Business clients are always managing risk. Just about everything they do is overshadowed by risk assessment and risk management.
Appropriate insurance, both as to kind and amounts, is sometimes a critical tool for business risk management. But buying insurance can be complicated and businesses frequently do so though the use of an insurance broker. When the broker “gets it right”, the client is adequately protected. When the broker “gets it wrong”, the client suffers the non-insured risk. When insurance fails, clients will typically look to their broker to see if he or she is at fault. Instructing your broker correctly, and documenting the relationship, are critical if a claim against the broker ever needs to be asserted.
In the latest case law pronouncement of the nuances involving broker liability, California’s Third District Court of Appeal held this week that while a broker may be liable for misrepresenting the nature, scope, or extent of coverage, he has no duty to ascertain the financial soundness of the insurer or to advise an insured of adverse changes in the insurer’s financial capability. An insurance broker’s duty is no greater than to use reasonable care and diligence in procuring insurance. Thus, a broker who obtained coverage for a client through a self-insurance program that failed was NOT liable to the client for placing that coverage.
The case is Mark Tanner Construction, Inc. v. Hub International Insurance Services, Inc. – filed March 10, 2014, Third District Court of Appeal, California.