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Case analysis: Do agents owe a duty to the general public?

Byline: Barry Zalma, Esq., CFE

Insurance agents owe a duty to their customers to obtain the insurance and the coverage limits the customer requests. But when someone is hurt by the actions of the insured, can that person, who is not a party to the contract between the insured and the carrier, sue the agent because there wasn't enough insurance coverage to pay for the damages incurred? That was the question in a recent Ohio case that considered the issue of third-party recovery.

A criminally negligent dump truck driver caused an auto accident in which Lisa Emahiser was killed and her son injured. As claims were pursued, it soon became apparent that the driver's employer, the dump truck company, maintained inadequate commercial carrier insurance coverage under federal and state regulations. In Emahiser v. Complete Coverage Ins. LLP, the U.S. District Court for the Northern District of Ohio was asked to decide whether the estate of the deceased woman could sue the insurance agency that obtained the company's insurance policy for failing to obtain the correct amount of coverage.

Minimum Required Coverage Limits not Met

At the time of the accident, Rickey Paving, the owner of the truck and the driver's employer, was insured by Progressive Insurance through United Financial Casualty Co. with a policy that capped coverage at $50,000 per person and $100,000 per accident. Complete Coverage Insurance (CCI), the defendant, was the company's insurance agent, and had obtained coverage from United Financial on the trucking company's behalf. Under applicable federal and Ohio law, Rickey Paving, as an interstate commercial operator, was required to maintain a minimum of $750,000 coverage, which it didn't have.

Lisa Emahiser's estate sued CCI, alleging that the agent knew or should have known that Rickey Paving was an interstate commercial carrier and was, therefore, obligated to have at least $750,000 coverage. In providing Rickey Paving with insurance, according to the complaint, CCI "undertook to perform a duty owed by Rickey Paving to the driving public, including the Emahisers." The complaint also claimed that CCI "had a duty to advise its customer Rickey Paving regarding the insurance coverage because Rickey Paving could, should or did rely on [Defendant's] expertise."

The estate claimed that CCI was liable for "negligent procurement" by failing to have obtained the correct amount of insurance for its client and that CCI should be responsible for the damages caused by the accident.

To assert a negligent procurement claim in Ohio, a person must establish that the insurance agent owed a duty to obtain the coverage its insured requested. Clearly the insured--Ricky Paving in this case--has standing to sue its agent for negligent procurement. But does a third party, a member of the public, who is the intended beneficiary of the higher policy limits required by law, have standing to sue?

Is the Injury Foreseeable?

Under Ohio law, insurance agents may be liable for negligent procurement if, as a result of "negligent failure to perform the obligation to procure insurance," the other party to the insurance contract suffers a loss due to a lack of insurance coverage that should have been contemplated by the agent. If the agent's negligence results in coverage less than the amount the insured wanted, the agent will be liable for the amount the insured would have received had the correct coverage been in place.

There is a basic premise of negligence law regarding foreseeable victims. A duty is extended to a third party who is a member of a limited class whose reliance on a professional's representation is foreseeable. To be successful with the claim, the injured third party must show that he or she relied on the misrepresentation by a specific professional and that the reliance was foreseeable by that professional (the "knew or should have known" standard).

Courts in several jurisdictions that have considered the question of whether a third party injured by someone has standing to bring a negligent procurement claim against the person's insurance agent have reached differing results. The court acknowledged that in the automobile collision context, satisfying this "identifiable" requirement is difficult because the injured person is not known or otherwise specifically identifiable until the crash occurs.

After reviewing the Ohio cases discussing third-party standing to bring negligent procurement claims, the court in this case found that, although it is possible for a third party to bring such a claim against an insurance agent or broker, the plaintiff must allege that he or she was a "direct, intended, and specifically identifiable" beneficiary to the policy. This approach accounts for the general concept under Ohio law that insurance agents owe no duty to third parties.

In the Emahiser case, the plaintiff urged the court to find that the driving public at large is a sufficiently specific intended beneficiary. According to the plaintiff, "that is why legislative and regulatory bodies pass laws and regulations requiring minimum amounts of insurance--to protect the public."

No Duty to Non-Clients

The court disagreed, noting that imposing such a "far-reaching duty" on insurance agents would impose on agents a duty to a vast number of non-clients--literally all who reside in or travel in the state. The court also noted that an insurance agent is not the person upon whom the statutes and regulations impose specific duties; they fall on the trucking company and its driver.

The court found that the defendant insurance agent's alleged negligence created for the plaintiff a risk of economic loss only--that is, a risk that the injured party would be unable to collect on a judgment entered against Rickey Paving. It did not create a right to recover for the injury by the driving public.

The court concluded that the negligence claim against the insurance agent was too remote under the facts and ruled that the Emahiser estate had no standing to pursue a negligent procurement claim against the insurance agent.

The court did point out that the plaintiff could continue to pursue Rickey Paving and the driver of the vehicle. Should the collectability of those individuals be in question, the court added, the plaintiff also could pursue claims against any uninsured motorist or underinsured motorist coverage held by Lisa Emahiser or the owner of the vehicle she was driving.

Insurance agents owe a duty of professional care to their clients, but not, as the court correctly found, to the public at large who might be damaged by the actions of the insured. Could the insurance agent in this case have avoided the lengthy litigation? Possibly, if the agent had some documentation demonstrating that the correct amount of coverage had been offered to the client and the client made the final business decision to choose a different amount of coverage.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, claims handling, bad faith and fraud. Contact him at
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Publication:Property and Casualty 360
Geographic Code:1U3OH
Date:Mar 6, 2015
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