Standard of Care

I recently wrote about a GA case in which, if it stands, agencies’ standard of care will be about as high as possible. The only possible solutions are to complete thorough coverage checklists, which require the proper use of the checklist by the agent, or to use a Scope of Work contract that delineates exactly what the agent will do, which is typically very little when these contracts are employed.

There is also the CA case that increased the standard of care there far above what it was.

Then, more recently, I saw an article regarding a case that decreases the standard of care to the bottom in Delaware and Illinois. The court ruled that an insured must sue an agent for failure to procure coverage within the state’s statute of limitations, and the clock starts at policy delivery, not the time of the claim.

Besides being the epitome of asinine, this is a huge change in the standard of care in case law in those states. In this scenario, the insured cannot sue an agent for failure to procure or offer coverage after a given time, even if the insured has no idea they need the coverage, that the coverage exists, or that they have a claim. In other words, the insured should have anticipated an uncovered claim and, I guess, sued the agent for failing to provide adequate coverage for that anticipated claim. Ridiculous.

At first, this might seem a win for agents, and it is for transactional, amateur agents and all other distributors racing for the bottom. Insureds need to take several steps now to protect themselves in these states. First, per Fred Fisher’s suggestion, the insured might be able to obtain a Declaratory Judgment that, should an uncovered claim arise in the future due to the agent's failure to procure or offer applicable coverages, the agency will be responsible. This is a very legal and proactive approach.

Another option is for the insured to require the agent to use a thorough coverage checklist annually to verify they will not find themselves without coverage and without E&O recourse a few years down the road. This option requires that the insured and the agent do a coverage checklist and exposure review annually because the statute of limitations, at least in theory, should start anew with the delivery of every renewal. A key element is that the clock begins ticking at the time of policy delivery, not the renewal date, so for surplus lines policies delivered six months late, the insured gets a little more time.

The insured and, perhaps, the agent need to be extremely careful now when switching agencies to ensure that a comparison of expiring and new coverages is conducted.

A race to the bottom hiding behind this ruling is not the solution. With the announcement on the same day of a new broker who already possesses contracts with good admitted carriers, carriers who have filed rates with significantly reduced commission rates (likely the third such broker) using agentic AI and the WSJ’s expose on State Farm’s new agent contracts, pure transactional and AI driven insurance sales/service will hide behind this ruling because at 8% commission, not much money is available for sitting with clients and completing coverage reviews and checklists.

This is the time and opportunity to set yourself apart as a true professional. The insurance distribution industry as a whole will run out of money to provide true service. This is not bad because many agents and brokers have been grossly overpaid for decades, pretending to provide professional services yet failing to do so. Between the buy-out firms, with debt up to their teeth, not being able to afford anything but lipstick-on-a-pig levels of “elevated” services, decreased commissions (which, if reductions carry through, will ruin their models and stock prices), and agentic AI, take a step up forward and be that true professional.

A professional will educate insureds on how they can be taken advantage of under these rulings and ask whether they want to be that vulnerable. They will step up and meet the GA and CA case law. For a professional, these rulings just provide more opportunity to separate themselves from all the peddlers.

I love helping professional agents separate themselves from peddlers. The opportunity to benefit clients and increase profits simultaneously makes for very good days. If you are ready to step up, call me. At the very least, stay on top of the fast-changing standard of care case law.

---

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.