Insurance Law
The Brokers’ Defense Dilemma: To Be or Not to Be a Specialist?
One expert says brokers should provide clients with advice—and then defend themselves in court as experts if they are faced with an errors & omissions claim.
Brokers often present themselves as experts with specialized knowledge about insurance coverages when marketing themselves to potential clients.
But when it comes to defending themselves on errors & omissions claims, many brokers back away from describing themselves as experts. This may give them a certain legal advantage in court, but is this really the best approach?
Fred Fisher, president of Fisher Consulting Group Inc., addressed this question in a recent AM Best Webinar, “Insurance Defense 101: What Insurers Need From Today's Counsel.”
If an insurance agent isn’t going to give advice, do they advertise that? Do you know any insurance broker that has ever said, ‘We won’t give you advice, but we will get you what you want?’
Fred Fisher
Fisher Consulting Group Inc.
In court, insurance agents and brokers are held to a general standard of care of being an “order taker,” Fisher said. “They're there to diligently obtain the coverage they're requested to get. That gets elevated to a higher standard of care if they hold themselves out as experts,” he said.
Many brokers and agents, therefore, present themselves as experts in their marketing materials, but then say they were just a conduit, not specialists or experts.
“All of this advertising that I've got—and I've got plenty of it from wholesalers—say that's exactly what they do. They're going to ask the right questions. They're going to provide the expertise. Then, when they're sued, suddenly, they're a conduit,” he said.
“I've got a real problem with that.”
If brokers should not present themselves as experts and then claim they were just order takers when sued, should they just avoid giving advice to clients?
No, Fisher said, brokers should give clients advice. “I believe that any insurance broker that's been in any line of business for more than five years probably knows more about the ins and outs of that coverage than any consumer,” he said.
“Do we expect a consumer to understand that policy form that can be 96 pages plus endorsements?” Fisher asked. “We expect them to read the policy? I actually had a very prominent attorney telling me that I, as an expert, cannot interpret a policy in court. I cannot interpret or say what the intent is. Only a court can do that.
“Yet we hold a consumer to that level, in reading a policy and understanding whether his needs have been met. How do you justify that? That's an absurdity. It's wrong. If an insurance agent isn't going to give advice, do they advertise that? Do you know any insurance broker that has ever said, 'We won't give you advice, but we will get you what you want?'”
Consumers, Fisher said, can't be expected to be the expert. “Who's in the position of superior knowledge, the agent or the consumer?” he asked. Brokers, therefore, should provide advice to clients, he said. A broker who doesn't give advice is “going to win a lot of lawsuits,” Fisher said. But he is going to pay a price. His “deductible is going to go up to a quarter of a million dollars because his E&O carrier isn't going to want to continue defending them successfully, on their money,” he said.
Better for brokers to provide advice to clients and then be prepared to meet the higher standard of care in court if they are sued. “Chances are, however, that by providing the advice, there won't be a lawsuit. What's better? Conducting yourself so as to prevent a claim or successfully defending one? I'd rather not have a lawsuit at all,” Fisher said.
