Is Your Insurance Agent Liable if You Have Improper or Insufficient Insurance Coverage?
You buy insurance coverage with the hope that you never need to use it. When you do need to use it, you don’t want to hear that the insurance coverage doesn’t cover the claim, or that you have insufficient coverage to fully cover the loss. In short, you don’t want to pay for insurance coverage that doesn’t fully compensate you when you suffer a loss. Unfortunately, many of us often do not find out we are underinsured until it is too late.
Upsetting? Indeed! More upsetting is when, after you’ve sustained a loss, you realize that your insurance agent should have advised you to obtain additional coverage, but never did. Worse yet is when you find out the insurance coverage you bought doesn’t actually contain the full scope or amount of coverage for which you asked your agent. So you wonder, “Can I sue my agent and win?”
The answer is – like so much in the field of law – it depends.
The most commonly litigated claim against insurance agents occurs when the agent’s client claims he or she told the agent to provide a specific type or amount of coverage, but the agent did not do so. Then a loss occurs, and the insurance company does not pay the compensation the client expected to receive, as the coverage the client believed to be in place was, in fact, not in place.
Since the insurance company will not acquiesce, the client is constrained to sue the insurance agent to be fully compensated. However, such a lawsuit must overcome many hurdles to succeed. The client would need cogent proof to establish that:
1. The client actually communicated to the agent his or her request for the particular coverage;
2. The agent acknowledged the requested coverage was going to be provided; and
3. The agent failed to produce the agreed upon coverage.
If the client can establish these elements, then he or she has a basis to sustain a claim that the agent breached a contract to produce the coverage.
However, in response to such a claim, the agent may try to establish that the requested coverage would not have covered the loss anyway, so his or her failure to provide the particular coverage requested didn’t actually damage the client. Nevertheless, if the client has proof to establish he or she requested the particular coverage from the agent, and the agent agreed the coverage would be provided, the claim that is worth further examination by an attorney.
The second most common type of claim against an insurance agent is when the client believes the agent should have advised about, or recommended the purchase of additional coverages. To prevail on such a claim – where a client is claiming the agent is an advisor who is obligated to make recommendations about coverage – would require overcoming the widely-accepted rule of law that the insurance agent has no duty to advise a client about the best type of insurance coverage for that individual.
Indeed, the applicable rule in New York is that an insurance agent generally does not have a continuing duty to advise, guide, or direct a client, absent a special relationship of trust and confidence.
In other words, if you tell your agent that your daughter just got her license and is driving your car, the agent has no obligation to inform you of the desirability of purchasing additional insurance coverage to protect you in the event your inexperienced driver has an accident. Your insurance agent also doesn’t have an obligation to recommend you purchase umbrella coverage if you decide to put a deck on the back of your house.
While an agent generally does not have a duty to give sound advice relative to risk exposure and insurance needs, there are three situations where a court may find the agent did have a special duty
1. If the agent is paid specifically for consultation apart from the payment of the premiums.
2. If there was some specific interaction between the client and the agent regarding a question of coverage, and the client can demonstrate the agent gave advice with the understanding that he or she was relying on the agent’s advice.
3. If there is a course of dealings over an extended period of time that puts the agent on notice that his or her advice was being sought and specially relied on by the client.
While these types of claims are generally difficult to prove, if you feel you have such a claim, have the matter reviewed by an attorney. In the meantime, you should also shop around for a reputable agent, and have your existing insurance coverages reviewed by several independent agents. Dealing with a knowledgeable agent will serve you well in the long run.