Too many people drive cars insured for the minimum limits required by law. This fact makes underinsured motorist coverage, and making sure that it covers everyone the customer wants, very important. A case in Illinois illustrates how important that is to the insured and to the insurance agent.
A man let his girlfriend drive his cars, but he did not tell his insurance company about her. She had an accident, and though his policy did not list her as a driver, the insurer paid for the loss. However, it required him to add her to his policy as a driver. Not long after, he spoke with one of the insurer’s agents about adding both her and her son to his policy.
A year later, he bought a policy through the agent and with the same company. It listed only him as a named insured. The declarations identified the driver of one vehicle as a female, aged 30-64.
Some months later, a car struck the son as he rode his bicycle, causing serious injuries. His mother sued the other driver and obtained a settlement equal to the driver’s liability insurance limit – $25,000. As this was not enough to fully compensate them, she made a claim under her boyfriend’s policy for underinsured motorist benefits. The insurer denied coverage because neither she nor her son were named insureds on the policy.
The couple and the boy sued the agent for negligence in obtaining the coverage. They also sued the insurer, demanding that it provide the UM benefits. The agent asked the judge to dismiss the case on the grounds that he did not owe a legal duty of care to his clients. The insurer argued that, if the agent did not owe a duty to the couple and the boy, it could not be held responsible.
The judge dismissed both suits. The court ruled that, as an agent rather than a broker, the producer did not owe a duty of care in obtaining their insurance. The couple and the boy appealed.
State law contained a provision stating, “An insurance producer … shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.” The couple argued that the use of the term “insurance producer” meant that the distinction between insurance agents and brokers no longer applied when it came to the duty of care.
The appellate court looked to a case it had decided a few years earlier. That decision had been rendered moot when the parties settled out of court. Prior to the settlement, however, the court had considered the question of whether the law distinguished between agents and brokers. It looked at the provision in question and also a separate provision that defined “insurance producer.” “A plain reading of the statute,” the decision said, “combined with section 500-10, is that any `person required to be licensed … to sell, solicit, or negotiate insurance’ had a duty to `exercise ordinary care’ in procuring insurance. We find no distinction in either of these sections between an insurance agent or an insurance broker.”
Using this decision as guidance, the court ruled that the insurance agent in this case had the same duty of care as did a broker. It reinstated the two lawsuits.
The court’s opinion does not provide much information about what the agent did with regard to this matter. Did the agent document the conversations with his client in writing or by email? Why did the declarations identify a female driver in the insured’s girlfriend’s age range but not name her as an insured? Did he leave her name off the application? Did the application list her as a named insured but the policy left her off? If so, did anyone in the agent’s office review the policy for accuracy? Documentation, reviews of the application and policy for accuracy, and communication with the insured might have stopped this litigation early.
Handling insurance for unmarried couples can be tricky. The policies are better suited for the traditional family. Still, as this case shows, it is vitally important for insurance agents to get the coverage right. Failure to do so can be costly.