Is Your Insurance Agent or Broker Liable When a Loss or Claim Isn’t Covered?

When businesses and commercial property owners in Florida file an insurance claim, they expect to receive compensation for their loss. After all, the owners may have been paying premiums for years on an insurance policy that they believed would cover them for specific losses related to their business.

Imagine an owner’s surprise and dismay when the insurance company says that the policy does not cover the loss, or that the insurance amount is not enough to cover the loss. A call to the owner’s insurance agent or broker confirms that an exclusion in the insurance policy prevents coverage. What should owners do in this situation? Pay out of pocket for the loss and suffer serious financial consequences? Or, can owners hold the insurance agent or broker legally responsible for failing to obtain adequate insurance to cover certain losses?

Insurance Agents and Brokers

Both agents and brokers have a responsibility to help clients obtain insurance coverage. Agents work for and represent an insurance company and sell the agency’s insurance products. In contrast, a broker does not work for an insurance agency. Brokers represent individuals or companies wanting to buy insurance. A broker can obtain quotes from two or more insurance companies at a time. Getting multiple insurance quotes from different companies can help buyers to compare policies.

When it comes to liability, the relationship between the agent/broker goes a long way in helping to decide who to hold liable in insurance malpractice lawsuits.

The Relationship Between Agents/Brokers and Clients

In certain cases, courts have determined that an agent or broker can develop a “special relationship” with a client based on several factors, including:

• The length of time an agent/broker has managed a client’s insurance needs.
• A client’s reliance on the expertise of an agent/broker when making decisions about insurance.

Agents and brokers may contend that regardless of the relationship, they do not have to offer advice about coverage; they only obtain insurance that clients specifically ask for or what clients believe they need.

Florida courts have already determined a response to this argument. The U.S. Southern District Court of Florida decided that, when a special relationship exists, an agent or broker has an “enhanced duty of care to advise the client about the amount of coverage prudently needed to meet its complete insurance needs.

Holding Insurance Agents and Brokers Liable for Errors

Both agents and brokers can be held liable in certain situations when they make errors and fail to carry out their duties.

When it comes to insurance agents, an insurance policyholder may hold the insurance company responsible, along with an individual agent. That is primarily because agents represent insurance companies, and both an agent and a principal are liable for an agent’s negligence. Brokers, on the other hand, can be held personally liable because they do not work for insurance companies.

There are numerous reasons why agents/brokers can be held responsible for a client’s insurance matter. Some of the most common reasons include:

• Failing to obtain the appropriate type of coverage to address the needs of a business or individual.
• Failing to obtain an amount of coverage that would sufficiently cover a loss or provide protection against certain risks.
• Failing to purchase any insurance at all, even after receiving a premium payment from a client.
• Failing to advise clients of any changes that the agent/broker made without notifying clients about the change.
• Misrepresenting the amount of insurance coverage obtained or misrepresenting the extent of the losses covered in the insurance policy.

Although clients may want a particular type or amount of insurance coverage, in some cases agents/brokers have a duty to explain to their clients that another type of coverage might be necessary to meet their insurance needs.

What Happens Next?

What should Florida businesses and property owners do when their agents/brokers fail to obtain—or advise them about—the insurance needed to cover specific losses?  Depending on the circumstances, clients may be able to take legal action against an agent/broker to recover their losses. Before taking this step, however, it is best to seek legal advice from an attorney who has experience dealing with complex insurance malpractice matters.

Our Business Trial Group attorneys handle a wide range of insurance disputes involving all types of errors, omissions, negligence, and other misconduct. We do not charge clients by the hour. Instead, we work exclusively on a contingency-fee basis, which means that our clients do not pay any fees unless and until we successfully resolve their case.

If you are facing a commercial insurance dilemma and need legal advice, contact us today to see how we can help you.