When You Need To Sue Your Insurance Broker

A policyholder’s coverage attorney typically advocates for a claim, sometimes in the face of resistance from the carrier, and that can lead to a coverage dispute and litigation. But sometimes, writes attorney Joseph G. Balice, the search for coverage leads to an unexpected conclusion: “The carrier’s denial was correct, and the reason there is no coverage is that the broker made a mistake.” In that case, Balice writes, “a policyholder’s coverage attorney may double as broker malpractice counsel.”

The first thing to understand about this scenario is that generally speaking an agent works for a carrier, but the broker works for – i.e., “represents” – the policyholder. Thus, Balice explains, ”if an agent tells the policyholder that a policy will cover a particular kind of claim, the carrier can be bound by that representation and be held responsible for paying the claim, even if the policy sold does not actually provide that coverage.” However, he adds, “if a broker makes that same misstatement, the carrier would have no responsibility to pay the loss, but the policyholder may have a malpractice claim against the broker.”

These lawsuits will invoke the familiar elements of duty, breach of duty, and proximate cause, leading to the question of what the duty of the broker was. This is where things get dicey. That duty may prove to have been precisely and simply to find coverage that the client requested, with little room for choice except possibly on price. But a seasoned and/or ambitious broker may go beyond that – and likely will be expected to go beyond that – and advise the client on, for example, the option of switching policies, and issues like coverage dates and seemingly arcane variations in the scope of coverage.

”If a broker is going to provide additional services to their clients to attract and keep their business, they need to execute those services correctly,” Balice says “When their failure to do so leads to a loss of coverage for what would have otherwise been a covered loss, policyholders have to look to their broker – not the carrier – to be made whole.” That could ruin a trusted relationship, he acknowledges, but policyholders sometimes will have no choice except to pursue a malpractice claim against their brokers as the only potential source of recovery.