Standard of Care Differences by State and Type

Standard of Care Differences by State and Type

I have lectured and written extensively on the standard of care imposed on insurance agents and brokers.  The general rule is to use reasonable care, skill or diligence, commonly referred to as an “order taker standard”.  I have also talked about the most common scenario that creates a higher duty of care, a “special relationship” between the insurance intermediary and the client where a certain set of circumstances needs to be established to turn an agent into an advisor.  I thought it useful to begin 2019 answering a common question, namely what other standards are imposed in E&O situations, and the discussion that follows reflects a sample of states that impose or are silent on a standard of care other than reasonable diligence absent a special relationship.

To being with, there are some jurisdictions where there is a lack of judicial authority on an insurance agent or broker duty of care, while others look at it on a case by case basis with no standard duty.  For example, last year, the Arizona Court of Appeals in BNCCORP v. Hub International discussed legal precedent that a “standard of care is not universally applicable” and instead “should be determined on a case-by-case basis, and is an evidentiary determination that may require proof in the form of expert testimony at trial.”  Similarly, in Hawaii, the Court such as in Quality Furniture v. Hay have long looked at the responsibility of reasonable care, skill and diligence adding that providing advice turns on the facts of each case. 

Several states create a common law heightened duty of care differing from ordinary negligence actions based on the specialized knowledge needed with respect to the sale of insurance.  In Dimeo v Burns, the Connecticut Appellate Court did not disturb the trial Court instruction that an insurance agent has the duty to advise the client about the kind and extent of desired coverage.  Perhaps taking that a step further, in Florida, an insurance agent has been found to have a duty to advise included in the general duty to procure such as stated by the Florida Court of Appeals in Adams v. Aetna to include “advising the insured of the existence and availability of particular insurance, including the availability and desirability of obtaining higher limits….” 

There are certain states that march to their own beat.  For example, it appears that West Virginia not only rejects any claim that an insurance agent has a “duty to advise” but also does not recognize fact patterns that could create a “special relationship” that would otherwise create a duty beyond the common law “order taker” standard. There are also state like Idaho in McAlvain v. General Insurance that have adopted a stricter standard of care equating an insurance agent to the same professional standard as an “attorney, architect, engineer, physician,…” 

Finally, there are states that impose different standards depending on the type of agent, holding for example a captive agent, such as a Nationwide agent, to a lesser standard or care than that of an independent agent.  Others impose a higher standard of care depending on the line of business, with a duty to advise personal lines clients but not commercial lines (absent a special relationship), In the end, an insurance intermediary needs to be mindful of the standard of care imposed on her or him, and establish an awareness, systems and practices to avoid or minimize E&O exposure.