Agent, broker, producer—there are a lot of terms and titles applied to an independent insurance professional. Most of the time, the differences are only nominal and don’t produce huge consequences. In a fiduciary duty lawsuit, however, how you are classified means a great deal.
In honor of Financial Literacy Month this April, Insurance Business
spoke with Professor Peter Kochenburger of the University of Connecticut’s Insurance Law Center about the finer points of a producer’s fiduciary duty and how terminology plays out in court. The differences aren’t always self-evident, Kochenburger says.
“In practice, everyone messes it up,” said Kochenburger, a 21-year insurance law veteran and former counsel at Travelers Property Casualty. “But if you can prove that you’re an ‘agent,’ the person suing you might be out of luck, whereas if you’re a ‘broker,’ someone may be able to go after you more easily.”
So what’s the difference?
According to Kochenburger, an “agent”—whether independent or captive—is primarily an agent of the insurance company they represent. In a fiduciary duty lawsuit, liability typically defaults to the insurer if the producer involved is determined to be an “agent.”
Brokers, however, owe their allegiance to the client. In other words, they are an agent of the insured and owe fiduciary duty to that client. This is someone who cannot bind the insurance company but in fact represents the client as they purchase insurance. Marsh, Aon and Willis are visible examples of brokers, though Kochenburger warns a broker does not have to be a large player to deserve the term.
“If you, the policyholder, can establish a special relationship with an agent, you could become a broker and therefore have somewhat of a higher duty,” Kochenburger explained. “That means you’ve worked with the agent for something like 15 years and you rely on them to advise you on a variety of things—not simply to answer their questions.”
Unfortunately, it’s courts who make the final determination of whether a special relationship exists, and therefore whether a producer is operating as an agent or a broker. Sometimes, courts may even disagree on whether a special relationship is present.
However, Kochenburger said that based on past case law, most “main street” producers can count on their agent status. While that leaves some degree of duty, it doesn’t leave the producer on the hook for things like inquiring into all aspects of a client’s business.
“Insurance agents have a surprisingly low level of duty in terms of what they have to do, compared to other trained professionals,” he said. “The classic line in most states is that an insurance agent listens and gets the insurance a client asks for. They do not have a legal duty to inquire all about your business.
“I think most agents would ask, but they aren’t legally required to actually affirmatively search out what your needs might be.”
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