2.4 Common Law Duties

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

2.4 COMMON LAW DUTIES

2.401 In General. There are relatively few reported decisions discussing claims against insurance agents and brokers in Virginia. Cases involving those claims are generally resolved by juries because of underlying factual disputes and often turn on the nature and the accuracy of information provided by an insured to an agent or broker before a loss. Most suits against agents are triggered by the insurer's denial, in whole or in part, of an insured's claim.

There are no common law duties unique to insurance agents. Nevertheless, the general principles of agency law provide for duties owed by the insurance agent. Some of these duties are described below.

2.402 Duty of Good Faith. Notwithstanding that the Virginia Supreme Court has declined to hold that an insurance agent is a fiduciary, ³⁹ Virginia courts nonetheless hold agents to the highest standard of good faith and loyalty towards a principal. ⁴⁰

[T]he agent or employee is bound to the exercise of the utmost good faith and loyalty toward his principal or employer. He is duty bound not to act adversely to the interest of his employer by serving or acquiring any private interest of his own in antagonism or opposition thereto. . . . This is a rule of common sense and honesty as well as of law. ⁴¹

An agent may not take a position inconsistent with the interests of his or her principal. ⁴² Any transaction in which the agent realizes benefits at the expense of the principal is "presumptively fraudulent." ⁴³

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2.403 Other Duties.

A. Duty of Full Disclosure. An agent must disclose any knowledge that might affect a principal's decision on whether or how to take action. ⁴⁴ Confirmation of an agent's acts by a principal must be made upon full disclosure of information by the agent. If confirmation takes place under constraint, confirmation is voidable. ⁴⁵ Withholding of information may constitute fraud. ⁴⁶

B. Duty to Account. When an agent or broker undertakes to procure insurance for a client and fails to do so, or when he or she fails to inform the client that insurance is unavailable from a prospective insurer so that a client might obtain insurance from another source, the agent may be liable. ⁴⁷ Furthermore, the agent has a duty to keep a close account of all money received or paid out on behalf of the principal. The agent must produce these records for the principal upon demand. ⁴⁸ An agent has a duty to turn over to the principal all profits that have accrued from the...