The Indiana Supreme Court last week added yet another ruling to a conflicting body of case law surrounding the boundaries of an independent agent’s fiduciary duty.
The Court reversed a lower court’s ruling Thursday, which held that Laven Insurance Agency Inc. violated its fiduciary duty to a client by failing to advise the dental office it had inadequate property coverage. Indiana Restorative Dentistry PC suffered $500,000 in uninsured losses after a fire ravaged the office, and the company sued the agency, saying the “special relationship” it held with Laven entitled it to a full review of the adequacy of its coverage.
In a unanimous opinion, the Court rejected that ruling, saying the agency had no duty to procure full coverage. However, it remained undecided on whether the relationship between Laven Insurance Agency and Indiana Restorative Dentistry constituted a “special relationship,” adding yet another indeterminate decision to a growing number of cases that have failed to establish the boundaries of an independent agent’s fiduciary duty.
Often, a court’s decision comes down to semantics, says University of Connecticut insurance law professor Peter Kochenburger. That is to say, an insurance “agent” typically has a lower level of fiduciary duty than an insurance “broker” and the presence or absence of a “special relationship” determines how a court labels an independent.
“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 in an earlier interview. “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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