• The agent/broker has undertaken special duties in handling the customer's account.

• The broker has agreed to accept or has charged special compensation in addition to the standard commission for advice/guidance with regard to coverage.

• The agent or broker has held himself out as an expert and knows or has reason to believe that the customer is relying upon his expressed expertise with regard to a coverage issue.

• The agent/broker and the customer have a relationship of such significance in terms of time, trust and reliance that the agent/broker should know or have reason to know that the customer is relying upon his advice with regard to coverage issues.

Two recent court cases examined these “special circumstances”—with divergent endings for the agents involved.

GREATER DUTY OWED

In Peterson v. Big Bend Insurance Agency, Inc., a couple with a home that was insured against fire loss asked their agent for help in trying to get their home insured for its full replacement value. The agent had advised he would use a computer-software program's “cost-guide estimate” to determine a replacement value for the home.

However, although the agent took measurements and photos, and gathered other information about the house, the cost-guide estimate was not actually applied.

When a fire destroyed the house, the insurance policy paid out the policy limits—$193,000. The cost-guide estimate, however, would have increased the limits to $213,000 using information the agent had obtained.  And it would have increased to $240,000 if the standard questionnaire typically answered in conjunction with the cost-guide software program had been used.

The actual cost to replace the home was $328,843.

The insureds sued for the difference between the actual cost to replace the home—which they had requested the agent obtain—and the $193,000 paid by the insurer.

Here, because certain services—the calculation of coverage limits—had been promised but not provided, the trial court held that the agent had breached the duty of care to the insureds. The court, however, set the damages at the difference between the cost-guide estimate had it been properly applied and the insurance limits that were paid.

The insureds appealed. On March 5, 2009 the Court of Appeals of Washington, agreeing with the trial court, held that by undertaking to provide a cost-guide estimate and failing to do so, the agent had breached a special duty of care it had undertaken.

But the court added that the agent does not have an obligation to find coverage affording its client “complete liability protection” and that there was no evidence that the agent had agreed to conduct a professional real-estate appraisal or obtain bids and consult builders to determine the full replacement value of the home.

Accordingly, the appellate court affirmed the trial court's ruling that the agent need only be responsible for the difference between the insurance limits actually in place ($193,000), and the limits that would have been in place but for the failure to utilize the cost-guide estimate and questionnaire ($240,000).

IOWA COURT STANDS BY AGENT

In other special circumstances, where one might arguably suggest that an agent or broker had access to information to justify imposing a duty to question the insured about coverage or to offer advice regarding possible coverage changes or options, recent decisions have shown circumspection in taking that leap.

In a recent decision, Merriam v. Farm Bureau Insurance, the Supreme Court in Iowa considered the question of whether an agent had breached a duty of care to a self-employed truck driver by assisting him with certain insurance coverages, but never recommending that the driver buy self-employment workers' compensation coverage.

This case is significant because in the context of the interactions between the agent and customer, the court had ample opportunity to find a basis for concluding that there was a justified reliance upon the agent's expertise and to conclude the agent had a broader duty to advise regarding possible coverage concerns and options.

In this case, the agent worked for Farm Bureau Insurance and had been assigned to the account of the Merriams, a married couple who had insurance on their primary residence with Farm Bureau. He met with the Merriams in early 2005 to discuss insuring a second residence they were purchasing for Mr. Merriam's mother.

During this meeting, the agent suggested the Merriams consider insuring their personal vehicles with Farm Bureau. At the same time, the Merriams indicated an interest in obtaining insurance on their horses, and the agent agreed to get them a quote. They also asked about getting a quote on insurance on the husband's guns, as well as adding their new garage and chicken coop onto their homeowners policy and obtaining life insurance on Mr. Merriam's mother.

The agent was aware that Mr. Merriam was a self-employed truck driver and, in fact, Mrs. Merriam mentioned that he had a million-dollar policy in place if he were killed in his truck. But there was no discussion regarding whether he had unemployment insurance, and the agent neither asked questions about it nor suggested it as a consideration.

Just a few weeks later, Mr. Merriam sustained severe injuries to his arm, which was crushed by a dump truck he was operating while he was patching the driveway where he parked his truck.

In the absence of workers' comp insurance, the Merriams sued Farm Bureau, alleging the agent was negligent in failing to advise them that, as a self-employed truck driver, Mr. Merriam had no workers' comp insurance unless he purchased it himself.

The Merriams claimed that the agent “was in a position of superior knowledge pertaining to available insurance products and was negligent for failing to initiate a conversation with them regarding this issue.”

In this case, the agent admitted he was aware that Mr. Merriam was self-employed because in rating their personal vehicles he needed to know what their occupations were, where they worked, how far it was to and from work, etc.

The Merriams argued that the agent's awareness of his client's self-employment status and his life insurance policy, combined with the agent's unsolicited recommendation for additional vehicular insurance coverage, supported a conclusion that the agent was holding himself out as an insurance specialist and thereby assumed a greater duty of care to the Merriams, including a duty to make recommendations regarding the workers' comp coverage.

In rejecting this argument, the Iowa Supreme Court noted that the Merriams had made no specific inquiry with respect to self-employed workers' comp insurance and did not either expressly or implicitly seek the agent's assistance in assessing any of their insurance needs other than those specifically requested.

Further, there was no evidence of a longstanding relationship between them that would support an implied agreement to expand his duty to include assessment of the Merriams' other insurance needs; no evidence that he had advised them he was an insurance specialist; no evidence he offered to consult with them regarding additional insurance needs; and no evidence he had received any additional compensation above his commission.

Summing up, the court stated:

“The plaintiffs contend [the agent's] knowledge of [Merriam's] self-employed status and million-dollar life insurance policy was sufficient to trigger a duty of inquiry. The fact that [the agent] was a trained and licensed insurance agent with arguably 'superior knowledge as to what insurance products someone in [the client's] position would require to be adequately protected from injury or loss' cannot be the basis to find an implied agreement to expand [the agent's] duty. If that were the case, then every trained and licensed insurance agent would have a duty to provide an assessment of all of the insureds' insurance needs, whether requested or not.”