Liability of Insurance Agents and Brokers to Third-Party Non-Clients and Recent Developments

This article has been updated from an article that originally appeared in the June 2014 Professional Liability Committee newsletter. AS the variety of professional services performed by insurance agents and brokers has expanded over time, so too has their liability exposure. (1) Agents and brokers are subject to a broad assortment of liability claims asserted by their own clients who claim that they were supposed to be insured and by insurers. (2) For instance, it is well settled that an agent or broker who agrees to procure insurance coverage for a client is obligated to exercise reasonable diligence and care in procuring such coverage. But courts have increasingly held agents and brokers liable for claims of third-party non-clients or at least recognized the possibility for such liability in certain circumstances. (3) This article will refer to insurance agents and brokers as insurance intermediaries or simply as intermediaries, unless otherwise specified. For each claim brought by a third-party non-client seeking to impose liability against an insurance intermediary, the defense lawyer must identify several key facts in order to properly analyze exposure. These facts include: 1. Who is bringing the claim and in what capacity? A. What is the claim? B. What relationship, if any, did the intermediary have with the third party? C. What was the foreseeability of the third party's injury? 2. What law applies to the claim? This article provides lawyers with an overview of insurance intermediary liability to third-party non-clients and considerations in light of recent case law throughout the United States. I. Who Is Bringing the Claim and in What Capacity? Cognizable client claims against insurance intermediaries for failing to procure insurance or placing deficient insurance are nothing new, (5) but the intermediary's potential exposure does not end with the client's malpractice claim. Third-party non-clients claims against insurance intermediaries appear to be increasing. Some third parties assert breach-of-contract claims against intermediaries by arguing that they are third-party beneficiaries of both the insurance policy and the intermediary's agreement with the policyholder to procure coverage. These purported third-party beneficiaries include (1) those allegedly injured by a wrongful act of the intermediary's client, such as a car-accident victim; (2) those who are or claim to be additional insureds under a liability policy issued to the intermediary's client or those holding certificates of insurance describing policies issued to the intermediary's client; (3) those seeking benefits under life, worker's compensation, or group policies; and (4) those seeking benefits under property policies. In addition to asserting status as a third-party beneficiary, non-clients often assert claims sounding in negligence by arguing that the intermediary directly owed them duties, but breached them. Such claims hinge on whether the court concludes that an intermediary owed a direct duty to the third party. Courts have analyzed whether an intermediary owes a duty to a third party by focusing on the foreseeability of the injury or whether there is privity between the third party and intermediary. The most successful strategy for third parties to follow in asserting claims against insurance intermediaries is to obtain an assignment of the insured-client's claim against the intermediary. The overwhelming majority of courts allow third-party non-clients to assert such claims. To defend against third-party non-client claims, defense lawyers must understand who is asserting a claim (e.g., a tort-victim, an additional insured); in what capacity the party is asserting the claim (e.g., as a third-party beneficiary, an assignee); the nature of the claim (e.g., breach of contract, negligence, negligent misrepresentation); the relationship between the intermediary and the third party, if any; and the type and foreseeability of the injury. …