It has often been said that every attorney has a little larceny in his heart. In similar fashion, it could be said that every insurance agent has a little puffery in his heart regarding his book of business, background and competence. When an insurance agent tells a prospective client that he or she has written a significant amount of business in the particular industry that the prospective client is in, will the agent be subjected to a heightened duty of care under the law? This question was recently addressed by the California Court of Appeals in Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc., 177 Cal.App.4th 624, 98 Cal.Rptr.3d 910 (2nd Dist. 2009).
The Insurance Expert
In the Williams case, Rhino Linings USA Inc. (Rhino USA) was an enterprise with dealerships throughout the country; the dealerships were engaged in the business of installing spray-on linings onto the beds of pickup trucks. The insurance customer, John Williams purchased a dealership from Rhino USA, opening the business as Rhino Linings of Santa Fe Springs (RLSFS). Rhino USA referred Williams to insurance agent Robyn Thaw. Williams understood that Thaw knew the Rhino Linings operation very well and that she had a custom-made insurance package specific to the Rhino Linings operation. Williams understood that Thaw was the go-to person to take care of the insurance needs for Rhino Linings dealerships. Williams, who was in California at the time arranging a lease for the site of the business, called Thaw and asked to meet with her to review the company’s insurance needs. Thaw told Williams a meeting would not be necessary, because she was very familiar with Rhino Linings dealerships and programs, and was the expert on the insurance product necessary to satisfy RLSFS’s insurance needs. Williams did not request any specific type of insurance (and did not know enough about what kind of insurance was needed to make a specific request); instead Williams asked Thaw for whatever insurance was needed to operate the business. Thereafter, Thaw sent Williams a blank application form by fax, indicating that the insurance program was “designed specifically for Rhino Liners dealers.” Williams filled in basic information, leaving all portions relating to insurance coverages blank. He signed the application, and returned it to Thaw, who selected the insurance coverages. Thaw did not send the application (which had a section for workers’ compensation insurance) back to Williams after she completed it. Thaw submitted the application to Travelers Insurance Co.
During the lawsuit it was established that Thaw had considerable experience with insurance for Rhino Linings dealerships. Rhino USA had become a client of Thaw’s in the early to mid-1990s, and by 1999, Thaw was handling the insurance needs for some 50 to 100 Rhino Linings dealerships. Thaw helped design and develop the Rhino Linings dealership insurance package with Travelers Insurance Co. Thaw participated in risk analysis with the Travelers underwriters, and visited Rhino USA, observing the product that was sprayed on the truck beds and the equipment used by the sprayer, including the breathing apparatus worn during application of the lining. She was aware that sprayers had the most dangerous jobs and that it would be important for a sprayer’s employer to know if the business’ insurance provided no coverage for a sprayer’s on-the-job injuries. Thaw knew that workers’ compensation insurance was mandatory in California. Additionally, Thaw attended informational seminars for new dealerships given by Rhino USA, and spoke at the seminars about the insurance needs of Rhino Linings dealerships.
Thaw submitted Williams’ application to Travelers and sent a proposal to Williams including, among other coverages, commercial general liability coverage. The proposal was accepted by Williams. The proposal did not include workers’ compensation coverage and did not include any coverage for injury to an employee such as the sprayer who dealt with toxic materials used for lining the truck beds.
The Court began its analysis of the errors and omissions (E&O) claim by recognizing that ordinarily an insurance agent’s duty is to use reasonable care, diligence and judgment in procuring the insurance requested by the insured. The Court found, however, that the rule regarding the agent’s duty changes when, among other things, the agent assumes an additional duty by either express agreement or by holding himself out as having expertise in a given field of insurance being sought by the insured customer. The agent assumes additional duties by holding himself out as having expertise in the type of insurance sought by the insured.
The trial court found that Thaw held herself out as having expertise in the insurance needs of Rhino Linings dealerships. The insurance needs of a Rhino Linings dealerships included coverage for bodily injury to employees who deal with toxic materials and workers’ compensation insurance. The Court found that Thaw’s failure to advise Williams of the necessity for such insurance and the fact that the insurance was not included in her proposal and ultimate insurance package breached the duty she assumed by holding herself out as an expert on the product necessary to satisfy Rhino Linings dealerships’ insurance needs.
On the surface it would appear that the Williams decision represents a significant expansion of the standard of care for insurance agents because the Court held that because of puffery regarding the agent’s connection to the industry in which the insured operated, the agent was liable for not procuring a type of insurance that was never requested. Upon closer examination, however, the facts of the Williams case demonstrate that the sales agent not only claimed an expertise in business insurance, but was effectively the principal insurance agent for the entire Rhino Linings industry.
Crossing the Line
The Williams case highlights the question of when an insurance agent crosses the line touting the agent’s expertise to a prospective client. Does the agent cross that line by telling the prospective insured who owns apartment complexes that many apartment complexes are within the agent’s portfolio of clients? Is it enough to cross the line where the agent represents that they sell a lot of business owners policies (BOPs)? How about situations where the agent expresses a familiarity with the business risks of a particular insured without representing to the prospective client that the insurance agent caters to that particular business type?
Some degree of sales puffery is healthy in the overall insurance marketplace. It is important for potential customers to know that insurance agents have particular areas of specialized experience or familiarity in deciding to purchase insurance from that agent. In making self-laudatory statements regarding the agent’s specific experience with a particular industry, the agent needs to understand that in some circumstances such sales puffery can impose a higher standard of care apart from the normal standard of care for insurance agents within the community.
Plitt is a licensed insurance agent and an attorney with the Phoenix law firm of Kunz Plitt Hyland Demlong & Kleifield practicing in the field of insurance law. Tel: 602-331-4600. His column, Essentials, appears from time to time on www.ClaimsJournal.com and www.InsuranceJournal.com.
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