By Frederick F. Fisher, J.D., CCP
In 1987, the case of Jones versus Grewe was decided. This is the case where an agent allegedly failed to recommend or advise a client that they were underinsured for fire damage. The court ruled that there was no duty by an insurance agent or broker to give any advice to a client. Absent what is now called a “special relationship” there is no duty to advise. A special relationship can be created by holding oneself out as an expert, charging a fee in addition to commission to do a risk management review, misrepresenting coverage, and in some states, by having a long-standing relationship with the client. Frankly, this only benefits lawyers who created it.
In essence, would you want to seek medical care from a doctor who simply asks you what is wrong with you today and how you would like to be treated? While it may be argued that one could hardly compare the knowledge and experience of an insurance producer to that of a doctor, I beg to differ. While insurance may not be as complicated as medicine, it is certainly complicated. The average consumer, including business owners and risk management departments, would have to be experts themselves regarding as many as 18 or more different types of policies that they may need today in order to be properly covered. This includes legal review. While many corporations do have sophisticated risk management departments, many do not or may not be knowledgeable beyond the basics.
One can only be somewhat shocked when one considers that both Harvard University and the University of Southern California both ended up without any coverage as result of not understanding the complexities of a claim and how to timely report claims or avail themselves of the safety net incident reporting provisions. Thus, they found themselves without any coverage on multi-million-dollar exposures.
The frequency of claims against insurance producers verifies the fact that you’re going to be sued anyway. So, what’s better: avoiding liability by simply being “an order taker” or avoiding a lawsuit altogether by giving the advice based on your knowledge and experience. Clearly the latter is preferable.
This is also an opportunity to compete with your competitor who may follow the order taker standard. Rest assured, some of the largest brokers in the country are demanding their producers not give advice, because they can avoid liability by not doing so and thus adhere to the order taker standard of care. Yet, when you look at the 10-ks filed by those brokerages that are publicly traded, it is no surprise that hundreds of millions of dollars are in reserve to pay the expenses and potential settlements of error and omission claims! So, how’s that working out for the big boys? Note too that 80% or more of all E&O claims settle, so what have you gained?
If you give the advice, and more importantly document the advice, you could not only avoid a lawsuit, but beat the competition exclamation. It is no surprise that today’s insurance world is highly complicated and requires a lot of knowledge to be successful. Long gone are the days when a business only needs five policies. Now, your typical business may need as many as 18 different policies including C suite coverages, liability coverage, excess policies, specialty policies for cyber protection, technology, etc.
There used to be a time when a business only needed property, liability, perhaps a commercial umbrella, worker’s compensation, and employee benefit coverages in the form of group medical and/or group life. That was about it. Now, however, it has gotten far more complex. Hazards have become more complex based on exclusions in the CGL policy for environmental liability, for employment practice exposures, discrimination etc. These exclusions gave birth to whole new industries to satisfy those needs.
Thus, businesses not only need the aforementioned coverages, but they need director and officer liability coverage, employment practices liability, fiduciary liability, cyber liability, tech liability, crime coverage, and professional liability if they are providing professional services. In fact, I’ve seen “Discussion Lists” on quotes to clients suggesting as many as 53 other P&C Coverage types for a commercial client to consider. Many of these policies are complex, and fraught with peril especially when coordinating current coverages with claims made coverages with all the classes therein contained. These are all complicated and require knowledge and experience to understand them.
How many times have we heard from an aggrieved policyholder that his agent “promised him the best coverage” or the most “complete coverage” available? How often have we heard customers say that they wanted to be covered for “everything” and weren’t?
Then how should you deal with such situations especially when a client says, “I want to be covered for all my exposures” and “I want the best policy possible”? That needs to be addressed and answered.
Most lawsuits against insurance agents and brokers arise from inadequate training, lack of uniform policies and procedures, lack of consistency, time constraints, and a failure to communicate. It boils down to providing reasonable financial security and explaining the coverages and exclusions to your customer. Providing financial security is key. You can only do that by really delving into the insured’s needs and explaining how you can or can’t satisfy them.
If you do everything possible to avoid what can go wrong, you won’t be sued. This includes delinquency on premium payments, making sure all contingencies are obtained prior to binding, or even asking the pertinent questions when you hear the usual, “it’s simply a name change, nothing else has changed.” Businesses don’t change names; they change structure. Failure to delve into that could give rise to insuring an entity that no longer exists while not insuring the one that does.
Another fallacy of the Order Taker Standard is equally troubling: how many times could we successfully defend a lawsuit based before your insurance company finally says, “we’re happy that you are winning every lawsuit, but we need to raise your deductible to $250,000 per claim so that you are no longer in our pocket for defense costs!” Wouldn’t that be the reality?
Yet – as obvious as it may seem, many still forget what has been preached since the 1970s: Document…Document….Document!
When we don’t give advice, we may win a lawsuit. But what’s better, fighting it out or not fighting at all?
Frederick Fisher, J.D., CCP is a specialist in Professional Liability. He is a member of the Editorial Board for Agents of America, an original Faculty Member of the Claims College, School of Professional Lines sponsored by the Claims & Litigation Management Association, Senior Technical Advisor for over 33 years for Professional Liability Insurance, published by the International Risk Management Institute, and is a past President and a founding member of the Professional Liability Underwriting Society (PLUS). He is the author of “Claims made Insurance- the Policy that Changed the Industry (June 2024),” published by the Insurance Journal, a Wells Publishing Co., and marketed through Amazon. Mr. Fisher’s expertise started with a 20-year career as a Professional Lines Claims Adjuster, which included qualitative claim auditing, risk management & loss control services, and acting as a TPA. He then founded ELM insurance Brokers and served as CEO for another 20 plus years. During his 49-year career, he has authored over 80 Trade Journal articles and two books. He remains a subject matter expert for several PLUS RPLU courses, and has taught or given over 170 CE classes, lectures and webinars concerning Specialty Lines Insurance issues and coverage.