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Legal Updates for Insurance Agents & Brokers

November 1, 2018
Presented by the Insurance Agents & Brokers Liability Practice Group

Edited by Timothy G. Ventura, Esq.

THE NEED FOR CLARITY IN COUNSELING CUSTOMERS

By Danielle M. Vugrinovich, Esq.*

In Feist v. Andes, 2018 Pa. Super. Unpub. LEXIS 3052; 2018 WL 3980905 (Pa. Super. August 21, 2018)(unpublished), the Pennsylvania Superior Court recently held that an insurance agent did not have a duty to its client to obtain additional coverage when the agent did not exert control over the client’s decision-making and the client had knowledge that the additional coverage had not been obtained.

The Feists filed suit against their insurance agent, David Andes, for his failure to obtain additional UIM coverage for their vehicles. Andes was the Feists’ insurance agent for decades. In 2011, the Feists asked Andes to increase their UIM coverage, but Andes advised against it, telling them that he would not secure the additional coverage. Despite Andes’ refusal to obtain the additional coverage, the Feists did not obtain additional coverage from a different agent or broker and maintained their insurance policies with Andes over the years.

Later, Mr. Feist was severely injured in a motorcycle accident. At the time of the accident, the Feists had a combined total of $300,000 per person in stacked UIM coverage. The policy limits were paid. The Feists filed suit against Andes, alleging claims for negligence, breach of fiduciary duty, and breach of the duty of good faith and fair dealing. The Feists contended the agent owed them a duty to follow their requests and to obtain the additional coverage. The trial court granted the Andes’s motion for summary judgment on all counts, reasoning that the Feists knew that their UIM limits remained at $300,000 and they did not have the additional coverage they requested after meeting with Andes. Accordingly, they knew they had the option to obtain additional coverage through a different insurance agent, but they knowingly chose not to do so. The trial court dismissed the negligence claim, refusing to carve out an exception to the general rule that insurance agents do not have a common law duty to their customers. In dismissing the breach of fiduciary duty claim, the trial court determined that the evidence did not show that the Feists surrendered any decision-making authority to Andes or that Andes had any “over-mastering” influence over the Feists. Finally, the trial court dismissed the breach of the duty of good faith and fair dealing because no contract between the parties existed.

The Feists appealed the dismissal of their case to the Pennsylvania Superior Court. On appeal, they argued that: (1) a general duty was owed to them; (2) there was a fiduciary duty owed to them; and (3) there was an implied contract which created a duty of good faith and fair dealing. In affirming the trial court’s decision, the Superior Court emphasized that the Feists knew their UIM coverage limits were not going to be increased by Andes. It also recognized that the Feists were free to contact another agent to obtain the coverage increase they requested of Andes. Finally, the Superior Court held that no evidence was offered that Andes exerted any control over the Feists’ ability to control decisions related to their insurance coverage, and therefore, no fiduciary duty existed.

This opinion emphasizes the need for clarity in counseling customers. During their depositions, the Feists admitted they knew that Andes refused to obtain the additional coverage for them and that they did not have the coverage. After meeting with a customer, if an agent advises against coverage the customer requests or about which he or she inquires, it is a good practice to document your file detailing the discussions.

 

DUTIES OWED TO POLICYHOLDERS IN NEW JERSEY

By Dante C. Rohre, Esq.

Under New Jersey law, insurance producers—including brokers and agents—owe a fiduciary duty of care to their policyholder clients that “gives rise to a duty owed by the broker to the client ‘to exercise good faith and reasonable skill in advising insureds.’” Aden v. Fortsh, 169 N.J. 64, 79 (2001). As set forth in Rider:

One who holds himself out to the public as an insurance broker is required to have the degree of skill and knowledge requisite to the calling. When engaged by a member of the public to obtain the insurance, the law holds him to the skill, care and diligence in the execution of his commission. . . . If he neglects to procure the insurance or if the policy is materially deficient . . . because of his failure to exercise the requisite skill or diligence, he becomes liable.

42 N.J. 465, 476 (1964) TA \l "Sobotor v. Prudential Property & Casualty Ins. Co., 200 N.J. Super. 333, 337-338 (App. Div. 1984)" \s "Sobotor v. Prudential Property & Casualty Ins. Co., 200 N.J. Super. 333, 337-338 (App. Div. 1984)" \c 1 . This duty requires the producer to: (1) procure the insurance requested by the client; (2) ensure that the policy they obtain, if available, is neither void nor materially deficient; and (3) supply the coverage that he or she undertook to supply.

As broad as the duty has been defined in New Jersey, our courts will hold agents and brokers to an even higher standard where a special relationship is found. When there is a special relationship between the insurance producer and the client which indicates reliance by the client on the producer, the producer has a duty to advise the client of various aspects of insurance coverage. Thus, an insurance agent may assume duties in addition to those normally associated with the agent-insured relationship, and New Jersey courts regularly review the record for evidence of greater responsibilities. Glezerman v. Columbian Mut. Life Ins. Co., 944 F.2d 146 (3d Cir. 1991).

In the recent case of C.S. Osborne & Co. v. The Charter Oak Fire Insurance Co., 2017 N.J. Super. Unpub. LEXIS 1051 (App. Div. 2017), C.S. Osborne’s $1 million limit on its flood coverage was insufficient to cover its loss as a result of Superstorm Sandy. C.S. Osborne claimed the broker had a duty to provide additional quotes for higher flood insurance limits and that the broker breached that duty when it failed to do so throughout the course of their twelve-year relationship. C.S. Osborne argued the broker had a “special relationship” with it and, therefore, a higher level of duty because it been handling their account for eleven years, a broker representative had toured the facility at least twice, and there was correspondence indicating the broker, after assessing C.S. Osborne’s risk profile, had recommended a variety of types of coverage for the company.

The Appellate Division disagreed. The court determined that a special relationship did not exist between C.S. Osborne and its broker because the broker “never told plaintiff anything that would reasonably cause plaintiff to rely on his quotes as recommendations for the proper amount of insurance coverage,” and “[a]n insurance broker is not an insurance consultant; if plaintiff wanted an insurance consultant, it could have retained one.” Moreover, the court noted that the broker had notified the plaintiff of its ability to offer more insurance coverage, that the broker did not have any more information than the plaintiff, and nothing in the record showed the broker acted to cause the plaintiff to rely on it to recommend the proper amount of insurance coverage. Therefore, absent a special relationship, a carrier or its agents has no common law duty to advise an insured concerning the possible need for higher policy limits upon renewal of a policy.

Whether a special relationship exists is a determination to be made by the court. Wang v. Allstate, 125 N.J. 2, 11-12 (1991). In order to determine whether a special relationship exists with a policyholder must be determined based on the specific facts of the relationship. Sobotor v. Prudential Property & Casualty Ins. Co., 200 N.J. Super. 333, 338 (App. Div. 1984). Factors include (1) whether advice was given on coverage and policy limits previously; (2) whether the producers website promises to provide advice on insurance needs; (3) the length of the relationship; (4) the comprehensiveness of coverage; (5) the extent the producer plays in decision-making; (6) whether a fee is charged above the earning of commissions; (7) any reliance on part of the policyholder; and (8) whether the producer claims to be an expert in a certain type of risk. As these judicial investigations into the parties' relationship indicate, the client must establish "something more" than a broker-client relationship in order to impose a heightened standard of care on a broker. See, Avery v. Arthur E. Armitage Agency, 242 N.J. Super. 293, 300 (App.Div.1990) TA \l "Avery v. Arthur E. Armitage Agency, 242 N.J. Super. 293, 300 (App.Div.1990)" \s "Avery v. Arthur E. Armitage Agency, 242 N.J. Super. 293, 300 (App.Div.1990)" \c 1 . Most importantly a broker's liability turns on whether the broker's conduct invited reliance, or the client's conduct exhibited or justified a claim of reliance.

 

The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive this complimentary Legal Update for Insurance Agents & Brokers, please contact tgventura@mdwcg.com. If however you continue to receive the alerts in error, please send a note tgventura@mdwcg.comATTORNEY ADVERTISING pursuant to New York RPC 7.1.  © 2018 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved.

 

Affiliated Attorney

Dante C. Rohr
Shareholder
(856) 414-6412
dcrohr@mdwcg.com
Christopher E. Dougherty
Director, Professional Liability Department
(215) 575-2733
cedougherty@mdwcg.com
Eric A. Fitzgerald CPCU, CLU
Assistant Director, Professional Liability Department
(215) 575-2688
eafitzgerald@mdwcg.com
Timothy G. Ventura
Shareholder
(215) 575-2582
tgventura@mdwcg.com

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