Litigation/Aug 25, 2015

Negligent Procurement of Insurance – The Agent’s Duties to an Insured

The Michigan Court of Appeals recently revisited the issue of an insurance agent’s duty to an insured in procuring adequate insurance coverage. In Land Escape Outdoor Maintenance, LLC v Insurance Advisors, Inc, unpublished opinion per curiam of the Court of Appeals, issued August 13, 2015 (Docket No. 321859), the Court addressed a case in which an independent insurance agent procured business insurance coverage for a dump truck under a commercial automobile policy. After suffering an uninsured loss to its dump truck, the insured filed suit against the agent claiming that the agent misrepresented the coverage.

The Michigan Court of Appeals reversed the lower court’s decision and remanded the case for further proceedings to the trial court, which had dismissed the negligence claims.

As a general rule, agents have no duty to advise an insured regarding the adequacy of coverage. The reasoning is that an agent who works for the insurance company is an agent of the insurance company – not of the insured. The agent is simply an “order taker” for the insurer. The general rule, however, does not apply if a “special relationship” is created between the agent and the insured. When a special relationship is created, the agent has a legal duty to advise the insured regarding the adequacy of insurance coverage.

What creates a special relationship? This question was answered by the Michigan Supreme Court in Harts v Farmer Ins Exch, 461 Mich 1 (1999). The Harts Court stated that a special relationship exists if:

  1. the agent misrepresents the nature or extent of coverage;
  2. the insured makes a request that requires clarification;
  3. the insured makes an inquiry and the agent provides inaccurate advice; or
  4. the agent assumes the additional duty by express agreement or promise to the insured.

The moral of the story is that an insured needs to ask the agent relevant questions when purchasing insurance and then properly document the agent’s responses.

News and blog articles presented in this website are distributed for general information purposes only with the understanding that the author, publisher and distributor of articles is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, GGTM assumes no liability whatsoever in connection with the use of any article. Pursuant to applicable rules of professional conduct, this communication may constitute Attorney Advertising.