Insurance agents are salespeople. They sell people the insurance required by the person seeking insurance in accordance with the order placed by the person seeking insurance. Only when, for consideration, the agent takes on an additional obligation to determine the insurance needs of the insured is the agent obligated to do more than fulfill an order. If the agent takes on a fiduciary obligation, then the obligation is great.
In Somnus Mattress Corp. d/b/a Posturecraft Mattress Co. v. Stephen Hilson and Crutchfield & Graves Ins. Agency, LLC, 1170250, Supreme Court of Alabama (Dec. 21, 2018), Somnus appealed from a summary judgment entered in favor of Stephen Hilson and Crutchfield & Graves Insurance Agency, LLC (CGIA), on Somnus's claim that they were negligent. Somnus claimed it was the agent's obligation to advise the business to purchase insurance coverage for business interruption and loss of profits (hereinafter collectively referred to as "business-income coverage") and that he was damaged because of the lack of business-income coverage.
Facts of the Case
Somnus manufactured mattresses at a facility in Winston County, Alabama. Charles Jones founded Somnus, served as its president, and made all the consequential business decisions for Somnus—including decisions concerning business property insurance. In 2006, a fire at the Ashridge, Alabama, warehouse facility resulted in a total loss of that property.
Jones also testified that the subject of business income insurance came up in 2009 and he asked the broker "What do you think about it?" He replied that it's pretty expensiveand it's hard to get because you've got to come up with a lot of records to verify whatever you're claiming, and so he said that he didn't think he needed it.
The agent testified that he told Jones he needed business-income insurance. Hilson, the broker, noted in his testimony that the proposal he submitted to Jones for insurance coverage of the mattress factory in 2009 included a quote with business-income coverage and a quote without business-income coverage because Jones asked for both quotes. Hilson testified that, ultimately, Jones elected not to pay for business-income coverage because he stated it was too expensive.
On April 12, 2013, a fire occurred at the factory. The fire rendered the factory a total loss. Ultimately, Somnus went out of business in 2015 after moving a factory to Mississippi.
Jones testified that his decision not to purchase business-income coverage even after the fire at the factory was based on what Hilson had told him in 2009 about it being expensive and difficult to obtain.
Somnus sued Hilson and CGIA. Somnus alleged claims of negligence against Hilson and CGIA. The suit asserted a single count of negligence against Hilson and CGIA, which specifically alleged that Hilson and CGIA "were negligent in not advising [Somnus] in regard to insurance coverage for business interruption and loss of profits which was available under an insurance policy." The circuit court entered a summary judgment in favor of Hilson and CGIA.
Analysis of the Case
The record reflects that Hilson testified that he advised Jones in 2012 to purchase business-income coverage, that Jones could recall meeting with Hilson each year, but that Jones could not recall the content of those conversations. Not remembering a conversation does not constitute evidence indicating that what the opposing party contends was relayed in that conversation did not occur.
Absent a specific agreement to do so, an insured's agent does not have a continuing duty to advise, guide, or direct the insured's coverage after the agent has complied with his or her obligation to obtain coverage on behalf of the insured. Insurance agents do not have an independent duty to identify their clients' needs and to advise them regarding whether they may be underinsured because it is the client's responsibility or duty—not the insurance agent's—to determine the amount of coverage needed and advise the agent of those needs.
Insureds Have a Duty to Review Their Insurance Policies
A majority of courts that have considered the issue have held that an insurance agent owes clients a duty of reasonable care and diligence, but absent a special relationship, that duty does not include an affirmative, continuing obligation to inform or advise an insured regarding the availability or sufficiency of insurance coverage. The general duty of care excludes an affirmative obligation to give advice regarding the availability or sufficiency of coverage for several persuasive reasons.
There is no Alabama authority holding that an insurer may voluntarily assume a duty to advise a client regarding the adequacy of the client's insurance coverage. The other way some jurisdictions have concluded that an insurance agent has voluntarily assumed a duty to advise a client about the adequacy of coverage is if a "special relationship" exists between the agent and the client.
Somnus never demonstrated that a "special relationship" existed between it and Hilson. There was no express agreement, nor was Hilson paid additional compensation to provide advice about the adequacy of Somnus's insurance coverage.
At most, even viewing the evidence in the light most favorable to Somnus, Hilson simply relayed information to Jones that Somnus has never contended was false or misleading. It was up to Jones to accept or reject that opinion, knowing Somnus's finances and needs.
Hilson and CGIA did not have a duty to advise Somnus concerning the adequacy of its insurance coverage. Without such a duty, as a matter of law, Somnus could not establish that Hilson and CGIA were negligent in their actions.
Imposing liability on insurance agents for failing to advise insureds regarding the sufficiency of their insurance coverage would eliminate any burden from the insured to take care of his or her own financial needs and expectations in entering the marketplace and choosing from the competitive insurance products available. It is the obligation of the person seeking insurance to determine the coverages needed. If incapable of doing so, the person seeking insurance can retain the services of a professional risk manager who, for a fee, will advise the insured of the coverages and limits needed. Because a loss occurs where the coverage was determined to be inadequate, it establishes only the negligence of the insured not the negligence of the agent who fulfilled the order of the insured.
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