Shopping for insurance can raise hard questions:  How much coverage do I need?  What types of risk should be covered?  What must I do to get the maximum benefits allowed?  Policyholders who get the wrong answers often end up in litigation—claiming their homes were underinsured, their agents failed to obtain the coverage they requested, or they were tricked out of reimbursement for full replacement cost.  In many contexts, courts have shown a good deal of indulgence for these claims:  in American Building Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.3d 730 (2012), New York’s Court of Appeals affirmed an award of summary judgment against a broker for allegedly negligent failure to obtain coverage for injuries to its customer’s employees; in doing so, the high court held that the customer’s failure to read its own policy was not a defense to that claim.  Once a relationship of trust had been established, it was up to the broker to fulfill its customer’s expectations.

Last month, in Hardy Oil Co., Inc. v. Nationwide Agribusiness Ins. Co., Nos. 13-6373/6445 (6th Cir. Sept. 22, 2014), the U.S. Court of Appeals for the Sixth Circuit took a harder line, refusing to take that relationship for granted.  In a suit charging an agent with negligent failure to advise the insured to obtain pollution liability coverage, the court noted that the insured had often used other agents, and that “[p]rice, not advice, was the basis of [the] sometimes relationship.”  For that reason, it held that the agent’s only duty was to execute requests, not to offer affirmative advice.

Oil Spills Cost Money?

Hardy Oil distributed petroleum products from a fuel storage plant in Richmond, Kentucky.  The plant was insured under a policy that the company’s founder,  Butch Hardy, had purchased with the help of an agent, Roland Lehnus.  In 2010, diesel fuel leaked from an underground pipe, and Hardy incurred $500,000 in remediation costs.  Hardy sued the agent for alleged negligence in failing to advise him to obtain pollution liability coverage.

In the district court, the parties submitted expert evidence about whether it had been possible to obtain this type of coverage in Kentucky.  The court found that it was not, it granted summary judgment to the agent, and Hardy appealed.

The Price of Loyalty

The Court of Appeals found that the district court had erred when it did not permit Hardy to submit additional evidence about the availability of pollution coverage.  But it also found that the error was harmless, because Lehnus had no duty to give advice about that coverage.

Under Kentucky law, the court found, an insurance agent has a duty to give advice to his customer

under only three circumstances: first, where the client pays consideration beyond a premium; second, where there is ‘a course of dealing over an extended period of time which would put an objectively reasonable insurance agent on notice that his advice is being sought and relied on'; or third, where the client ‘clearly makes a request for advice.’

Hardy argued that the second of these circumstances applied, “citing Hardy’s long-term relationship with Lehnus and Lehnus’s knowledge of the petroleum business.”  The court noted, however, that “Hardy itself was aware of the risks presented by its own business”—suggesting that the court holds insureds to a higher standard than the one applied by the New York court in Petrocelli.

Even more important, the court found, was evidence that

Hardy’s relationship with Lehnus was not based on any reliance upon his advice, but on price. Indeed, over the years Hardy switched from Lehnus to other agents several times, in each instance because of price. Price, not advice, was the basis of their sometimes-relationship.

The kicker came when Butch Hardy conceded he would use Lehnus again, “[i]f the price is right.”

In short, you catch more flies with “consideration beyond a premium” than with vinegar.  Insureds who want advice from agents in the Sixth Circuit need to ask for it.  And a little present now and then won’t hurt.