Ask Tim

Courts: Agents and Brokers Have No Duty To Advise Insureds About Coverage

Interesting article by Peter Biging at Property-Casualty360.com.

It follows then, as a general rule, that absent special circumstances, an insurance agent or broker has no special duty to advise customers what coverage to obtain, or to provide continuing advice or guidance with regard to coverage procured.

An insurance agent or broker’s basic duty of care is simply to obtain the coverage that has been requested. If the agent or broker cannot procure the requested coverage within a reasonable timeframe, then the producer must tell the customer that he or she cannot do so. But that’s it.

The rationale that guides this general principle is that the agent or broker should not be placed in the position of being the guarantor of the sufficiency of the customer’s coverages. (See related textbox, “Becoming Special.”) While insureds are making efforts to get courts to read the basic duty of care more expansively, recent decisions indicate courts are not taking the bait.

via www.propertycasualty360.com

The Murphy v. Kuhn precedent in New York holds that an insurance producer's legal obligation is to obtain the coverage requested by the client or to advise the client of the inability to do so. This appears to be the rule in many other states as well. This should give New York agents and brokers some sense of security when they write business in other states.

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Does the Business Auto Policy Cover Unregistered Construction Equipment?

Question from an IIABNY member: I am hoping you can clarify the following issue.  We have several insureds who may incidentally drive a piece of equipment (which is not licensed or registered for road use) along a road.  Since this is so incidental, they are willing to take the chance with the NYS law and not have this equipment licensed. 

I have assumed that as long as the insured has symbol 1 on their policy (form CA 00 01 03 06 applies),  it is ok that this equipment is not specifically listed on the policy.

Answer: Here’s my line of thought: 

• Per the ISO BAP (CA 00 01 03 06), Symbol 1 means any “auto”, as the policy defines that term. 
  
• The policy defines “auto” as:

1. A land motor vehicle, "trailer" or semitrailer designed for travel on public roads; or

2. Any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged.

However, "auto" does not include "mobile equipment".

• The definition of “mobile equipment” states, “Land vehicles subject to a compulsory or financial responsibility law or other motor vehicle insurance law are considered ‘autos’.” (emphasis added) Note that the definition does not say that the vehicle must be registered; it says that the vehicle must be subject to a compulsory liability insurance law, which in this state means that it must be registered with the DMV. When your insured’s vehicles are used on public roads, they automatically become subject to New York’s compulsory financial responsibility law (N.Y. Vehicle and Traffic Law Section 312.) Therefore, the policy considers the vehicles to be “autos” in this situation, and since the dec page shows symbol 1 for Liability Coverage, the policy should afford coverage for the insured’s legal liability for injuries or damages resulting from their use. 

• Lastly, I checked the mandatory endorsement New York Changes in Business Auto, Business Auto Physical Damage, Motor Carrier And Truckers Coverage Forms (CA 01 12 04 09) to see if it changes any of these terms, and it does modify the definition of “mobile equipment.” It tacks on the following changes:

However, the operation of:

a.       (Cherry pickers and similar devices mounted on automobile or truck chassis and used to raise or lower workers; and air compressors, pumps and generators, including spraying, welding, building cleaning, geophysical exploration, lighting or well servicing equipment); or

b.       Machinery or equipment that is on, attached to, or part of, a land vehicle that would qualify under the definition of “mobile equipment” if it were not subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged

is considered operation of “mobile equipment” and not operation of an “auto.”

So, when a vehicle is being driven and its attached equipment is not in use, it’s an auto. When it’s stationary or slow-moving and its attached earth loader is in use, then it’s mobile equipment.

To sum up, I think your interpretation is correct, but coverage could switch between the auto and GL policies several times in a given workday. If a claim involving one of these vehicles ever occurs, it might be best (from an E&O loss prevention standpoint) to submit claims under both policies and let the carriers determine which one applies.

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Episode #12 - 8 Good Minutes With Jim Keidel

In this episode of Ask Tim, I sit down for a little chat with The Sage of All Things E&O, Jim Keidel of the law firm of Keidel, Weldon & Cunningham, LLP. We spent a few minutes discussing the change in New York law pertaining to late notice of claims, the change in the ACORD 25 Certificate of Liability Insurance, and whether or not producers should e-mail policies to their clients.

I won't lie; Jim had some concerns about appearing on the show with me. These concerns had less to do with being camera shy than they had to do with my reputation for throwing stage props. Once he saw an example of how good my aim is, he became convinced that I couldn't hit him with anything if I tried, and he joined in with enthusiasm.

This episode is brought to you by the IIABNY E&O Loss Control Seminars.

Download Ask Tim Episode #12

Do I Have to Tell the Insurance Company About My Client's Woodstove?

Question from IIABNY member:

Many of our clients, due to the rising cost of fuel, are purchasing wood/coal or pellet stoves to supplement their heating bill.  We may have written their Homeowners policies for them several years ago in the most preferred pricing program.  They may not be eligible for this program if they have a woodstove.  If they send us information advising us that a woodstove has been installed, do we have to send it to the company?  We called the company and they said we could just keep it on file unless we want them to make the change and rewrite the policy to a different program.  I guess my question is, if there is a fire, can the company say the agent had this information and never advised them?  Have you had any legal issues come up with this?  This is not a hazard that would require the insurance company to cancel a policy; it would only increase the premium. 

My reply:

Probably the best thing for you to do is drop an e-mail to the underwriter confirming the conversation about the woodstove. You might even add a line to the effect of, “We are not requesting a re-write at this time,” or something like that. This will give you documentation that you informed the company of the change in exposure. It then becomes the company’s responsibility to decide about changing the pricing. This gives you defense in the event of a coverage dispute and also meets your ethical obligations to the company. In fact, your agency contract may require you to inform the company of material changes in exposure, so you may have a legal obligation as well

N.Y. Insurance Dept. Adds Eligible Classes to Free Trade Zone

The New York Insurance Department has announced the addition of six classes of coverage as eligible for the so-called “free trade zone.” The classes, all of which are forms of professional liability coverage, join the list of Class 2 risks effective July 23, 2008. Classes on the Class 2 risk are eligible for inclusion in the free trade zone regardless of premium size. According to N.Y. Insurance Regulation 86, these are risks “of an unusual nature, a high loss hazard, or difficult to place.”

Authorized by N.Y. Insurance Law, the free trade zone is for special risks that are jumbo in dimension or exotic in nature. Insurance companies that hold special risk licenses may write risks in the free trade zone without having to file the rates and forms with the Insurance Department.

The new classes on the Class 2 risk list are:

• Errors & Omissions Coverage for Health Maintenance Organizations
• E & O Coverage for independent physicians associations
• E & O Coverage for Preferred Provider Organizations
• E & O Coverage for third party administrators
• E & O Coverage for utilization review organizations
• Professional liability coverage for actuaries.

Underinsured Homes: A Never-Ending Problem

Last year's wildfires in California have produced another group of people who found out too late that they hadn't bought enough Homeowners insurance. Consumer advocates are blaming insurance companies and agents. The companies are blaming the insureds. The California insurance commissioner is blaming both but is also investigating the industry.

Ideally, the insurance transaction represents a partnership between insurer and insured (please, no comments about my fantasy life). Both parties should work together to ensure that the policy will do what the insured expects it will do. Implicit in that statement is the concept of setting expectations. The customer is entitled to clear explanations of what the policy does and does not cover. Nobody wins when the client finds out after a loss that the policy won't pay or won't pay enough.

Telling someone that they need to buy more coverage than they want is a tough thing to do, and a lot of people will not receive it well. Still, agents will do best for their clients and themselves by obtaining a valuation estimate of a home's replacement cost, recommending that amount to the client as the limit of insurance, and documenting the insured's decision. Not only will this provide a defense against an E&O lawsuit, but it's the right thing to do for the client.

Certificates of Insurance

A member recently sent me the insurance requirements from one of his client's contracts. The contract was for a construction project for a municipal government. Among other things, it stated:

A signed attached endorsement on the agents/brokers letterhead must accompany the certificate and list the policy number and each of the (requirements previously stated), and the following statement must proceed the listing: "This certificate warrants that:"

The previously stated requirements included things like endorsements to cover the contract's indemnification agreements, additional insured endorsements, customized waiver of subrogation wording, endorsements to make the contractor's policies primary, and the "per project" aggregate endorsement. My first thought upon reading this was that few, if any, insurance companies will be willing to meet these requirements. Some, such as the required endorsements to make the contractor's coverage primary, are redundant and unnecessary. Others are just unreasonable and outside standard industry practice. My second thought was that an agent should not be warranting anything to a certificate holder unless she really wants to take her E&O policy out for a test drive.

All of this sent me again to an excellent resource, one you should all become acquainted with if you haven't already. Big I Virtual University has a Certificates of Insurance Resource Section on its Web site. Among the helpful documents you'll find there are:

• The Big "I"'s policy statement on certificates
• An article on certificates for agents to share with their clients
• VU's white paper on certificates
• A "best practices" document created by the Texas Big "I"
• Summaries of relevant court cases
• A podcast

There are several other helpful links on the page as well. Most of the links are accessible to non-members, but IIABNY members can access all of them by entering their IIABNY Web site user ID and password. I highly encourage you to check these materials, so you'll have good information to help you deal with contract requirements like these.