When An Insurance Agent Becomes A “Real” Agent
The first time that I purchased car insurance through my insurance agent I remember asking him how much uninsured motorist coverage I needed. Although he did tell me what most clients typically purchase, he quickly explained that I ultimately needed to decide how much coverage would be necessary to make me feel comfortable. Whether born of experience, caution or luck, my agent answered exactly the right way.
In the legal field, the world “agent” is a loaded term. Generally speaking, when a person is an agent, they are essentially considered the authorized representative of another person or entity. In this role, the agent carries a broad range of legal risks for acts that he takes as a representative or, more often, acts that he failed to take as a representative. As such, the term “insurance agent” is something of a misleading term because the typical relationship between an insurance “agent” and his client is far more limited. By law (aside from basic duties such as, you know, not lying to your client or stealing his stuff) an insurance agent generally has only one duty to the client: to obtain the insurance that the client requests.
You might be inclined to think that’s a pretty easy duty to meet. You give the client a list of carriers, the client identifies the carrier he wants, you send him the application form, he submits the application form and then he is either approved for coverage or denied coverage. Job done. If that’s exactly the extent of the relationship between the insurance agent and the client, it’s unlikely that either will ever see the inside of a courtroom. The problem is when the insurance agent, either on his own or at the prompting of the client, does more or promises to do more than simply obtain the insurance that the client requests. Here are four rules to keep in mind for any insurance agent that is inclined to do more than his basic duty:
1. Don’t make promises you can’t keep.
I remember one case where the insurance agent promised the client that his rates would not increase going from one year to another. I have no idea how the agent intended to keep that promise, but as you might guess the client’s rates went up the next year and a lawsuit ensued. It is easy to make promises to the client to assure the client or try to make the sale. However, unless you are 100% sure that you are 150% sure you can keep a promise, don’t make it.
2. Never decide for the client.
When I asked my agent how much uninsured motorist coverage I should get, it would have been easy for him to just quote me a coverage amount. It also would have been easy to so heavily recommend a particular amount of coverage that I would have felt like I had no choice but to go with that coverage. He didn’t do it and no other agent should unless he feels like rolling the dice on a future lawsuit. It is obviously difficult for an insurance agent to do her job without being able to give advice; that said, when you step over the line from helping the client to make the decision and effectively making it for them, you cross the line into potential liability in the future.
3. Make sure the client understand the application and policy.
Most of the serious cases I see against insurance agents are because the client either misunderstood the application and filled it out incorrectly, leading to a rescission of the policy down the road, or misunderstood the policy and the policy doesn’t end up working the way that the client expected either because there’s not enough coverage or there’s some quirk in the way the insurance operates. As you might imagine, if the client thinks she has health coverage, gets a serious injury and then finds out she doesn’t actually have health coverage, a lawsuit is probably in the making. So. In writing, in plain language and preferably at least two or three times, make sure the client has read every single word of every single document and understands everything perfectly.
4. Don’t hold yourself out as an expert unless you’re actually an expert.
This is the follow-up to the first three rules. In the legal field, there are very few black and white rules and almost always an exception. So here’s the exception – the insurance agent generally has no duty except to obtain the insurance that the client requests unless he holds himself as an expert. Once he holds himself out as an expert, all bets are off. Under the law, if the agent holds himself out as an expert, the client can generally rely on whatever the agent says, whether it’s promises, advice or explanations. I’ll warn you in advance, it can be difficult to avoid this. In marketing the insurance agent and/or his company, marketers love to tout the experience and expertise of the agent in various fields. On the one hand it helps them attract clients but on the other it leaves them open to liability in the future.
I’d like to say that if an insurance agent follows these rules she would be immune to lawsuits; however (see rule number one), as with anything in life, there are no guarantees. There’s nothing to stop a former client from alleging that the insurance agent is part of some grand conspiracy with the insurance company to get paid without ever having to provide coverage (true story) and nothing to stop a former client from naming the agent as a defendant without any reason aside from pure vindictiveness (also a true story). Still, by being careful when stepping outside of his basic duties, an insurance agent can significantly reduce his chances of being on the receiving end of a lawsuit and, at the very least, be thinking about whether it’s worth the risk.
If you’re involved in a lawsuit or risk management and have any questions regarding current or potential legal issues, we would urge you to contact an attorney as soon as possible to obtain advice, guidance and representation. At Baker, Keener & Nahra, we have the experience, skill and drive to get the best possible results for our clients, no matter the size of the case or the scope of the problem. So if we can be of any assistance to you, please contact us and let us know how we can help.