Double Agents:
Is Your Insurance Agent Working for You or the Carrier?
Written by Josh R. Ladwig
As published in the Califf & Harper, P.C. December 2011 Newsletter
With insurance available for everything from car to life to business coverage, there appears to be a tug-of-war between ensuring the best coverage for insured consumers and top premiums for insurance carriers. Often there is a "middle man" insurance agent selling policies and communicating with the consumer with regard to policies held by separate carriers. This tends to be especially true for larger policies such as those used in various types of business insurance. When this is the case, and there is a middle man agent, for whom is that agent working? Is the agent working for you, the consumer, trying in your best interests to ensure you are covered and paying a fair premium? Or is the insurance agent working for the policy carrier, attempting to ensure the carrier has as many policies as possible and receiving those premium payments?
This may not be a concern; hopefully everything will run smoothly between you and your policy carrier. However, when an issue does arise, receiving prompt answers from the agent or the policy carrier can be taxing on the client’s patience and endurance. For example, you, the consumer, may be receiving some information that the insurance agent understood differently from the policy holder.
If there is a disagreement about your coverage, what party will be to blame - the insurance agent, the policy carrier, both, or might they band together against you? If such a disagreement occurs, will the insurance agent stand by your side, or side with the policy carrier? If you’re trying to decide where to place the blame, the agent or the carrier, the answer may depend on whether the agent was working for you or the policy carrier. In other words, does the agent owe a duty to the insured or the insurer?
What Does Your Carrier Know?
When an insurance agent is authorized to market and sell insurance for a carrier, through an agency theory of law, if the agent is found to violate a law, you may be able to hold the insurance carrier responsible also. This apparent authority arises when:
  1. the principal, in this case the insurance carrier, holds the insurance agent out as representing the carrier,
  2. the agent acts in a way that would allow consumers to believe the agent has the authority to act on behalf of the carrier, and/or the carrier knows of the agent’s actions, AND
  3. the consumer relies on the conduct of the insurance agent and the perceived authority.
Likely when dealing with insurance, the consumer would need to show that the insurance carrier knew of the agent’s conduct, thereby acquiescing to the apparent authority and allowing for reliance on the part of the consumer. When it appears that the insurer knows the insurance agent is dealing with the consumer, such that the agent sells the insurer’s policies and bills the consumer for policies held by the insurer, then through the agency theory the insurer may be liable for the agent’s actions. In other words, if you are insured through an insurance agent but your insurance is held by a separate carrier, then the insurance carrier (insurer) may be liable for information given to you by the insurance agent that you rely upon to your detriment.
The Role of the Insurance Agent
Another consideration as to whether the insurance agent owes a duty to the consumer is whether the insurance agent is considered an "agent” or a "broker.” When a person is considered a broker, the courts have more easily found that the individual was acting on behalf of the consumer, counseling and instructing the consumer, and therefore more likely in breach of a fiduciary duty. A broker may be more of a go-between for the consumer and the carrier rather than just working for one or the other. If the person selling the insurance is an agent, then we are back to square one, considering whether the agent is working only for the insurer or also the insured. Ultimately, if you would like to prove the individual was working on your behalf and you were relying on the individual’s conduct, then the broker/agent argument may not be the deciding factor.
It may come down to you deciding whether you believed the insurance agent was working for you or just an extension of the carrier. If you thought the insurance agent was working for you and gave you incorrect information, you will need to show the misrepresentation and your reliance on the information. On the other hand, if you believe the insurance agent to be working for the policy carrier and to have violated a law or somehow caused you damage, then in order to bring a claim against the carrier, you will need to show that the carrier had some level of knowledge of the agent’s conduct. In the end, hopefully the insurance process runs its course smoothly. If not, perhaps your insurance agent will make it clear on whose side he or she stands, possibly making your decision easier, but not necessarily.
For more information on this topic please contact Califf & Harper, P.C. by calling 309-764-8300 or 1-888-764-4999. This article is intended to provide general information regarding the topic discussed herein but is not intended to constitute individual legal advice.