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Overview of Insurance Agent Professional Liability in Ohio

March 1, 2016

By David J. Oberly, Esq.*

Key Points:

  • Insurance agent liability is on the increase.
  • Insurance agents are now viewed as professionals and fiduciaries with insurance expertise.
  • To combat claims against insurance agents, a close relationship with defense counsel is advisable.

 

In recent years, several factors have combined to cause a significant increase in the amount of litigation instituted against insurance agents. Greater competition from a range of sources has caused traditional agents to look for ways to add value, transforming their responsibilities from that of “order-takers” to the role of specialists and advisors in the field of insurance. At the same time, insurance policies have become much more diverse, intricate and complex. Combined, following the denial of coverage, these factors have led policyholders to file suit not only against their insurer, but against their insurance agent as well. As a result, the number of E&O suits filed against insurance agents has recently exploded, especially as it relates to negligence claims pertaining to an agent’s alleged failure to acquire the coverage requested by the insured and/or the agent’s alleged failure to advise his customer concerning the coverage being acquired.

In general, Ohio law imposes a duty to exercise reasonable care on insurance agents in two instances. First, an insurance agent owes his client a duty to exercise good faith and reasonable diligence in undertaking to acquire the coverage that his client requests. An agent will be held liable if, as a result of his negligent failure to procure insurance, the customer suffers a loss because of a want of insurance coverage contemplated by the agent’s undertaking. If an agent negligently fails to procure the requested insurance and the client suffers a loss because of a want of insurance coverage contemplated by the agent’s undertaking, the agent is liable to the client in the amount the client would have received if the coverage had existed.

Second, when an agent knows the client is relying upon his expertise, the agent owes a further duty to exercise reasonable care in advising the client. Thus, an insurance agent must not only obtain the insurance requested, but also advise a customer who is relying on his expertise. However, a duty to advise only arises if a fiduciary relationship exists between the agent and his insured. Ordinarily, the relationship between an insured and the agent who sells the insurance is, without proof of more, an ordinary business relationship, not a fiduciary one. A fiduciary relationship is one in which special confidence and trust is reposed in the fidelity and integrity of another, resulting in a position of superiority or influence, acquired by virtue of this special trust. Such a confidential relationship cannot be unilateral; it must be mutual, where both parties understand that a special trust or confidence has been reposed. To establish that a fiduciary duty is owed by an insurance agent, the party claiming breach must show evidence of some special trust or confidence placed in the agent by the insured and recognized by the agent. Where there is a special relationship between an insurance agent and an insured, so that the agent is more akin to a professional or expert advisor, there is a duty to see to it that the insured is fully informed.

At the same time, an insured possesses a corresponding duty to examine his policy, know the extent of his coverage and notify the agent if said coverage is inadequate. Stated differently, an insurance customer has a corresponding duty to examine the coverage provided and is charged with knowledge of the contents of his or her own insurance policy. An agent is not liable when the customer’s own loss is due to the customer’s own act or omission.

In Ohio, there is a split in authority as to whether an insured’s failure to read the insurance policy precludes a negligence claim brought against an insurance agent. One line of cases holds that an insured’s failure to read the insurance policy precludes a negligence claim as a matter of law. The other line of cases finds that a failure to read an insurance policy is not an absolute bar to recovery. Rather, an insured’s failure to read the policy is properly submitted to the jury for a comparative negligence analysis. Contributory negligence is defined as any want of ordinary care on the part of the person injured, which combined and concurred with the defendant’s negligence and contributed to the injury as a proximate cause thereof, and as an element without which the injury would not have occurred. The issue of comparative negligence is a matter of law properly resolved by the court where evidence is so compelling that reasonable minds can reach but one conclusion. In this respect, issues of comparative and contributory negligence may be appropriately adjudicated by summary judgment where, after construing the evidence most strongly in the plaintiff’s favor, a reasonable person could only conclude that the plaintiff’s negligence was greater than the negligence of the defendant. If the defendant is not negligent, or if the plaintiff’s negligence clearly outweighs any negligence of the defendant, the granting of summary judgment is entirely appropriate.

The insurance agent E&O landscape has shifted significantly in recent years as a result of the courts’ continued recognition that agents are no longer simply “order takers” but, rather, professionals who are expected to maintain a level of expertise in the field of insurance. And it appears that the current trend of broadening the scope of duties owed by agents to their insureds, and the duty to advise, in particular, will continue for the foreseeable future. Despite these obstacles, insurance agents have many defenses at their disposal when claims are brought against them by disgruntled insureds. As is the case with most professional liability claims, these defenses vary depending on the nature of the allegations and claims asserted against them and the specifics of their alleged negligence.

Moving forward, the duty to read will continue to serve as a vital defense to negligent procurement and failure-to-advise claims. In addition, many other defenses also remain at the insurance agent’s disposal to combat negligence claims asserted by insureds. In order to maximize the likelihood of success in defeating these claims, defense counsel must work closely with his or her insurance agent client to identify all relevant documents, communications and potentially applicable defenses to liability. With the proper claim investigation and development of evidence, the defense practitioner will be in a position to assert defenses tailored to the specific claim at hand, significantly curtailing exposure for the agent or completely extinguishing liability altogether in any given case.

*Dave, an associate in our Cincinnati, Ohio office, can be reached at 513.372.6817 or djoberly@mdwcg.com.

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Defense Digest, Vol 22, No. 1, March 2016

Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

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