The preceding post on agents' and brokers' duties drew a link and comment from Bob Sargent's Specialty Insurance Blog in which Bob poses a few questions:
[A]ssume a producer typically acts as an agent on his business. However, assume he is in need of a specialty lines product for one piece of a client's program and approaches a wholesaler for this coverage. Not uncommon in the specialty lines business. What role does the 'agent' then have with his client? Does it change for each of the coverages? The producer is acting as an agent on most of his business, and all the rest of the business for that client, but the producer is defined by contract as a 'broker' to the wholesaler, not an agent.
Lastly, the wholesaler is often a broker (as defined by contract), not an agent, but never communicates with the client. Does the wholesaler have a 'brokers' duty to the client?
It has taken longer than I would have hoped to pull together this reply, but here are my thoughts (be warned -- they make for pretty dry reading):
When Bob writes that his hypothetical producer "typically acts as an agent," I take that to mean that the producer (we'll call him or her "P") generally is approached by prospective insurance buyers who know that P has an ongoing relationship with a particular insurer, that P places most of the coverage that comes P's way with that insurer, and that P is acting for and compensated by the insurer in those transactions.
Now, we add a new element to the scenario: one particular customer ("C") wants P to obtain some specialized coverage that P's principal/insurer does not sell. P agrees to seek out that coverage. At that point, and for purposes of that transaction, P almost certainly becomes a "broker" acting for and compensated by C, the prospective insured, in the transaction. As C's "broker," P would owe to C the duties of loyalty and disclosure described in the earlier post, including whatever disclosure obligations may eventually arise from the proposed regulations discussed there.
So far, so good. Now, let us suppose with Bob that P, wearing the "broker" designation, approaches an insurance wholesaler ("W") in search of that specialized coverage for C. What is W's relationship in that transaction and to whom does W owe any direct duties? In particular, does W owe the same sort of loyalty and disclosure to C that is owed by C's representative, P?
In my view, W is at a sufficient distance from C that a true fiduciary relationship -- such as we could say exists between C and P -- does not arise. W's direct contractual relationship is only with P, not with C, and it is that contractual relationship that initially establishes the parties' obligations. Both P and, presumably, W know, however, that C will be the "end user" of whatever insurance W obtains. C is therefore likely to be deemed an "intended beneficiary" of the contract between P and W, and could arguably make a claim against W if W does not perform on that contract. C might even have a claim against W if W performs the contract negligently, because C is a foreseeable victim of such negligence. (The negligence claim would be analogous to cases in which the intended heirs under a will might sue a negligent attorney retained by the deceased testator if the attorney's shoddy draftsmanship deprived those heirs of the inheritance they were meant to receive. The heirs did not have an attorney-client relationship with the negligent drafter, but many jurisdictions would permit them to sue because preserving their inheritance was the entire point of the work that the attorney undertook for the deceased client.)
Even if W owes duties to C under contract law or ordinary negligence principles, my best informed guess is that W would not owe to C the sort of disclosure obligations that P does, because the relationship between W and C is not a direct one. While the manner in which W is going to be compensated may be a fact that P could be required to disclose to C as a result of the broker-customer relationship between them, I tend to believe that W would not owe that same direct duty because W lacks the sort of direct relationship with C that P has established.
Bob: I hope those thoughts are responsive to your question. Other readers: something more interesting is bound to turn up on this weblog at any moment.
[As with every other opinion expressed on this weblog, the foregoing views are tentative and hypothetical. Actual outcomes may not resemble these opinions at all, and particular real-world cases can only be analyzed based on their particular facts and the law of the jurisdiction(s) involved.]
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