The year was 1979 when Bob Dylan’s song “Gotta Serve Somebody” was released on his album Slow Train Coming: “It may be the devil or it may be the Lord, but you’re gonna have to serve somebody.”
While Dylan’s theme of determining who you serve was unrelated to insurance brokers, the New York Court of Appeals recently clarified and distinguished its own 1979 opinion in Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, which held that notice of a claim provided to an insurance broker could be sufficient to notify an insurer of a claim. The insured in Mighty Midgets, a non-profit youth football organization led by a young volunteer president, was told by its broker not to report the injury to the league’s liability insurer because the family of an injured minor was only looking for medical expense payments. When a lawsuit was served, the insurer denied coverage. The Court held under the circumstances that it was not “practicable” to notify the insurer until the lawsuit was served and overturned the denial of coverage for late notice.
Recently, the Court of Appeals distinguished Mighty Midgets in the case of Strauss Painting v. Mt. Hawley Ins. Co., November 24, 2014, per curiam, affirming a denial of coverage by an insurer, even though notice had been given to the insured’s insurance broker at the time the action was started in 2008. The Strauss court held that since the insured’s representative was not an unsophisticated 21-year-old but a sophisticated insured who had to “grasp the overwhelming probability that [the company] would be drawn into a Labor Law lawsuit immediately after learning that a workman on-site had suffered an injury while on the job at their premises.” The decision reiterated that the insurance broker was acting as the agent of the insured for these purposes and not as the agent of the insurance company.
The direct effect this decision has on late notice questions is limited due to the change in New York law in 2009 requiring an insurer to prove it was prejudiced by late notice. It is, however, worthwhile to consider the dichotomy between an insurance agent and an insurance broker, which has perplexed the insurance industry and the public as far back as I can remember.
The fact is that who an insurance broker represents may depend on the facts of each transaction. While the insurance industry may understand the difference between an insurance broker acting as an “agent” on behalf of the insured and an insurance agent/captive agent/managing general agent acting as an agent of the insurer, the fact remains that the general public is unaware of these distinctions and consistently uses the terms interchangeably.
As part of my practice, I answer “hotlines” on behalf of insurance companies in which individuals from all types of businesses and professions call to obtain advice on legal issues to help avoid a claim. It no longer amazes me that the callers do not know exactly who they are dealing with in their everyday insurance transactions. They call the insurance professional who helps them obtain insurance their “insurance agent” or their “insurance broker” or even their “insurance company.” They are often confused and have no idea of the role of the broker in their transactions with their insurer.
While Bob Dylan was suggesting that we serve different masters, insurance brokers need to understand that their clients often rely on them for advice on what to do when faced with a claim or potential claim. It is their responsibility in all situations to recognize who they serve and to make sure the insured and insurer understand their roles and responsibilities as well.