A recent Michigan appellate court ruling serves as a stark reminder to insurance agents to take care not to provide advice or assurances about coverage to customers and prospective customers, because it could result in professional liability.
Typically, under the common law, an insurance agent whose principal is the insurance company owes no duty to advise a customer regarding the adequacy of their coverage.
This is because insurance agents typically act as mere “order-takers.” That is, they present the products of the insurance company, take the order of the customer and secure the selected coverage.
However, Michigan courts have carved out an exception to this general rule where a “special relationship” may exist between the customer and the agent. Specifically, the courts have identified the following scenarios in which a special relationship is formed:
(1) the agent misrepresents the nature or extent of the coverage offered or provided,
(2) an ambiguous request is made that requires a clarification,
(3) an inquiry is made that may require advice and the agent, though he need not, gives advice that is inaccurate, or
(4) the agent assumes an additional duty by either express agreement with, or promise to, the insured.
The common thread running through all four examples is that an agent, who assumes a duty to advise the customer regarding the need for or the adequacy of insurance coverage, creates a special relationship with the customer.
In a recent unpublished opinion, the Michigan Court of Appeals reversed a trial court’s dismissal of a suit against an insurance agent. In that case, a customer was working with an agent to change his life insurance coverage.
As the agent was purportedly working to secure the new policy, the lapse date of the customer’s existing life insurance policy was fast approaching. The customer repeatedly sought guidance from the agent and assurances that the new policy would be in place before the old one lapsed. The agent repeatedly provided guidance and assurances—explaining all was well, and that the process was purportedly being held up by the customer’s physician who was not providing information requested regarding the customer’s health.
The agent never advised the customer to continue paying the premium on his existing policy until the new one was secured. Unfortunately, the old policy lapsed, and the new policy was never consummated—the prospective new carrier denied coverage due to the customer’s health issues. The customer died before new life insurance coverage could be secured, and his widow sued the agent.
The appellate court found that two of the above special relationship scenarios were relevant. Specifically, the customer had asked for advice, the agent gave incorrect guidance, and the agent had made promises to the customer. Under both scenarios, the appellate court reasoned, the agent had stepped outside the “order-taker” function and thereby assumed a duty of care.
Although one of the three appellate court justices dissented, the dissent focused on differing interpretations of the text message exchanges between the agent and customer. The majority interpreted those messages as creating a question of fact that precluded summary disposition when taken in the light most favorable to the customer’s estate. The dissent interpreted those messages as not evidencing a special relationship because the customer never came right out and asked the agent whether he should let the existing life insurance policy lapse.
The unfortunate timing of the events in this case appears to have been a “perfect storm” for the agent involved. The agent likely had no reason to believe the prospective new life insurance carrier would deny coverage, and he almost certainly had no reason to believe the customer’s death was imminent.
Although it is unclear whether this agent will ultimately be culpable, since the matter has been remanded to the trial court to determine whether the agent assumed a duty of care and whether he breached that duty, agents should take this set of facts and the special relationship scenarios into account when interacting with customers.
Matthew W. Cross is a Co-leader of Plunkett Cooney’s Torts & Litigation Practice Group. He focuses his practice primarily in the areas of insurance defense litigation and municipal law.
Mr. Cross has experience handling an array ...
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