When an insurance agent steps out of his or her traditional role of “order-taker” into that of insurance advisor, a special relationship is formed in which the agent assumes additional duties to the customer — and greater potential liability.
In Zaremba Equipment, Inc. v. Harco National Insurance Company (2013), an insurance agent acquiring a policy for a business used a software program to prepare a reconstruction cost estimate, with the intent to insure the cost of replacing the building. The building was destroyed by fire. After the loss, the business learned that it would cost substantially more to rebuild than the building insurance limit. It sued the insurance agent for negligence and misrepresentation.
Because the agent had elected to provide advice regarding coverage and policy limits, the court concluded that there was a “special relationship” between the parties. Thus, the agent had a duty to advise the insured regarding the coverage needed to replace its building. The agent argued that the business had a duty to read its policy, and that the business’s failure to do so should be a complete bar to recovery. But the Court of Appeals rejected the argument. It concluded that an insured’s failure to read the policy was not a complete bar, although it could be a factor in assessing comparative fault. In addition, the “duty to read the policy” defense was inapplicable to the business’s claim for negligent appraisal.