Litigating the "deemer" Statute: Brokers in Insurance Litigation
| Publication year | 2011 |
| Pages | 89 |
2011, August, Pg. 89. Litigating the "Deemer" Statute: Brokers in Insurance Litigation
August 2011
Vol. 40, No. 8 [Page 89]
Tort and Insurance Law
Tort and Insurance Law articles provide information concerning current tort law issues and insurance issues addressedby practitioners representing either plaintiffs or defendants in tort cases. They also address issues of insurance coverage, regulation, and bad faith.
Coordinating Editor
William P. Godsman of the Law Office of William Godsman, Denver-(303) 455-6900, wgodsman@qwestoffice.net
About the Author
Kevin F. Amatuzio is a partner with Montgomery Kolodny Amatuzio and Dusbabek, LLP in Denver-(303) 592-6614, kamatuzio@mkadlaw.com.
This article discusses application of CRS § 10-2-401(1) in insurance coverage litigation, related issues, and the impact of the statute on procedural and evidentiary issues. The article considers how the statute may be applied in cases involving brokers.
Two entities may bring together a putative insured and an insurance company to form an insurance contract-an insurance agent and an insurance broker. This article discusses issues arising under Colorado's statutory "deemer" provision, CRS § 10-2-401(1). Part of this provision deems both agents and brokers to be insurance "producers" and, as such, to be representatives of the insurance company in any controversy between the insurer and an insured or a beneficiary under a policy of insurance when the producer "solicits or negotiates an application for insurance ... on behalf of an insurer."
Before 1993, Colorado statutes recognized significant differences between agents and brokers, and prescribed that in any dispute arising under an insurance policy, agents would be deemed to be representing the insurer, and brokers would be deemed to be representing the insured. This distinction was abandoned in 1993 with the enactment of the Colorado Single Insurance Producer Licensing Act(fn1) (Act), particularly CRS § 10-2-401(1). This statute now defines both agents and brokers as producers, and deems an agent or a broker "who solicits or negotiates an application for insurance of any kind on behalf of an insurer" to be representing the insurer, not the insured, in any controversy between them.(fn2) The statute provides no guidance for determining whether the producer was soliciting or negotiating coverage on behalf of the insurer or on behalf of the insured.
In actuality, insurance brokers at times do not act as agents of, or on behalf of, insurance companies, but rather act principally as representatives of insureds. The potential conflict between the role of the insurance broker in a given instance and the deemer provision in § 401(1), as well as potential avenues to address that conflict in coverage-related litigation, are the subjects of this article.
Background
Insurance agents may be either independent or captive agents of the insurance company. Independent agents have contracts with multiple insurance companies, and may market each of their products. Captive agents may be employees of the insurer or independent contractors with no other carrier relationships.
Generally, agents offer standard form insurance policies, covering personal lines and simple commercial risks. Their authority often is contractually limited to activities such as soliciting applications, providing required disclosures to the insured, and accepting premiums. Although such policies can be modified slightlyby endorsements, the coverage essentially is describedby a standard form, often originatedby the Insurance Service Office, Inc.
Subject to the use of some endorsements, policies available through agents typically are offered without the power to negotiate line-by-line changes or additions to the contract. Colorado courts have described these policies as approaching adhesion contracts that are offered on a "take-it-or-leave-it basis."(fn3) In addition to having only limited opportunity to modify their policies, agents often work with less sophisticated individuals and business entities with fewer financial resources than typical clients of insurance brokers.
A broker is less tied to insurers, and often acts more as a representative of the insured-the customer-to procure insurance and to negotiate policy contract terms and the handling of claims on behalf of the insured.(fn4) Certainly, a broker at times may act as the insurer's representative, such as when forwarding premiums or giving required notice to the insured. The inquiry whether, for a particular task, the broker is acting as agent for the insurer or the insured or is a dual agent generally is fact-specific.(fn5)
A broker may facilitate the insured's purchase of a standard form policy. It also is common for the broker to draft, or for the broker's customer itself to draft, a specially tailored or "manuscript" policy that meets exactly the insured's desired scope of coverage. That proposed policy is then marketed to various insurersby the broker to determine which insurers may be willing to underwrite coverage under that policy and at what price. Because of the size of premiums that large accounts will generate, brokers use that...
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