Broker and Agent Liability: Mitigating Risk and Protecting Your Interests

Differentiating between an agent and a broker can be a tricky business as many courts have conflated the two terms as meaning the same thing even though there are significant differences between the two. An agent customarily represents insurers to sell people products, while brokers represent people when they are deciding between insurance policies. 

Broker and agent liability can also differ, and many people often ask whether the people who sold them insurance policies could be liable when insurance coverage ends up being denied. Any person needing help with these kinds of issues will want to be working with an experienced Los Angeles small business attorney in these cases.

Liability Differences

In Lippert v. Bailey, 241 Cal.App.2d 376, 50 Cal. Rptr. 478 (Cal. Ct. App. 1966), the Fourth District second division of the California Court of Appeals ruled that an agent cannot be liable merely for negligence in performing their duty on behalf of an insurance company. Gasnik v. State Farm Ins. Co., 825 F. Supp. 245 (E.D. Cal. 1992) was a United States District Court case in which the court ruled that an agent acting within its scope of employment for an insurance company means their actions are attributable to the insurer and not the individual. 

An agent will not be liable for a failure to advise an insured party what the most appropriate coverage would be. In Fitzpatrick v. Hayes, 57 Cal.App.4th 916, 67 Cal. Rptr. 2d 445 (Cal. Ct. App. 1997), the first district second division of the Court of Appeals of California ruled that an agent’s job will simply be to sell an insurance product and not to recommend additional coverage, on their own initiative purchase additional coverage, or advise the availability of additional coverage. 

People can sue agents who misrepresent the nature, extent, or scope of coverage being offered or sold, either intentionally or negligently, who negligently fail to disclose material information regarding insurance coverage that the insured requested, when there is a request by an insured party for a particular type of coverage but the agent does not obtain it, or when an agent expressly or ostensibly represents themselves as having expertise in a specific type of insurance being sold and thus takes on a special duty to the insured. For a negligence action against an agent, the statute of limitations will begin to run when the insured party suffers a loss that otherwise would have been covered.

A broker, on the other hand, will be liable to an insured party when a broker misrepresents the nature, extent or scope of coverage, the insured party specifically requests a certain type or extent of coverage and the broker does not obtain it, the broker expressly or ostensibly holds themselves out as an expert in a given field of insurance, or the broker reduces coverage limits without an insured party’s consent. Under Clement v. Smith, 16 Cal.App.4th 39, 19 Cal. Rptr. 2d 676 (Cal. Ct. App. 1993), a broker could also be liable for certain misrepresentations even if they contradict the terms of a policy and the insured party did not read the policy before relying upon the broker. 

According to Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC, 127 Cal.App.4th 1311, 26 Cal. Rptr. 3d 452 (Cal. Ct. App. 2005), a broker may also be liable for not obtaining more direct and certain coverage even when a judge finds coverage under a policy that a broker sold to an insured party. Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Insurance Services West, Inc., 203 Cal.App.4th 1278, 138 Cal. Rptr. 3d 294, 12 Cal. Daily Op. Serv. 2471, 2012 Daily Journal D.A.R. 2696 (Cal. Ct. App. 2012) was the fourth district division one Court of Appeals of California decision holding that a broker only owes these duties to an insured party and not to third parties. 

In Jones v. Grewe, 189 Cal.App.3d 950, 234 Cal. Rptr. 717 (Cal. Ct. App. 1987), the second district division three of the Court of Appeals of California held that brokers cannot be sued and are not liable for failing to recommend adequate coverage since an insured party has a better understanding of their own personal needs and circumstances. Paper Savers, Inc. v. Nacsa, 51 Cal.App.4th 1090, 59 Cal. Rptr. 2d 547 (Cal. Ct. App. 1996), however, was a second district division seven Court of Appeals of California case in which the court held that a broker can be liable for not providing adequate coverage when the insurance at issue is property insurance. 

That same court held in Kotlar v. Hartford Fire Ins. Co., 83 Cal.App.4th 1116, 100 Cal. Rptr. 2d 246 (Cal. Ct. App. 2000) that an insured party cannot impose liability against a broker for not notifying the insured party of a canceled policy since the broker’s duties only relate to the procurement of insurance and not the termination. Similarly, Mark Tanner Constr., Inc. v. Hub Int’l Ins. Servs., Inc., 224 Cal.App.4th 574, 169 Cal. Rptr. 3d 39 (Cal. Ct. App. 2014) was a case in which the third district Court of Appeals of California ruled that a broker does not have a duty to inform an insured party about the financial stability, or instability, of an insurance company before providing a policy from that insurer. 

Without proper disclosure by an insurer, a broker placing insurance directly with a nonadmitted insurer could be personally liable if an insurer becomes insolvent. Under the second district division five of the Court of Appeals of California decision in Nowlon v. Koram Ins. Center, Inc., 1 Cal.App.4th 1437, 2 Cal. Rptr. 2d 683 (Cal. Ct. App. 1991), a broker’s liability includes both claims by an insured party and claims by third parties injured by the insured. 

Contact Our Los Angeles Small Business Attorney

If you are struggling in your dealings with an agent or broker, do not try to handle things by yourself. Steinberg Law understands how to negotiate these kinds of agreements and can work to serve all of your long-term best interests.

Our firm offers complimentary consultations for you to discuss your case with us via email, telephone, or video conference. You can call (818) 855-1103 or contact our Los Angeles small business attorney online to receive a free consultation.