposite, claiming she (properly) performed a relatively narrow task for the insured.

It is generally accepted a broker must exercise reasonable care, skill and diligence when she undertakes to procure insurance coverage for her client.[i] Some courts have held the broker must follow the clientaEUR(TM)s instructions, provide the coverage she undertakes to supply, and secure a policy that is not materially defective.[ii] While these broad statements provide a starting point to examine the relationship between the broker and client, they offer no practical assistance in defining the brokeraEUR(TM)s specific duties.

Typically, an insurance broker is also said to owe a aEURoefiduciaryaEUR? duty to her client.[iii] Some of the markers of this fiduciary relationship have been identified as: (1) one party being subservient to the dominant mind and will of the other party as a result of age, state of health, illiteracy, mental disability, or ignorance; (2) things of value such as land, monies or a business, which are the property of the subservient party, being possessed or managed by the dominant party; (3) a surrendering of independence by the subservient party to the dominant party; (4) an automatic and habitual manipulation of the actions of the subservient party by the dominant party; and (5) the subservient party placing trust and confidence in the dominant party.[iv]

Does this mean courts believe the broker-insured relationship typically involves these onerous characteristics? Many insurance brokers would certainly disagree, particularly with regard to their more sophisticated commercial clients. So what exactly does this fiduciary relationship mean in the broker-insured setting, and when considered against the background of the factors which normally define a fiduciary relationship, can it provide the insured with ammunition to argue the broker owed him the duties of affirmatively explaining or recommending coverages?

Some courts that have considered this issue have found that such a aEURoesuper dutyaEUR? to explain coverages ordinarily does not exist simply because an unfortunate situation has occurred that will leave someone uninsured.[v] However, those same courts have specifically left the door open, finding such a aEURoesuper dutyaEUR? could exist if a aEURoespecial relationshipaEUR? exists between the parties which indicates reliance by the insured on the broker.[vi] Other courts have offered guidance regarding the elements of such a relationship, noting it can be evidenced by a broker: (1) exercising broad discretion in serving the clientaEUR(TM)s needs; (2) counseling the client about specialized insurance coverage; (3) holding herself out as a highly skilled insurance expert coupled with the insuredaEUR(TM)s reliance on her expertise; or (4) receiving compensation beyond any ordinary commission for the advice or guidance provided.[vii]