Broken Harts


The Michigan Supreme Court’s opinion in Harts v Farmers Insurance Exchange (1999), established what seems like a simple rule. An insurance agent generally has no duty to advise insureds about the adequacy of coverage. Absent one of the four “special relationships” described in Harts, an insurance agent is just an order-taker.

This rule is partly grounded in Michigan’s Insurance Code, which distinguishes only between insurance producers and insurance counselors. An insurance counselor has a duty to advise insureds; an insurance producer doesn’t. If an insurance agent isn’t an insurance counselor, then that agent doesn’t have a duty to advise a client about whether his or her coverage is adequate. Simple, right?

Not so fast. When defense lawyers began to cite Harts in summary-disposition motions, plaintiffs’ attorneys responded that Harts has limited applicability. The insurance agent in Harts was a captive agent, meaning that it sold policies on behalf of only one insurer. Michigan courts have held that captive agents have principal-agent relationships with the insurer. But independent agents—those who sell policies on behalf of more than one insurer—are agents of the insured when they procure insurance policies. Therefore, Harts’s no-duty-to-advise rule should be limited to captive agents—or so the argument goes.

This argument has met with success and failure in almost equal measure at the Court of Appeals—all in unpublished opinions. Consequently, the Court of Appeals’ Harts jurisprudence is a muddle. And the story of Harts points to serious problems with the Court of Appeals’ use of unpublished opinions.

Ambiguity in the no-duty-to-advise rule

In Mink v Leader Insurance (2002), the Court of Appeals held that an insured’s reliance on Harts was misplaced because the defendant there was an independent agent, and the agent in Harts was a captive agent. The opinion said nothing else about the basis for this distinction, simply characterizing Harts as “inapposite.”

Stover v Secura Insurance Company (2005) addressed Harts’s scope in slightly greater detail. The panel held that Harts doesn’t apply to independent agents because the insurance agent in Harts was a captive agent. It also noted that an independent agent is an agent of the insured and this agency relationship imposes “a duty to ascertain the relevant facts even though they were not initially revealed by [the insured].”

The court changed direction three years later, applying Harts to an independent agent in Home-Owners Ins Company v Wellinger (2008). This opinion didn’t refer to Mink or Stover. Nor did it address the possibility that Harts might be limited in some fashion. The same is true of General Agency Co v Huron Oil Co, which applied Harts to an independent agent in 2010.

The Court of Appeals grappled with the scope of Harts more directly in Nokielski v Colton (2011). There, the court rejected the argument that Harts applied only to captive agents. Citing Harts’s recognition of the Michigan legislature’s active role in defining insurance producers’ legal duties, the Nokielski court concluded that Harts’s rationale was not limited to captive agents. The panel later denied a motion to publish this opinion.

This brief streak of consistent opinions ended with Deremo v TWC & Associates, Inc. (2012), where the Court of Appeals held that Harts does not apply to independent agents. It relied on two data points: the fact that the insurance agent in Harts was a captive agent and the following sentence from the Michigan Supreme Court’s opinion (with italics added by the Deremo court): “an insurance agent whose principal is the insurance company owes no duty to advise a potential insured about any coverage.” Absent from Deremo was any acknowledgement of the three unpublished opinions that reached the opposite conclusion.

In 2013’s Micheau v Hughes & Havinga Ins Agency, the panel held that Harts was inapplicable not only because Micheau dealt with a different kind of alleged negligence but also because, in its view, Harts applied only to captive agents. Again, the Court of Appeals neither acknowledged nor distinguished previous decisions reaching the opposite conclusion.

In Estate of Richardson v Grimes (2014), the Court held that Harts does apply to independent agents. And for the first time, the Court acknowledged one of its unpublished decisions on this issue, adopting Nokielski’s rationale as its own.

The Court of Appeals returned to this issue six months later in Tibble Trustee v American Community Mutual Insurance Company (2014). This time, the panel held that Harts doesn’t apply to independent agents. The opinion makes no mention of the eight previous opinions addressing this issue, four of which reached precisely the opposite conclusion.

The court has also issued opinions noting a dispute about Harts’s scope but declining to reach the issue. See, for example, Triangle Business Center, LLC v Hartford Casualty Insurance Co. (2012), National Association of Investors Corporation v Dobson-McOmber Agency, Inc. (2010), and Kaselitz Family Limited Partnership v Hudson & Muma, Inc. (2004).

In this cross-section of the Court of Appeals’ decisions on Harts’s scope, four decisions applied Harts to independent agents, five declined to do so, and three opinions held that it was unnecessary to reach the issue. But with the exception of Richardson, none of these opinions acknowledged previous decisions on Harts’s scope.

Lessons from Harts

The practice of declining to publish certain opinions has its merits. Judicial resources are scarce and appeals are plentiful. By declining to publish a decision, a panel can avoid having that opinion treated as law by lower courts—which means the panel need not devote the time and care that a published and precedential opinion requires. But this practice isn’t without costs.

Imagine you’re giving advice to an independent agent about her responsibilities toward a new client. Do you follow the four unpublished cases holding that your client must offer advice about the adequacy of insurance? Or do you rely on the four cases holding that your client doesn’t have that duty? Even if you’re inclined to err on the side of caution, exactly which side is that? Providing advice and possibly creating the kind of “special relationship” that can create liability under Harts? Or refraining from offering advice and possibly being liable for staying mum?

Then there are costs incurred in litigation. When forced to defend their actions in court, insurance agents must pay for their attorneys to argue about Harts’s scope. Lower courts have to decide that issue again and again.

Beyond the uncertainty and the economics, there is the negative impact on perceptions of justice. Harts’s history in the Court of Appeals suggests that the outcome in a particular case depends less on previous decisions and statutory law and more on which judges the parties happen to draw.

Addressing relevant decisions—even when they’re unpublished— would go a long way toward dispelling that notion. And it may just provide some welcome clarity about the scope of Harts’s no-duty-to-advise rule.

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