o The trial court erred in refusing to find comparative negligence on the part of the owners, who failed to read their insurance policies.

The plaintiff opened a Rhino Linings dealership. The broker, Thaw, was described as an expert in insuring Rhino Linings businesses. Thaw sent the plaintiff a blank application form by fax, indicating that the program was “designed specifically for Rhino Liners dealers.” Williams filled in basic information, leaving all portions relating to insurance coverages blank. He signed the application, and returned it to Thaw, who selected the insurance coverages. Thaw had considerable experience with insurance for Rhino Linings dealerships. Rhino USA had become a client of Thaw's in the early to mid-1990s, and by 1999, Thaw was handling the insurance needs of some 50 to 100 Rhino Linings dealerships.

Duty imposed on agents and brokers

The court recognized the general rule in California on insurance agent negligence, which was articulated by Justice Kennard in Jones v. Grewe (1987) 189 Cal.App.3d 950. “It is that, as a general proposition, an insurance agent does not have a duty to volunteer to an insured that the latter should procure additional or different insurance coverage.” Thus, ordinarily the insurance agent's duty is “to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.”

“The rule changes, however, when–but only when–one of the following three things happens: (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….”

The agent, who assumes additional duties, may be liable to the insured for losses which resulted as a breach of that special duty.

The trial court found that Thaw held herself as an expert in the insurance needs of Rhino Linings dealerships. In fact, the defendant's own expert testified that Thaw held herself out as having some level of expertise with respect to the insurance needs of Rhino Linings dealerships. There was no question that the insurance needs of the plaintiff included coverage for bodily injury to an employee who deals with toxic materials; indeed, the insurance application Thaw provided contained a section on workers compensation. Thaw knew that workers' compensation insurance is mandatory in California. Thaw failed to advise Williams of the necessity for workers' compensation insurance. By not including workers' compensation insurance breached the duty Thaw assumed by holding herself out as the expert on the insurance needs of Rhino Linings dealerships.

Thaw, in fact, claimed that her staff calculated workers' compensation insurance premiums and that she spoke with Williams, the plaintiff, about such insurance before she sent her insurance proposal. Williams testified that he understood that Thaw was “the go-to person” for the insurance needs of Rhino Linings dealerships and his reliance on her expertise–because he asked her for “whatever insurance was needed to operate the business”–and relied on her to complete his insurance application by selecting the insurance coverages he needed.

The Agent's Misrepresentations

The Court of Appeal found that the pertinent principle to resolve the issues raised by the case was stated in Paper Savers Inc. v. Nacsa (1996) 51 Cal.App.4th 1090, which involved allegations by the insured (who did not read his insurance policies) that the insurance agent misled him regarding the extent of coverage for losses of business personal property. In reversing summary judgment for the insurer and insurance agent, the court concluded there were genuine issues of triable fact as to whether the agent made the representations and, if so, whether they were sufficient to impose a special duty on the insurer. An agent's misrepresentation of the nature, extent or scope of coverage being offered or provided is one of the three circumstances in which a heightened duty is imposed on the agent. The trial court correctly and expressly rejected the contention that the insured's reliance on the agent's alleged representations was unjustifiable as a matter of law because the insured did not read the policy. The Paper Savers court held:

[T]he issue whether an insured has a duty to read his policy [is resolved]…. If [the agent] held himself out as an adviser to [the insured] and interpreted the coverage in a way different from what the language of the policy indicated, [the insured] is simply saying that [the agent] may be liable for his negligence, if proved. In this, he is correct. (Emphasis added)

Lessons

Although most agents and brokers understand that their duties and obligations to an insured is limited and he or she does not, generally, have a duty to volunteer to an insured that the client should procure additional or different insurance coverage, that duty changes when the broker holds himself or herself out to have expertise. This case is a perfect example because the agent knew that the business was new, held herself out as an expert in the particular business having acted as agent for more than 50 similar dealerships, and that the plaintiff relied on her expertise to get him the insurance needed for his new business. Failing to obtain workers' compensation insurance–insurance all California businesses are required to acquire as a legal mandate–was clearly negligent and a failure to use the expertise the agent claimed.

Similarly, the agent was unable to convince the court that the insured's failure to read the policy because of her claim of expertise.

Thaw could have avoided a multi-million-dollar verdict against her and her firm by:

1. Obtaining a written contract with the insured specifically stating the duties and obligations of each

2. Explaining the coverages provided in writing

3. Repeating the explanation with each renewal

4. Explaining all the coverages not obtained and the reasons why they were not obtained [for example she had no market for workers' compensation insurance] and suggest the insured go to others

5. Never claiming an expertise you do not have.