Recent allegations of wrongdoing involving broker compensation have turned on an issue summed up by a question asked by a state insurance commissioner, “Which master do you serve?” In other words, do you work as an agent for the insurance company or as an agent for the insured? Some authorities and politicians weighing in on this matter believe agents working for their insureds have a responsibility to obtain quotes from all their companies and disclose to their clients the total compensation they'd receive under each quote, while an agent working on behalf of the company need not go to such lengths.

A great article (which I recommend to all insurance agents and brokers), entitled “Insurance Agent and Broker Liability,” appeared in the Fall 2004 issue of Tort Trial & Insurance Practice Law Journal. In it, author Douglas R. Richmond explained that agents have dual responsibilities, and that choosing to serve either the company or the insured is not as simple as it might seem. Agents work for both, but–and here is the key–they do not have the same responsibility to both parties at the same time. Further complicating matters is the reality that the meanings of “agent” and “broker” are not constant. As the author stated, “Whether an intermediary is an agent of the insured or the insurer depends on the facts of the case,” rather than the label attached to him or her.

Mr. Richmond's observation makes sense, given the many different ways the terms “broker” and “agent” are used in the insurance industry. Some people hide behind such generic labels without adequately understanding related laws or their implications. For example, agents may declare they have no duty to fully disclose their compensation to clients because they are not brokers. However, most agents I know go out of their way to help their clients, even more than they usually help their companies, sometimes to the extent of creating E&O exposures.