Specialty Insurance Blog points us to a New York decision holding an excess lines broker liable for placing an insured with Legion Insurance Company, which failed and was liquidated in 2003, leaving claims unpaid. The court believed undisputed testimony indicating that the broker may have skipped and papered-over the statutorily required search for an admitted insurer before placing coverage with the doomed Legion. Specialty Insurance Blog: Insurance Broker Insolvency Liability
Most courts agree that an agent takes on a professional duty of care simply by taking on the role of an agent. That ordinary duty usually does not include a duty to give advice or explain coverages to insureds, who are expected to read the policy. But it often includes liability for failure to procure insurance as promised.
In the presence of special circumstances, such as express assumption of additional responsibilities or the agent representing that she has special skills, additional duties may be found. Some courts are even recognizing that some circumstances raise an especially high “fiduciary duty” standard, even though that standard has rarely been applied to agents in the past. See Daniel Gregory Sakall, Note, “Can the Public Really Count on Insurance Agents to Advise Them? A Critique of the ‘Special Circumstances’ Test,” 42 Ariz. L. Rev. 991 (2000).
Insureds have also sought to hold agents and brokers responsible if the company with which they were placed becomes insolvent and unable to fund a defense and pay claims. Though agents are not held to be guarantors of the solvency of an insurer, courts have found them liable if they fail to use reasonable care in choosing an insurer. See Michael F. Skinner, “Liability of Insurance Agent or Broker for Placing Insurance With Insolvent Carrier,” 42 A.L.R.5th 199 (1996).
When companies are licensed by the state, agents are generally protected if the insurer fails, because state licensure comes with oversight of solvency. See, e.g., Wilson v. All Service Ins. Corp., 153 Cal.Rptr. 121 (Cal. App. 1979). Some companies are “unauthorized” insurers, for which special procedures are called for in order to place business using “surplus lines” agents and brokers. For such insurers, there may be a higher standard to inquire into the financial status of the company and to observe all of the statutory formalities. This recent New York decision highlighted by Specialty Insurance Blog is one example of application of such a standard. East Coast Mgt. Ltd. v. Ganatt Assoc., Inc, 2005 NY Slip Op 25313 (Supreme Court 2005).