Captive agent vs broker – why one is better than the other for clients

Court explains the legal responsibilities (and why it matters)

Captive agent vs broker – why one is better than the other for clients

Insurance News

By Lyle Adriano

A recent court ruling relating to an insurance coverage spat highlights that there is a stark difference between dealing with a captive insurance agent and with a broker.

In American Family Mutual Insurance Company v. Krop, the defendant customers had changed their insurer to the plaintiff company – the defendant wanted coverage that was equivalent to that provided by its previous insurer. However, the new coverage was narrower, which led to an unexpected denial of the customers’ claim. The new carrier then sued the customers over a declaration that the coverage did not exist.

The defendants argued successfully to the appellate court that that the two-year statute of limitations for its claim that their insurer did not have sufficient coverage should have applied the moment they discovered their injury – around the time the plaintiff carrier denied coverage for the claim.

The Illinois Supreme Court, however, overturned that earlier decision. The court held that the statute of limitations period on the customers’ cause of action against their insurer (and the insurer’s captive agent) for negligent failure to provide insurance began at the time the customers received the policy from the agent.

The Court also added that captive insurance agents, unlike brokers, do not owe their customers a fiduciary duty, but instead owe a duty of ordinary care.

The case reminds insurance customers to read and better understand the contents of their policies, National Law Review commented. Those who purchase insurance from an agent should keep in mind that the statute of limitations within which they can sue their insurers for the negligent provision of coverage begins the moment they receive the policy, the law portal recommended.

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