Presented by the Insurance Agents & Brokers Liability Practice Group

Legal Updates for Insurance Agents & Brokers - October 2019

Edited by Timothy G. Ventura, Esq.

“I Won’t See You in Court”: Strategies to Avoid Litigation

By Ray C. Freudiger, Esq. & Jeremy M. Welland, Esq.*

When a customer comes to an insurance agent to purchase a policy, the customer relies on the agent’s knowledge and expertise to assist them in getting the best price on a policy that provides the coverage they need. The agent, of course, wants to provide the best possible service to the customer, but what duties does the law impose on the agent, and how can the agent avoid finding himself or herself in the middle of a legal dispute?

An insurance agent owes two specific duties to the client. “First, an insurance agent owes his client a duty to exercise good faith and reasonable diligence in undertaking to acquire the coverage that his client requests.” Advent v. Allstate Ins. Co., 2006-Ohio-2743, at ¶ 17 (10th Dist.). “Second, if an agent knows that the client is relying upon his expertise, then the agent owes a further duty to exercise reasonable care in advising the client.”

What does this legalese mean in practical terms?

The first duty sounds straightforward enough. If your client requests that you procure coverage, you must use reasonable diligence to procure that coverage. Most of the time, this presents no issues, but a problem arises when the customer and the agent have a different understanding of what coverage the customer has requested.

In this regard, there is one phrase that should be avoided whenever possible: “full coverage.” Customers use this phrase frequently, even though it has no technical meaning, and the customer and the agent may have very different ideas as to what this means. These different ideas can lead to litigation. For instance, in Robson v. Quentin E. Cadd Agency, 129 Ohio App. 2d 298, 305 (4th Dist. 2008), the customers requested “full coverage,” and the agent sold them a policy that did not include UM/UIM coverage. The appeals court found that there was a triable issue of fact as to whether the customers’ request for “full coverage” included a request for UM/UIM coverage.

To avoid being dragged into court in a dispute like this, it behooves an agent to be as specific as possible in describing the available coverages and in clarifying exactly what the customer is requesting and to get this information in writing whenever possible. Even where no fiduciary duty is imposed on the agent, the agent still has a duty to use reasonable care to assist the client in obtaining the desired coverage.

The second duty imposed on the insurance agent, as noted above, is to exercise reasonable care in advising a client if the client is relying on the agent’s expertise. This elevated duty applies only where there is a “bilateral understanding” between the customer and agent that the customer is relying on the agent’s expertise. FDT Group, LLC v. Guaraci, 2017-Ohio-663, at ¶ 21 (10th Dist.).

There is no hard-and-fast rule as to when this elevated duty will be imposed, and a “bilateral understanding” can be inferred rather than explicit. Factors considered will include whether the customer is a sophisticated businessperson, as opposed to a lay consumer, and whether the agent voluntarily suggests coverages that the customer may not have specifically requested.

Given the uncertain nature of exactly when this elevated duty will be imposed by the courts, the best practice for every agent will be to always take care to communicate with the customer about his or her needs and to use best efforts to find an insurance product that best suits the client’s expressed needs.

There is no absolute, fool-proof way to avoid litigation. But by communicating in detail regarding the client’s needs, and using best efforts to fulfill those needs, an agent can minimize the risk of becoming embroiled in litigation.

* Ray is a shareholder in our Cincinnati, Ohio office and can be reached at rcfreudiger@mdwcg.com. Jeremy is an associate in the Cincinnati office and can be reached at jmwelland@mdwcg.com.

 

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