What Are the Duties of An Insurance Agent to the Policyholder—A Michigan Case Example

The duties of an insurance agent to the policyholder will differ depending on state law. Yesterday’s post about a Michigan coverage case, Order and Bind Insurance Before the Loss—Commercial Policy Covers Water Damage Under Drain Backup Endorsement, noted that there was also an issue with insurance agent negligence. This will be the second post in a year about Michigan insurance agent law, and I would suggest that those interested read Insurance Agent Negligence—What Are the Rules and Duties of Insurance Agents in Michigan?

Under Michigan law, an insurance agent has a duty to procure the insurance coverage specifically requested by the insured. However, an agent generally does not have an affirmative duty to advise the insured about the adequacy of coverage unless a “special relationship” exists. I wrote about a “special relationship” in Insurance Agent Duties Depend on Special Relationships. Under Michigan law, a special relationship can arise if:

(1) the agent misrepresents the nature/extent of coverage,
(2) the insured makes an ambiguous request requiring clarification,
(3) the insured makes an inquiry that may require advice, and the agent gives inaccurate advice, or
(4) the agent assumes an additional duty by express agreement or promise.

Policyholders must think that the law is missing something if a professional who needs a license to sell insurance would be held accountable for mistakes only if a special relationship exists. This was why I wrote Insurance Agents Are More Than Your Waitress At Denny’s.

In the facts of the case at hand, 1 the court found no evidence that any of these special relationship circumstances existed between Opera Block and Kiebler Insurance to create a duty to advise on coverage adequacy. The evidence showed Kiebler Insurance procured the specific coverage changes requested by Opera Block’s representative Fuller on February 5, 2019, including the highest water backup coverage offered by Auto-Owners at the time. While Opera Block argued Kiebler should have insured the five building addresses as separate locations rather than 3 locations, it presented no evidence that Auto-Owners would have issued such a policy. Therefore, Opera Block failed to establish a genuine factual issue that Kiebler Insurance breached any duty owed to Opera Block, so summary disposition for the insurance agent Kiebler was proper.

The bottom line is that the court applied Michigan’s limited rules regarding an insurance agent’s duty to advise and found the evidence did not support Opera Block’s negligence claims against its independent agent, Kiebler Insurance. The agent procured the specific coverage requested without any special relationship arising that would require advising on coverage adequacy or the gap in coverage.

Cases against insurance agents are often difficult to win. Policyholders are not risk management professionals, nor do they understand how complex insurance policies often have gaps of coverage, which an insurance agent is in the position to explain and at least alert the policyholder. So long as courts treat insurance agents as waitresses at Denny’s, the law supports insurance agents avoiding the obligations their license provides for them and what they are taught to do and know.

Thought For The Day

Responsibility equals accountability equals ownership. And a sense of ownership is the most powerful weapon a team or organization can have.
—Pat Summitt

1 Opera Block Properties v. Auto-Owners Ins. Co., No. 365213, — N.W.3d —, 2024 WL 3907171 (Mich. App. Aug. 22, 2024).