(Article from Insurance Law Alert, January 2024)
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Holding
A California appellate court ruled that an insurance agent was not negligent in failing to offer or provide errors and omissions coverage to a policyholder-client despite a longstanding professional relationship between the parties. Shin v. State Farm General Ins. Co., 2023 Cal. App. Unpub. LEXIS 7433 (Cal. Ct. App. Dec. 14, 2023).
Background
Stemmler founded a medical billing company in 1998. In or around 2001, he began working with Johnson, a State Farm insurance agent. Stemmler requested insurance coverage “for all of his needs,” including home, automobile and “all his business liabilities.” In 2018, a group of physicians sued Stemmler, alleging negligence, breach of contract, fraud and breach of fiduciary duty. State Farm denied coverage, citing a professional services exclusion in Stemmler’s business office liability policy. Thereafter, Stemmler sued Johnson and State Farm, alleging negligence based on Johnson’s failure to exercise reasonable care, diligence and loyalty in procuring insurance coverage requested by Stemmler. A trial court granted the defendants’ summary judgment motion and the appellate court affirmed.
Decision
The appellate court ruled that Stemmler failed to establish a duty necessary to support the negligence claim. More specifically, the court explained that an insurance agent does not have a duty to volunteer additional or different coverage unless (1) the agent misrepresents the scope of the coverage being offered; (2) there is a request or inquiry by the insured for a particular type of coverage; or (3) the agent assumes an additional duty by express agreement or by holding him/herself out as having special expertise. The court rejected Stemmler’s assertion that a duty arose as a result of the second scenario, noting that Stemmler’s coverage requests were neither “targeted” nor “specific” so as to implicate a heightened duty of care. In this respect, the court emphasized Stemmler’s failure to utilize the phrase “errors and omissions coverage” in his discussions with Johnson.
Comments
The decision highlights the stringent standard courts utilize when deciding whether insurance agents should be held to a special duty with respect to the procurement of insurance coverage. The court acknowledged that Stemmler had purchased insurance from Johnson for many years and had followed his advice on certain insurance-related issues, but deemed those factors insufficient to impose a greater duty of care. Further, the court was not swayed by Stemmler’s assertion that he had no experience in insurance matters and was unfamiliar with the term “errors and omissions coverage.”