Now is not the time to be placing new limits on insurance agent liability.
Think of insurance agents as the foot soldiers for the new Michigan auto insurance law. Insurance agents are now – more than ever before – tasked with the responsibility of explaining the new auto law to consumers.
The stakes for insurance agent liability have never been higher. Never before in the auto No-Fault law’s 46-year history has it been more important that people be able to confidently rely on their agent. Never before has the expertise and professional judgment of insurance agents been more needed.
The new Michigan auto insurance law is complex and confusing. There have been major changes that have completely changed first-party and tort liability for car accident victims. Consumers must be properly informed.
Two perfect illustrations of this are the new Department of Insurance and Financial Services forms. These forms allow drivers to choose different levels of PIP coverage and liability coverage (the insurance you take out if you cause an auto accident and injure someone else). These forms will be provided by insurance agents. Drivers will be required to read, understand, and sign these new forms. The No-Fault PIP coverage form will be available after July 1, 2020, and runs four pages of single-spaced and relatively small print. While the Insurance Commissioner has gone to great pains in Bulletin 2019-26-INS to make these forms accurate, detailed and readable, they will still pose quite a challenge to anyone not well-versed in Michigan auto insurance law. We need the public to understand the new Michigan auto insurance law and to be able to make informed decisions to protect themselves and to protect their families if they are ever in a car accident. People will need to be able to rely on their insurance agent for help, experience and guidance in making those important, informed decisions.
In House Bill 4520, the insurance industry wants to preemptively absolve insurance agent liability. The insurance industry is pushing to impose drastic limitations on people’s ability to sue when they are seriously harmed by insurance agent errors, omissions, and negligence. To put this in context, Michigan already has one of the most restrictive laws in the entire country when it comes to suing insurance agents. Insurance agent liability is already incredibly hard to establish under our law unless it meets a few very narrow exceptions. Taking those exceptions away now, when the public needs to depend and rely on insurance agents for accurate information makes it impossible to ever prove insurance agent liability in Michigan.
Specifically to insurance agent liability, HB 4520 proposes that:
- Insurance agents should have “no duty or obligation to advise” their customers about the insurance they need and/or require to protect their families.
- Insurance agents should have “no duty or obligation . . . to explain” to their customers what their coverage actually entails.
- In most circumstances, drivers who are affected by their insurance agents’ negligence will be unable to sue for damages.
- In the rare circumstance where an insurance agent can be sued, the causes of action and the damages that will be available to the victim will severely and arbitrarily restricted.
The auto insurance industry wanted the new Michigan auto insurance law. They pushed for it. Their lobbyists drafted large parts of it. They have shamelessly praised the law for providing big savings when they know those savings are very likely never going to materialize. And they have conveniently remained silent about the enormous new profits that auto insurance companies will reap under the new law by capping their exposure to medical bills through PIP caps and medical fee schedules.
Yet, at the same time, the auto insurance industry also wants to insulate insurance agent liability as they are going to have to now explain all of these changes to a largely unsuspecting public that largely does not understand our auto law. They want to make these insurance agents effectively immune from the harm they cause if they are negligent in performing their jobs.
What is so bad about placing limits on insurance agent liability?
By removing almost all insurance agent liability, HB 4520 removes the incentive for agents to be thorough and accurate.
The proposed bill actually incentivizes the exact opposite by drastically reducing insurance agent liability and thereby removing any deterrent to agents providing careless and harmful – or just plain wrong – information to a consumer who has hired that agent and is relying upon that agent to be accurate and correct. These agents would be immune from lawsuits when people relied on their advice and were seriously harmed as a result.
What, if anything, could ever establish an insurance agent duty to client?
The bill provides clarification on insurance agent duty to client saying that if a “special relationship” is established between an insurance agent and his or her customer, then the insurance agent “shall comply with the standard of care in fulfilling [any] additional duties or obligations agreed to . . .”
What else could be included with insurance agent duty of care?
Assuming that a “special relationship” between the agent and a customer has been established, then the insurance agent duty of care would be as follows: :
- Clarify a customer’s “ambiguous request” to the insurance agent that “warrants clarification” about a “specific issue.”
- Give “accurate and responsive advice and explanations” about the “specific issue” raised by a customer.
- “[A]ccurately respond” to a customer’s “inquiries or questions.”
What does HB 4520 say about suing for insurance agent negligence?
If HB 4520 were to become law, then insurance agent liability is drastically reduced meaning the only thing that an agent could be sued for is errors and omissions.
Significantly, victims would also have much less time to sue for insurance agent liability.
Under existing law, the victim of an insurance agent’s negligent advice or procurement of insurance coverage has 3 years from when the insurer denies his or her claim to file a lawsuit. (Stephens v. Worden Insurance Company (Michigan Court of Appeals, 2014); MCL 600.5805(2))
However, under HB 4520, a lawsuit for errors and omissions against an agent would have to be filed no more than 2 years after the agent “last provided services to the customer” or no more than 6 months “after the date the customer knew, discovered, or should have discovered through the application of ordinary care that an error or omission may have been committed.”
What kind of damages would HB 4520 allow in a lawsuit against insurance agent?
In the unlikely event that a customer could actually bring a lawsuit against an insurance agent under the restrictions set forth in HB 4520, the customer’s damages would be “limited to the loss, damages, or benefits that would have been recovered or received by the customer or another person had there been no error or omission by” the insurance agent.
That means that, under HB 4520, a customer would be prohibited from recovering “mental distress and upset damages,” “loss of profits that would have been payable under the policy or policies procured or to be procured in the absence of the error or omission,” and/or “punitive or exemplary damages.”
Are there other types of claims against insurance agents that could be filed under HB 4520?
No. Regardless of what an insurance agent failed to do and regardless of the harm that his or her “errors or omissions” caused, HB 4520 proposes to reduce insurance agent liability so that the agent could NOT be sued for negligence, breach of contract, misrepresentation, fraud, breach of fiduciary duty, unjust enrichment or quantum meruit.