Related: Read the another Zalma column "No Duty to Benefit Consult."

In 2004, Angermeier met with Thompson, an agent with Schultheis Insurance Agency, to discuss commercial insurance for the property. This was the first time that Angermeier used this agency and agent. According to Angermeier, he told Thompson at this initial meeting that he wanted insurance "to take care of everything" and that he would be doing some renovations.

Even though Angermeier said that he did not tell Thompson that he wanted replacement cost coverage, he "assumed" Thompson would secure replacement cost coverage. According to Thompson, however, the parties in fact discussed both property values and actual cash value versus replacement cost, and Angermeier indicated that he wanted actual cash value.

Indiana Farmers Mutual Insurance Group issued the initial policy on Aug. 20, 2004, and this policy provided coverage limits of $500,000 actual cash value for the building at issue. Before this initial policy was issued, Angermeier signed a statement/schedule of values on which limits of $500,000 and type of coverage of actual cash value (as opposed to replacement cost) are specifically designated for the building at issue. Following, Thompson either hand-delivered or mailed the initial policy to Angermeier within 30 days of its issuance. Angermeier never read the initial policy and he agrees that Thompson never told him that he had replacement cost coverage.

Effective Aug. 20, 2005, the policy was renewed and again provided policy limits of $500,000 actual cash value for the subject building. Just as in 2004, Thompson either hand-delivered or mailed the 2005 policy to Angermeier within 30 days of its renewal. Angermeier did not read this policy, either.

In November 2005, at the request of Indiana Farmers underwriter Debbie Smith, who worked with Thompson in this case, Midwest Technical Inspections conducted a survey and appraisal of the improvements to the building at issue. Midwest's Nov. 29, 2005 report showed a discrepancy between the actual cash value of the building with the improvements and the replacement cost of the building with the improvements finding an actual cash value of $820,475 and replacement cost of $1,189,095. Thompson never saw this report and did not know if Schultheis Insurance Agency received it, either. According to Brett Schultheis, the president of Schultheis Insurance Agency, he never saw this report or any similar type of report in the past for any property insured by Indiana Farmers.

Related: Read the article "Today's Litigation Landscape."

The improvements were completed in early 2006. Thompson was aware of the improvements as they were being made because of his visits to the store. After the improvements were completed, Angermeier did not contact Thompson to increase the coverage on the building because he was too busy with the store. The policy was reissued on Aug. 20, 2006, with the same limits and type of coverage. Thompson either hand-delivered or mailed the 2006 policy to Angermeier within thirty days of its renewal. Angermeier also did not read this policy.

The Fire

On Sept. 4, 2006, the building at issue was destroyed by fire. According to Angermeier, this is when he first learned that the policy was "designated as actual cash value and not replacement value." Following the fire, the building was determined to have a market value of $490,000.

In June 2008, Angermeier and Wolflin (collectively, "Angermeier") filed a complaint against Schultheis Insurance Agency and Thompson alleging negligence because they failed to procure adequate insurance to cover the value of the improvements.

Duty of Care

Insurance agents have a general duty of care and a duty to advise their clients. The general duty of care includes a duty to exercise reasonable care, skill and good-faith diligence in obtaining insurance. The law is settled that an insured must demonstrate some type of special relationship for a duty to advise to exist. The insured must establish the existence of an intimate, long-term relationship with the agent or some other special circumstance.

In other words, something more than the standard insurer-insured relationship is required to create a special relationship obligating the agent to advise the insured about coverage. In the absence of a special relationship, the agent does not have a duty to tell the potential insured about the adequacy of the coverage or any alternative coverage that is available.

Elements of Special Relationship

Factors demonstrating the existence of a special relationship between the agent and the insured include whether the agent:

1. Exercised broad discretion in servicing the insured's needs
2. Counseled the insured concerning specialized insurance coverage
3. Held himself out as a highly-skilled insurance expert
4. Received compensation for the expert advice provided above the customary premium paid.

Related: Read the Zalma's previous column "Sell What You Know."

In August 2004, Thompson obtained an insurance policy for Angermeier from Indiana Farmers for $500,000 actual cash value, and Angermeier received a copy of this policy. Thompson did not represent to Angermeier that the policy was for replacement-cost coverage. If Angermeier had read the policy he would have realized that it had policy limits of $500,000 actual cash value. The policy was renewed twice, in 2005 and 2006, with the same provisions, and Angermeier never spoke with Thompson about changing the policy.

Lesson

Insurance agents and brokers have a general duty to obtain the insurance ordered by the insured. An agent or broker is not required to provide advice to the insured about the values to be insured or the types of insurance to cover unless a special relationship exists. On the facts of this case, there was no special relationship.

This case teaches, however, that the agent should have gone over the meaning of the policy at the time it was issued and attempted to sell replacement cost coverage since it would have earned him a higher premium. One can assume from the facts of this case that the insured refused replacement cost coverage since he allowed the policy to be renewed with the same coverages and limits knowing that he had increased the value of the property and because no agent would insist on less coverage for less commission unless the insured insisted.