Liability Insurance: Agent and Broker Liability

• Author: Kevin R. Culhane
• Pages: 269-301

22-269

Chapter 22

Liability Insurance:

Agent and Broker Liability

§2200 Elements of Plaintiff’s Cause of Action

§2210 Definitions

§2220 Identification of Defendant

§2230 Education, Training, and Licensure of Defendant

§2240 Defendant’s Relationship to Plaintiff

§2250 Alleged Errors and Omissions

§2260 Causation and Damages

§2270 Affirmative Defenses and Denials

§2280 Investigatory Interrogatories

§2290 Deposition Checklist

§2200 Elements of Plaintiff’s Cause of Action

§2201 Legal Duty “Broker” v. “Agent”

§2202 Breach of Duty

§2203 Cause in Fact

§2204 Proximate Cause

§2205 Damages

§2206 Contract v. Tort Causes of Action

§2207 Defenses in Producer Liability Cases

§2210 Definitions

§2220 Identification of Defendant

§2221 Defendant’s Status as Broker or Agent

§2221.1 Defendant as “Agent”

§2221.2 Defendant as “Broker”

§2230 Education, Training, and Licensure of Defendant

§2231 Education

§2232 Specialties, Continuing Education and Teaching

§2233 Certification and Licensure

§2240 Defendant’s Relationship to Plaintiff

§2241 Fact of Engagement

§2242 Scope of Engagement

§2243 Documentation of Engagement

§2244 Modification of Engagement

Model InterrogatorIes 22-270

§2250 Alleged Errors and Omissions

§2251 Coverage

§2251.1 Failure to Obtain Coverage

§2251.2 Failure to Notify of Inability to Obtain Coverage

§2251.3 Failure to Place Coverage With Authorized Insurer

§2251.4 Failure to Recommend Expanded Coverage Based on Apparent Risk

§2251.5 Reduction in Coverage Limits

§2251.6 Failure to Keep Coverage in Force

§2252 Failure to Identify Insurance Needs of Client

§2253 Failure to Investigate Financial Solvency of Carrier

§2254 Failure to Process Claim

§2255 Negligent Preparation of Application

§2260 Causation and Damages

§2261 Causation

§2262 Damages

§2262.1 Consequential Damages

§2270 Affirmative Defenses and Denials

§2271 Comparative Negligence

§2272 Assumption of the Risk

§2273 Plaintiff’s Rejection of Coverage

§2274 Plaintiff’s Conduct Vitiating Coverage

§2275 Plaintiff’s Failure to Discover Limitations in Coverage

§2276 Plaintiff’s Failure to Mitigate Damages

§2277 Joint and Several Liability

§2278 ERISA Preemption

§2278.1 ERISA Preemption – Plaintiff to Defendant

§2278.2 ERISA Preemption – Defendant to Plaintiff

§2280 Investigatory Interrogatories

§2281 Third Party Information

§2281.1 Relationships and Acquaintances

§2281.2 Experts

§2282 Conversations and Statements Regarding the Underlying Loss

§2283 Photographs, Movies, Drawings and Reports

§2283.1 Photos, Movies and Videos

§2283.2 Drawings, Graphic Representations

§2283.3 Reports

§2284 Surveillance

§2285 Insurance

§2286 Other Claims Against Defendant Pertaining to Same Facts

§2287 Due Diligence in Preparation of Response

§2290 Deposition Checklist

§2291 Deposition of Defendant Agent/Broker

§2291.1 Personal Background

§2291.2 Educational Background

§2291.3 Business Background

§2291.4 Defendant’s Status as Agent or Broker

§2291.5 Relationship to Plaintiff

§2291.6 Specific Errors and Omissions

§2291.7 Contentions Regarding Plaintiff’s Conduct

§2291.8 Statements by Parties, Witnesses

§2291.9 Investigation Conducted by Opposing Party

§2291.10 Insurance

§2292 Deposition of Plaintiff

§2292.1 Plaintiff – General Background

§2292.2 Defendant’s Relationship to Plaintiff

22-271 lIabIlIty Insurance: agent and broKer lIabIlIty §2202

§2292.3 Alleged Errors and Omissions

§2292.4 Causation

§2292.5 Damages in Liability Insurance Agent/Broker Cases

§2292.6 Affirmative Defenses and Denials

§2292.7 Statements by Parties, Witnesses

§2292.8 Surveillance Conducted by Opposing Party

§2200 Elements of Plaintiff’s Cause of Action

This chapter deals with cases against insurance agents and brokers who deal in the liability insurance market.

Claims against insurance brokers typically arise in connection with coverage litigation between the insured and the

insurer. In the ordinary case, the insurer either denied coverage or issued a reservation of rights letter. When this

occurs, the insured institutes litigation against the broker in order to secure recovery in the event that the insurer’s

position turns out to be correct.

When the plaintiff is damaged as a result of action or inaction by an insurance agent or broker, the liability is essen-

tially negligence liability. Thus, the plaintiff must prove each of the traditional elements of negligence. To prevail, the

plaintiff must establish that the defendant’s conduct constituted a breach of a legal duty that was the cause in fact and

proximate cause of actual damages to the plaintiff. A general overview of each of these elements is set forth below.

§2201 Legal Duty – “Broker” v. “Agent”

Under traditional negligence analysis, the imposition of a legal duty depends on the nature and extent of the rela-

tionship between the parties. Under the substantive law, either the formation of a legally sufficient relationship or an

affirmative undertaking by the insurance professional may impose a duty upon the insurance professional to meet

the applicable standard of care. Conversely, the absence of this relationship may mean that no duty of care is owed.

In cases against insurance professionals, the defendant’s status as a “broker” or “agent” becomes critical. Although

the insurance industry often refers to these individuals generically as “producers,” the term “agent” is most often used

to describe a producer that has been appointed by the insurer to obtain orders and write insurance on the insurer’s

behalf. Conversely, the term “broker” refers to a producer who acts at the direction of the buyer to obtain the requisite

coverage. Typically, a “broker” can place the coverage with a number of different insurers.

From a legal standpoint, the distinction between a “broker” and an “agent” is fundamental. A broker is the rep-

resentative of the insured, and hence may incur liability to the insured for negligence in representing the insured’s

interest. However, the broker’s conduct can rarely be imputed to the insurance carrier under the doctrine of responde‑

at superior. A potential exception to this general rule exists if the insurer gave the broker “binding authority,” since

this may give rise to a limited form of dual agency.

Conversely, the agent who acts on behalf of the insurer usually owes a duty of care only to the insurer, and in many

instances has no direct negligence liability to the insured. Of course, liability for affirmative misrepresentation by the

agent can be imputed to the insurer under traditional agency principles.

Accordingly, you must draw careful distinctions between various types of producers, since the legal consequenc-

es differ dramatically depending on whether the producer is the agent of the purchaser or the representative of the

seller. For this reason, many of the interrogatories in this chapter focus on the activities of the producer with special

emphasis on the facts necessary to establish a legally sufficient relationship between the producer and the plaintiff.

§2202 Breach of Duty

If the producer owes a duty of care to the plaintiff, the producer must exercise reasonable care in performing the ser-

vices for which the producer was employed. Ordinarily this requires that the producer act as would a reasonably prudent

person under similar circumstances, although the existence of specialization or advanced training can impose a higher

standard of care. Accordingly, the interrogatories in this chapter are designed to elicit facts relating to whether the pro-

ducer acted with due care, and to require identification of documents and witnesses pertaining to standard of care issues.