Consumers who conclude that they’re underinsured often blame their insurance agents. They file lawsuits in which they blame their insurance agents for failing to advise them to, for example, purchase a policy for their boat or purchase a more comprehensive policy for their car. The central question in these lawsuits concerns the scope of insurance agents’ duties. Are they supposed to tell consumers what kind of policies to purchase?
The No-Duty-to-Advise Rule
In Michigan, the leading decision on this issue is the Supreme Court’s 1999 decision in Harts v Farmers Insurance Exchange. There, the Court held that insurance agents are generally order-takers. They have a duty to get the policy that clients ask for, but they don’t have a duty to advise clients about what kind of policy they need.
That rule is subject to an exception, though. Harts holds that a duty to advise about what kind of insurance to buy arises when there’s a “special relationship” between the insurance agent and the client. A “special relationship” can arise in four scenarios: (1) the agent misrepresents the nature or extent of the coverage offered or provided, (2) the client makes an ambiguous request that requires clarification, (3) the client makes an inquiry that requires advice and the agent, though he need not, gives inaccurate advice, and (4) the agent assumes an additional duty, either by express agreement with or promise to the client.
Defending a lawsuit against an insurance agent often involves an analysis of whether the agent fits into one of these four relationships. These relationships are relatively rare, and we’re often able to obtain summary disposition on this basis. But plaintiffs’ lawyers have also tried to limit the Harts no-duty-to-advise rule to a particular kind of insurance agent.
The Attempt to Limit Harts
Harts involved a captive insurance agent—an agent who sold policies on behalf of only one insurer. Some parties have stressed this fact and argued that the no-duty-to-advise rule doesn’t apply to an independent insurance agent—an agent who sells policies on behalf of multiple insurers.
That argument has always been hard to square with Harts. The opinion isn’t limited to captive agents, either expressly or implicitly. To the contrary, Harts makes clear from the start that the no-duty-to-advise rule applies to insurance agents generally: “We granted leave in this case to determine whether a licensed insurance agent owes an affirmative duty to advise or counsel an insured about the adequacy or availability of coverage.” That language is as broad and clear as it gets.
Consistent with that language, the Court of Appeals has held that the Harts no-duty-to-advise rule applies to both captive and independent insurance agents alike. But the Court of Appeals has also accepted the argument that the Harts no-duty-to-advise rule applies only to captive agents. And the opinions that limit Harts to captive agents are just as voluminous as the opinions that apply Harts to all agents. The problem, however, is that all of these opinions are unpublished. So they’re not precedential.
Until recently, independent insurance agents faced a mass of conflicting, non-binding case law instead of a clear answer from the Court of Appeals.
The Court of Appeals Confirms that Harts Applies to Independent Agents
In May 2019, the Court of Appeals provided some much-needed clarity in Johnson v USA Underwriters—a published, precedential opinion that establishes law in Michigan. Johnson wasn’t a garden-variety negligence case against an insurance agent. Rather, the insured bought a policy that arguably failed to meet the minimum coverage standards under Michigan no-fault law. When the insured suffered a loss, Citizens Insurance was assigned responsibility for the loss under Michigan’s assigned-claim program. Citizens Insurance sought reformation of the insured’s policy in an effort to make his insurer—USA Underwriters—responsible for the loss.
The Court of Appeals held that Citizens Insurance wasn’t entitled to reformation. In doing so, the Court rejected Citizens Insurance’s argument that USA Underwriters was responsible for the agent’s alleged fraud. The Court reasoned that the agent was an independent agent and, therefore, an agent of the insured. In other words, the agent wasn’t representing or acting on behalf of USA Underwriters. The agent, rather, was presenting USA Underwriters’ product to the insured, who purchased it with knowledge that it didn’t meet the requirements of Michigan no-fault law. Importantly, the Court also stated that the agent, though independent, was subject to the no-duty-to-advise rule from Harts.
The losing parties didn’t appeal the decision to the Supreme Court, so Johnson stands as the current expression of Michigan law on independent agents’ duties. Johnson should put to rest the debate about whether Harts applies to independent insurance agents.
What This Means for Insurance Agents
Before Johnson, an independent insurance agent had about a 50% chance of being subject to the Harts no-duty-to-advise rule. The outcome depended largely on which judges sat on a panel at the Court of Appeals. That’s no way to regulate an industry.
Thankfully, Johnson should eliminate this uncertainty and persuade courts to hold that even independent insurance agents have no duty to advise customers about what insurance to buy—that is, unless one of the four “special relationships” exists.
If you’re unsure about the scope of your legal obligations when acting as an insurance agent, consult an experienced professional-liability attorney.