NU Online News Service, April 12, 3:00 p.m. EDT

Recent court decisions appear to shield agents from a duty to provide advice about sufficiency of coverage, limiting their legal responsibility to obtaining coverage requested by a consumer, according to this week’s NU cover story.

The story is “Courts Shield Agents, Brokers From Added Duties To Procure Coverage,” and is written by Peter Biging, who is a partner at Lewis Brisbois Bisgaard & Smith LLP and vice chair of the firm’s nationwide Professional Liability Group.

Biging writes of the recent court decisions’ take that agents or brokers have no special duty to advise customers about what coverages they should purchase. “The rationale that guides this general principle is that the agent or broker should not be placed in the position of being the guarantor of the sufficiency of the customer’s coverages. While insureds are making efforts to get courts to read the basic duty of care more expansively, recent decisions indicate courts are not taking the bait.”

As one example, Biging cites Isidore Newman School v. J. Everett Eaves Inc. In that case, Biging writes, a broker had a 16-year relationship with a school in Louisiana, and each year the broker met with the school’s business managers to discuss coverages, provide a written insurance proposal and renew the policy.

“As part of the property coverage, since 1999, the school had paid for business income and extra-expense coverage,” according to Biging. “Following Hurricane Katrina, the school suffered major damage to its physical structure, causing the school to be closed for more than two months. As a result, the school suffered a loss of tuition revenue/income of more than $3 million.”

The school sued the broker for “failing to appropriately advise it with regard to the BI & EE, alleging that the broker ‘had a duty to inform [the school] of the different coverage options that were available…and to explain the costs and potential benefits of those coverages,’” Biging writes.

A trial court ruled for the school, and an appellate court affirmed, but the Louisiana Supreme Court reversed upon review.

In a July 2010 ruling, Biging writes, the court concluded that an agent has only a duty of “reasonable diligence” to advise the client, but this duty does not expand to include the obligation to advise whether the client has procured the correct amount or type of insurance coverage.

Biging cites other recent cases, including Dairy America Inc. v. New York Marine and General Ins. Co., where Dairy America approached its broker about obtaining insurance that would protect its product shipments whether they were in transit or in storage.

Biging writes, “In correspondence with the broker regarding the possibility of obtaining this coverage, Dairy America’s comptroller noted: ‘My initial thought is to consider coverage for all products regardless of whether it transfers title at the plant, at the border, over the rail, or at a destination.’”

The policy incepted on August 11, 2005, and a loss occurred on August 29, where 59 loads of milk powder were destroyed by Hurricane Katrina. The insurer determined that 23 loads had been shipped before the policy inception date and refused to indemnify for those loads.

Dairy America brought suit against the broker for the uncovered portion, alleging “negligent misrepresentation,” “professional negligence” and “breach of contract.”

The court determined that a broker’s general duty of reasonable care does not include an “obligation to procure a policy affording the client complete liability protection.”

Biging explains, “Although Dairy America’s comptroller apparently subjectively intended that the policy cover loads in transit both at the time of policy inception and thereafter, the court noted there was no evidence introduced that Dairy America had specifically requested or been promised such coverage.”

For more information, including an examination of an additional case and analysis on the broader meaning of these cases taken together, read Biging’s story in the online edition of NU.