Do you have enough insurance?- Does your insurance agent ever discuss your coverage?
- Without enough insurance you risk loss of your savings and property.
- This blog discusses the legal responsibility of an insurance agent to his/her customers about buying adequate insurance.
Background to the insurance coverage responsibility of insurance agent and broker
You’re driving your car and you accidentally strike a pedestrian. You’re insured under an automobile policy issued by State Farm (it can be any insurance company). The policy has a bodily injury policy limit of $100,000. After settlement or trial, the court enters a $500,000 judgement in favor of the injured person and against you. Can you sue your agent? If so, on what grounds?
Background to a case involving an insurance agent and his customer
In this case the customer filed a case of negligence, breach of fiduciary duties, breach of contract, and mistake(s) based on the purported failure of State Farm and their agent to advise the client to obtain more insurance coverage to protect their assets. The issue of the case was whether the customer was entitled to advice about sufficient insurance coverage by State Farm and/or its agent to protect him against automobile liability claims.
Introduction to the parties of the case
The plaintiff obtained his first automobile insurance policy through a State Farm agency more than forty years ago. Later on a new agent took over the agency and began servicing plaintiff’s policies. This State Farm agent renewed plaintiff’s insurance annually. According to plaintiff, the agent “knew everything” about him and had and “never offered to update or… tell [him] that [he] needed to increase [his] liability coverage…” Instead, the agent “just kept saying you’re fine, you’re fine, you’re fine.”
The plaintiff, like many people accumulated assets since originally obtaining insurance from State Farm. He purchased a house, which was mortgage-free. He later acquired a second house, which also was mortgage-free. The agent knew about the houses and knew plaintiff owned them free of any mortgage but did not tell him to increase his insurance coverage. According to plaintiff, the agent never offered him the opportunity to obtain an umbrella insurance policy.
Approximately once every six months, plaintiff would stop in the agent’s State Farm agency and say hello. On those occasions, according to plaintiff, the agent would look at his policies, review them with him, and tell him “your coverage is fine” and “no changes should be made.”
During the operation of his agency, the agent received training and participated in seminars dealing with the selling of legal liability umbrella insurance policies to individuals with homeowner’s and auto insurance. (You should ask your agent about umbrella coverage.) As part of his ownership of the agency, the agent conducted surveys of his clients to determine their insurance needs. According to the agent, “part of our business” and “[p]art of our job is to talk to customers about their coverages and perhaps explain to them and guide them that perhaps they need more insurance in certain areas…” The agent testified, contrary to his client, that he had asked him “[n]umerous times” whether he wanted to obtain umbrella coverage. Although he thought it was important for the customer to have an umbrella policy, he did not document in writing those inquiries or client’s decision not to purchase umbrella coverage.
Trial Court Decision
After hearing argument, the trial judge concluded State Farm and its agent were statutorily immune from plaintiff’s action pursuant to N.J.S.A. 17:28-1.9(a) and that “[n]o reasonable jury could assess the agent’s actions or inactions as being willful or grossly negligent under [N.J.S.A. 17:28-1.9(a)] so to negate the immunity given under the same statute.”
N.J.S.A. 17:28-1.9(a) states the statutory immunity for insurance agents. It reads:
[N]o person, including, but not limited to, an insurer, an insurance producer…shall be liable in an action for damages on account of the election of a given level of motor vehicle insurance coverage by a named insured as long as those limits provide at least the minimum coverage required by law or on account of a named insured not electing to purchase underinsured motorist coverage, collision coverage or comprehensive coverage. Nothing in this section shall be deemed to grant immunity to any person causing damage as the result of his willful, wanton or grossly negligent act of commission or omission.N.J.S.A. 17:28-1.9(a) provides that no person shall be liable in an action for damages due to a named insured’s selection of a given level of motor vehicle insurance.
The Legislature enacted N.J.S.A. 17:28-1.9(a) to stop the courts from holding insurers, agents, and brokers liable for failing to advise their customers of the availability of additional underinsured and uninsured motorist coverage and to stop the explosion of litigation by providing blanket immunity except in cases of willful, wanton, or gross negligence. The Legislature meant the statute to confer immunity in circumstances relating to an insured’s election of [underinsured motorist] coverage when the insured attempts to later shift the blame for a decision to opt for any level of coverage less than the maximum back onto the insurer.
To be entitled to the immunity afforded by N.J.S.A. 17:28-1.9(a), an insurer must show: “(1) the named insured had at least the minimum coverage required by law; (2) the insurer did not cause the insured’s alleged damages by any willful, wanton or grossly negligent act of commission or omission; and (3) the insurer complied with the coverage selection requirements of N.J.S.A. 17:28-1.9(b).”
Unlike ordinary negligence, gross negligence “is commonly associated with egregious conduct. It is “an indifference to another by failing to exercise even scant care or by thoughtless disregard of the consequences that may follow from an act or omission.” It is “more than inattention or mistaken judgement.” “[G]ross negligence includes acts that are a ‘deviation from the standard of reasonable professional conduct expected from an insurance carrier.'”
Appellate court reverses trial Judge
The appellate court found the agent failed to conduct “a reasonably complete and accurate survey of the exposures his client had” and that it was “gross negligence” for an insurance producer not to offer and quote premiums for higher umbrella policies.
He never conducted a survey of his client’s insurance needs. The agent blamed the failure to conduct that survey on the client, claiming he “was not interested.” And while he thought it was important for him to have umbrella coverage and faulted him for his lack of umbrella coverage, testifying he had asked him “[n]umerous times” whether he wanted to obtain umbrella coverage, he declined. So the case came down to “he said, no he didn’t say”.
The court believed a jury could conclude a failure to conduct a survey of a client’s insurance needs and to guide the client when he needed more insurance was gross negligence. A reasonable factfinder also could conclude that, if the driver told his agent his coverage was “fine” and “no changes need to be made” that statement was a bad decision on the driver’s part, not the agent. So viewing the facts in a light most favorable to plaintiff, the court concluded that the agent was not entitled to immunity under N.J.S.A. 17:28-1.9(a) and the case now goes to a jury to determine the outcome.
To discuss your NJ insurance litigation matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing or telephone consultations if you are unable to come to our office.
By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Insurance Litigation Attorney