Federal Appellate Court Holds That Insurance Broker Owes No Duty Of Care To Clients When Not Retained To Procure Specific Coverage
In M.G. Skinner and Associates Insurance Agency Inc. et al. v. Norman-Spencer Agency Inc., case number 15-2290, the Seventh Circuit Court of Appeals affirmed the district court's grant of summary judgment in favor of an insurance broker sued for failing to identify and advise insureds of an insurer's untrustworthiness. The Court of Appeals narrowly construed an insurance broker's duties under Illinois law as being owed only to named insureds who have purchased insurance from the broker.
Western Consolidated Premium Properties ("WCPP") sued Norman Spencer Agency, Inc. ("Norman Spencer") after it was allegedly defrauded into buying non-existent insurance policies. WCPP claimed that Norman Spencer was liable for the cost of replacing its insurance based on its failure to disclose various red flags Norman Spencer discovered when it sought to become involved in the insurance procurement process. The Court held that Norman Spencer owed WCPP no duty of care because it was not involved in proposal process and did not receive any portion of the commission generated from WCPP's premiums.
The Court of Appeals recognized that an insurance broker can be liable for failing to disclose information material to the insured's decision to place insurance with a particular carrier. The duty arises, however, only after the insured - or prospective insured - requests specific coverage from the broker. Once the duty arises, it flows downhill to sub-brokers, but it flows only to those sub-brokers who are engaged to procure the requested coverage. Since Norman Spencer was never...
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