One can succinctly sum up the two key points from an Ohio Appellate court’s recent decision regarding insurance broker liability: (1) Be specific when requesting coverage; and, (2) Read your policy. Sounds pretty straight-forward, doesn’t it? In practice, though, some policyholders place far too much responsibility on their insurance brokers and forget that they, too, must play an active role in procuring their insurance coverage.
Priore v. State Farm Fire & Casualty Co. 1
In Priore, the Cuyahoga County Court of Appeals recently emphasized these two key points. The plaintiff, Priore, was the 50% owner and managing member of an entity that owned an apartment complex. The plaintiff worked with an insurance broker to obtain both liability and property insurance coverage. During that process, the plaintiff specifically asked the broker if he would be covered personally if he was sued by third-parties. The broker confirmed that he would be covered. The plaintiff did not ask whether he would also be covered personally in the event of a property claim arising from damage to the building. Later, the apartment building was severely damaged when snow and ice caused the roof to fail.
The plaintiff sought coverage under the property coverage part, arguing that he was personally insured for such damages under the policy. After finding that the plaintiff was only an insured under the liability coverage part, but not property coverage part, the Court turned to the plaintiff’s argument that the broker was liable for that lack of coverage. The plaintiff argued that the broker had negligently failed to procure the insurance he had requested or, alternatively, that the broker should have advised him that he was not personally covered for first-party property losses under the policy as written. The Court rejected both arguments.
First, the Court found that the plaintiff had only explicitly asked the broker to obtain liability coverage that would protect him personally against suits brought by third-parties. The Court noted that the policyholder had failed to read the policy once it was issued, to confirm that he had obtained the coverage he thought he had requested. The Court thus held that the broker had properly procured the insurance policy.
Second, the Court held that no fiduciary relationship had been created that imposed upon the broker a duty to advise the plaintiff of the various types of coverage he might need. The Court relied upon well-established Ohio law and reiterated that, generally, the relationship between an insurance broker and a policyholder does not create a fiduciary relationship and does not give rise to a greater duty on the part of the broker. The Court affirmed judgment in favor of the broker on the plaintiff’s claims.
- Be specific when requesting the type and amount of coverage you want to purchase. The onus is principally on the policyholder to determine the amount and types of insurance which may be necessary, even though the broker is there to assist in the process. A broker typically has no duty to advise the client about the amount or type of insurance needed. Instead, the broker has a duty to exercise good faith and reasonable diligence in obtaining the insurance requested by the client. If the broker knows that the client is relying upon his or her expertise, however, then the broker might owe a further duty to exercise reasonable care in advising the client. Regardless, the policyholder must accept an active role in making these determinations and, for complex situations, may want to obtain the advice of coverage counsel.
- Read the policy promptly. Insurance policies are lengthy and, let’s be honest, pretty dry reading. But it is absolutely critical for a policyholder to promptly review its policy to confirm that it adequately describes the coverage purchased. For example:
- Are all of the relevant people, companies, property, activities, and locations included within the ambit of the policy?
- Are the limits adequate?
- Is the deductible or self-insured retention too high?
- Is anything excluded from coverage which the policyholder wants or needs to be covered?
Your insurance agent or broker is a valuable team member, but it is important to understand the different roles held by the broker and the policyholder. Ultimately, the policyholder should take an active role in procuring coverage for itself or its business. In doing so, the policyholder should use the broker’s expertise and resources to its best advantage.