Lives and businesses can be destroyed when insurance agents fail to fully protect the people who come to them for help. When insurance agents are negligent, failing to recommend the appropriate coverage or misadvising their clients on the extent of their coverage, clients may file claims alleging insurance agent malpractice.
Insurance Agent Negligence
In Illinois, insurance agent malpractice claims are typically premised under a negligence legal theory. This means that the agent owed a duty to the client, failed to perform that duty, and damages resulted. The principle is that an insurance agent owes a duty of care to the client based on standards governing advice to clients in choosing and retaining insurance.
For example, if a person retained an insurance broker to effect comprehensive insurance to cover her business operations, and the broker neglected to file the appropriate paperwork to make the policy active, then the broker has been negligent. If an accident happens and the business is not covered because of the broker’s failure to file the appropriate paperwork, then the client may argue the insurance broker is liable for malpractice under a theory of negligence.
Failure to Properly Advise
One basis for insurance agent malpractice claims is when the agent fails to procure the appropriate kind of coverage given the client’s unique situation. For instance, it is commonly accepted that a person with a high net worth should have an umbrella policy to cover personal liability claims over and above the standard policy limits. If an insurance broker fails to advise his client of this standard, and the client is held individually liable over and above the policy limits on liability, then the client may file a claim for insurance agent malpractice.
In another example, a client asks her agent to find her a home insurance policy that will provide coverage against damage to or loss of all the contents of her home. The agent selects a plan for the client but, after a break-in, the insurance company denies coverage for antique jewelry based on an exclusion in the policy. The client may file a claim against the insurance broker for malpractice because he failed to select a policy that would meet her stated needs.
Breach of Fiduciary Duty
When an insurance agent actually handles or manages money for the client, the agent is in a position of trust and may have a fiduciary duty to the client. That relationship is based on the fact that the client places herself in a position of vulnerability by vesting confidence in the insurance agent in managing money or investments.
In cases of insurance agent negligence, the goal is to put the injured party back into the position she would have been in had the agent performed his job competently. In cases where the insurance agent failed to recommend the client have a necessary policy, or where he advised the client there was coverage when there was not, the damages are determined by the amount the client lost by not being appropriately insured.