Some agents and brokers have been viewed as order takers rather than insurance professionals. When does an order taker morph into a trusted advisor? As so often happens in the evolution of legal precedents, a phrase such as “special relationship” starts as a narrow exception to the general rule, and over time begins to swallow the rule.
This year, the Indiana Supreme Court took its turn at crafting a litmus test for a special relationship. In Indiana Restorative Dentistry v. Laven Insurance, the court dealt with a truly extended period of time. IRD, a dental practice, had opened in 1978, and worked with the same agent for the following 29 years. In 2009, a fire completely destroyed the dental office. The coverage for office contents had a limit of $200,000, but the loss of contents was valued at $700,000, thus a $500,000 underinsured loss.
I'll summarize the facts so you can decide whether you would find a special relationship:
-
The dentist and the agent spoke by phone a few times each year, mainly near renewal time, but they had never met in person until after the fire.
-
The agent sent an annual letter to IRD before each policy renewal, summarizing the existing coverage and asking for any changes in the dental practice or specific changes that IRD wanted to make.
-
In the final renewal before the fire, the dentist sent back the letter, suggesting for the first time that the policy limits be increased, though no specific amount was requested.
-
The agent renewed the policy with the same limit, sending the renewal policy with a cover letter asking the dentist to “take a moment to look these policies over and be sure that they have been issued to your liking.” But the dentist did not read the letter or respond; the renewal policy went straight to the filing cabinet.
-
The agency sent a “generic valuation guideline” for dental office contents with one if its letters.
-
Every calendar quarter, the agent sent a third-party's “risk review” newsletter to the dentist. One such newsletter stated: “A professional insurance agency is trained in risk analysis, which involves evaluating risk exposure to measure the potential loss to your business. With your specific business and property in mind, your agency can recommend appropriate insurance coverage.”
Jurors, what's your verdict?
The Indiana trial court had ruled in the agent's favor, finding as a matter of law that a special relationship did not exist based on these facts. A somewhat tortured six-year appellate process followed, with the result of the Indiana Supreme Court sending the case back to the trial court for a trial by jury.
What should an agent or broker take away from this year's special relationship debate? Here are some practical tips, though I don't go so far as to say that they are the standard of care:
-
Read what you send before you send it. The agent's use of third-party risk management materials is not unusual, but note how a seemingly innocuous comment about what a professional agent can do was used as evidence of what the agent should have done.
-
Isn't it odd that the customer read the newsletter, but not the cover letter asking that he review the renewal terms? Selective reading can become epidemic when a dispute gets near a courtroom. If a written communication is important, the time taken to be sure that it has been read, and that the customer's silence means “no changes,” (with a confirming letter following that discussion) could be the stitch in time that saves $500,000.
-
One size doesn't fit all. A standard business practice works fine for the majority of customers, but can fail to prevent an outlier—the one customer who says or does something unusual and then, as dictated by Murphy's Law, has a large loss.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
