The majority of states require an insurance professional to act with reasonable skill and ordinary diligence after agreeing to procure an insurance policy requested by a client. Usually, this duty imposed by the law stops upon delivery of the requested policy.
However, services may not be limited to just procuring a policy. To differentiate themselves from the pack, insurance professionals often market that they will be a trusted adviser or ensure the client has the right coverage. Broad promises such as these may help get more clients in the door, but if the insurance professional does not deliver on the promises, such efforts to attract and retain clients may also open the door to expanded liability under the law. Insurance professionals should be aware of the risks before making promises beyond procuring a policy.
General State of the Law
Courts agree insurance professionals owe a duty to procure the requested policy. In most states, insurance professionals do not typically owe any legally imposed duty beyond procurement.
Nevertheless, even where courts do not recognize a legally imposed duty beyond procurement, those courts commonly find under certain circumstances an insurance professional may have expressly or impliedly agreed to expanded duties, and thus, can be held liable for not fulfilling those duties. Two examples of expanded duties that often come into question are whether the insurance professional agreed to: (1) advise the client of the need for certain coverage or (2) monitor the status of the policy.
Courts refusing to impose such duties have found it is unrealistic to expect an insurance professional to stay abreast of its clients’ ever-changing needs or to constantly monitor a policy to ensure it does not lapse. Instead, these courts place that responsibility on the client. But, if the insurance professional either expressly or impliedly agreed to undertake these responsibilities, then courts likely will find the insurance professional is required to exercise reasonable skill and ordinary diligence in discharging those duties.
There are primarily three factors courts consider before finding expanded duties: (1) written representations; (2) oral representations; and (3) the nature of the relationship.
If an insurance professional represented in writing it would undertake to do something for the client and failed to fulfill that promise to the detriment of the client, then the insurance professional may be liable for breach of contract or negligence. Some insurance professionals employ written contracts with clients that can clearly expand the insurance professional’s duties.
But not all contracts are so obvious. For example, if the insurance professional made representations about services on a website and if the client establishes reasonable and detrimental reliance on those representations, the insurance professional may be held liable for failing to fulfill those promises. The same can be said for all print and electronic promotional materials. These expanded duties may be imposed even if the insurance professional and client never specifically discussed them.
Promoting the insurance professional as an expert on a certain type of coverage or that the coverage can be customized for the client’s needs may also inadvertently expand the insurance professional’s duties. This is what happened when an insurance professional advertised it was an expert in dental office insurance. A court found a jury could find such advertisements expanded the insurance professional’s duties to include a duty to advise the client on coverage needs.
Similarly, if an insurance professional orally made representations about services, a court may hold the insurance professional liable for failing to fulfill those promises. Notably, these promises may be binding even if they were made before a formal relationship formed.
Oral representations may also expand duties if the insurance professional confirms coverage is adequate after questioned by the client. If the client reasonably relied upon this representation, then the insurance professional may be liable if the coverage was not in fact adequate.
For example, where the client made a business interruption claim only to discover the limits were insufficient, the court found the insurance professional had agreed to expand his duties beyond simply procuring the requested policy. The court noted the insurance professional and client specifically discussed business interruption coverage, the insurance professional assured the client the limits were adequate, and the insurance professional pledged to review the coverage annually to adjust as the business grew.
Nature of the Relationship
The nature of the relationship may also create an expanded duty. While the length of the relationship alone is not enough, a longer relationship tends to give way to other factors such as knowledge and custom.
The longer the relationship, the more likely the insurance professional had greater knowledge of the client’s business affairs and needs. The more knowledge the insurance professional had, the more likely a court may find it reasonable for the client to have expected expanded services from the insurance professional. Other factors such as the number and types of products purchased and the frequency and quality of the contact between the insurance professional and client may also be considered.
A course of conduct may additionally develop during a relationship. If the client detrimentally relied on prior conduct, then the insurance professional may be liable for not acting in the same manner at some future time. By way of illustration, if the insurance professional had previously notified the client about a potential lapse to remind the client to pay the premium, then the client is more likely to successfully argue it was reasonable to expect the insurance professional to always do so. Consequently, there may be liability in the future for failing to contact the client before another potential lapse.
Extra compensation above the allotted percentage of the premium can also serve as evidence of a special relationship that expanded duties. Longer relationships also tend to encourage more arguments by the client that the relationship was one of trust, and therefore, the insurance professional owed an even higher duty of care because there was an expectation of service beyond merely procuring a policy. This is especially true when an insurance professional handles all of a client’s insurance, including personal and business insurance.
Tips on Expanded Duties
The insurance professional should be aware of what acts and representations may expose him or her to expanded duties. Accordingly, the insurance professional should be cognizant of what representations he or she is making in promotional materials, on websites, and during client pitches.
If the insurance professional decides the rewards are worth the risk and undertakes expanded duties, the insurance professional should engage in direct communication with their client to clarify what services they are agreeing to provide. This clarification should be in writing. Once there is a clear understanding of the agreed-to services, the insurance professional should be prepared to fulfill on these promises and document all efforts to do so.
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