At CLG we’ve had a significant number of claims over the last year where insurance agents have failed to carefully review their customer’s insurance needs and give proper advice as to what type or how much coverage to purchase or whether the coverage limits are adequate. When a fire or other casualty occurs or when a liability claim is made against the insured, and the insurance company denies the claim or pays only a fraction, here’s what you need to know.
Colloquially, a person who sells insurance may interchangeably referred to as an “agent” or a “broker.” However, there are two distinct categories of professionals who provide insurance products, and the differences may be legally significant for their clients. First, an “agent” or “captive agent” works exclusively for one insurance company and is paid by that company. An example of a captive agent is a State Farm or Allstate insurance agent. By contrast, the terms “broker” or “independent agent” refer to professionals authorized to represent multiple insurers.
Both professionals act as intermediaries between insurance buyers and sellers, but while an agent represents an insurance company, a broker legally represents you, the insurance buyer. This means brokers have a fiduciary duty to select insurance products that protect the financial interest of the client, regardless of what insurance company offers it. In contrast, a captive agent has contractual agreements with insurance companies which specify the policies they can sell.
Because both independent and captive agents are both considered “producers” under ORS 744.078(4), both may be held liable to the insurer in situations where the broker breaches an agreement to procure insurance, does not follow the insured party’s instructions, or misrepresents key terms of the policy.
However, if an insured party faces insufficient insurance coverage, the options for recovery will depend on whether it procured the policy through a captive agent or an independent broker.
The Limited Liability of Captive Agents
An insured may not bring a negligence action against a “captive agent.” Oregon courts base this rule on the fact that insured parties have “no reason to expect” that the agent would work on their economic behalf. Any duty owed by the agent is to the insurance company alone.
When an Independent Broker May Be Liable for Negligence
In contrast, an insured may bring a negligence action against an independent insurance agent who works for multiple insurers. The Oregon Court of Appeals has determined that an agent may be subject to liability for negligence in a number of circumstances, including:
- If the agent breaches its duty to explain the extent in which the insurance policy actually provided the coverage that was requested.
- If the independent agent fails to advise the prospective insured regarding the different coverages and policies that were available.
- If an agent had duty to warn the insured about the significant distinctions between the alternative insurance policies under consideration, yet failed to do so.
Lawsuits for inadequate insurance coverage—whether against an insurer, captive agent, or independent agent—seek to recover the amount that the insured would have received from the insurer if the agent had acted properly. The insured is also entitled to recover consequential damages, including lost profits resulting from an insured’s inability to resume business operations following a loss. See Joseph Forest Products, Inc. v. Pratt, 278 Or 477, 564 P2d 1027 (1977).
Notably, under ORS 742.061, a plaintiff’s only right to attorney fees is against the insurance carrier. There is no right to attorney’s fees against an insurance agent alone.
If you or your business has been inadequately insured by a void, defective, or insufficient policy, an attorney can help you determine possible routes to recovery.