Insurance Agents: Order Takers or Advisors?
What is an insurance agent’s legal duty? In Massachusetts, an insurance agent is usually considered an “order taker.” This means that an insurance agent must get its customer the insurance that the customer requested or the insurance that the agent promised to obtain. If the agent is unable to do so, then the agent must tell the customer.
In certain situations, however, the agent is expected to act as an insurance advisor to its customers — and not merely as an “order taker.” When an agent markets itself as an “expert” or “specialist” in a certain area of insurance or business, then that agent is potentially increasing his or her legal duties (and, therefore, legal liability) from that of an order taker to the higher standard expected of an advisor.
The difference can have huge consequences for agents and customers in the event that there is an accident or loss that insurance does not cover. What if, for example, an insurance agent claims to be a specialist in writing insurance for restaurants but then fails to recommend the customer purchase business auto insurance to cover the restaurant’s delivery drivers? Or never mentions the need for liquor liability coverage? If the restaurant’s employee injures a pedestrian while its driver is delivering food, and there is no insurance in place to cover the restaurant, is the agent liable?
While there is no one factor that will automatically raise an insurance agent’s duty from that of “order taker” to advisor, the case law gives us some guidance on what the law requires of insurance agents. The complexity of the insurance, the customer’s level of sophistication and experience with insurance, and even whether the agent and customer socialize or golf together are several factors that courts will consider in determining the legal duty an insurance agent owes its customer.
Whether you are an insurance agent or an agency customer, if you have questions about the legal duty that agents owe their insurance customers, call Kenney & Sams for the answers.
J. Nathan Cole is a Director at Kenney & Sams and has been representing insurance agents, brokers, and insurance customers for over a decade.