Recent court decisions highlight how difficult it is to sue an insurance broker:  Workmen’s Auto Ins. v. Guy Carpenter & Co., CA2 3/1/12; Pacific Rim Mechanical Contractors, Inc. v. AON Risk Insurance Services West, Inc., CA4 2/28/12; Wallman v. Suddock, CA2 11/17/11.  In each of the decisions, the policyholder (insured) sued its insurance broker after it discovered that a particular claim was not covered under its insurance policy. In each of these cases, the insured lost.  Why?  As previously discussed on this blog, it is very difficult to sue your insurance broker.

California law seems to be broken on this issue.  Individuals and businesses go to insurance brokers to get the right and best insurance coverage.    They relyon their insurance agents to understand their insurance needs and to select the appropriate coverages and limits.  However, it is only when an insurance claim is denied that a policyholder (the insured) discovery that its insurance policy was deficient.  At that point, insureds often blame their insurance brokers.  However, as the above cases provide, it is difficult to sue an insurance broker.

The general rule of law is: “insurance agent’s duty is ‘to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.’” Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc. (2009) 177 Cal.App.4th 624, 635 (citation omitted).   But the exceptions have swallowed the rule, as noted in the Wallman v. Suddock case (filed November 17, 2011, Second District, Div. Four):  • “’an insurance agent does not have a duty to volunteer to an insured that the latter should procure additional or different insurance coverage.’” • “’the onus is …squarely on the insured to inform the agent of the insurance he requires.’” • “In other words, while agents do not generally have a duty to advise insureds regarding the sufficiency of their liability limits …”  In Williams, the court specifically stated  that insurance broker liability requires one of the following three things: “(a) the agent misrepresents the nature, extent or scope of the coverage being offered or provided …, (b) there is a request or inquiry by the insured for a particular type or extent of coverage …, or (c) 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….” Id., at 635-36.

As one insurance industry expert commented:   “If an insured wishes to impose a fiduciary duty on an agent it must document its desires in writing and obtain a promise from the agent that he is taking on the extra duty.”  (Barry Zalma, Esq. http://zalma.com/blog/?p=2197)

Should the common law be fixed?  Is there the need for a legislative defined duty and remedy?

Over the past twenty years of law practice, I have often been asked by clients to review their insurance coverage and help them negotiate new coverage. I am not licensed insurance broker.  But the majority of my law practice over the past twenty years has involved insurance coverage related issues. Thus, although I cannot provide same scope of services as an insurance broker, my clients have found that having an attorney involved in obtaining and reviewing insurance adds value.