Countless angry and distressed homeowners and business owners contact our firm because they’ve just experienced a property loss and found out they are severely underinsured. Nearly every underinsured policyholder tells a familiar story: “My agent told me I was fully insured and I relied on my agent to tell me if I needed more insurance coverage.” Nearly all underinsured policyholders also ask if they can file claims against their agent for failure to inform them about certain coverages or failure to inform them that their coverage limits are insufficient to rebuild their business property or home. Unfortunately, public perception regarding what services insurance agents perform for customers is often vastly different from what the law actually holds agents responsible for.
In Colorado, insurance agents are commonly referred to as insurance producers. Potential (but often unsuccessful) claims against an insurance agent/producer include (1) the agent failed to advise the insured that the insurance coverage obtained was insufficient to provide full coverage in the event of a significant loss, i.e. negligence; (2) the agent made false, misleading, or inaccurate representations concerning the sufficiency of the insurance coverage, i.e. negligent misrepresentation; and (3) the agent breached a fiduciary duty by failing to advise the insured that the insurance coverage procured was not sufficient to cover a loss.
In some cases, insurance agents/producers have no duty to advise policyholders regarding the adequacy of their insurance limits
The majority of courts that have considered this issue have held that, absent a special relationship, an insurance agent does not have a duty to inform or advise an insured regarding the availability or sufficiency of insurance coverage. See Estate of Hill v. Allstate Ins. Co., 354 F.Supp.2d 1192, 1197-98 (D. Colo. 2004)(producer has no duty under Colorado law to advise insured of availability of enhanced insurance limits); Sintros v. Hamon, 810 A.2d 553, 555-56 (N.H. 2002)(sound policy reasons weigh in favor of not imposing a duty to advise regarding limits on the producer); M&E Manufacturing Co. v. Frank H. Reis, Inc., 692 N.Y.S.2d 191, 193 (N.Y. App. Div. 1999)(ordinarily insureds are in a better position to know both their own assets and ability to protect themselves than are insurance producers and brokers and thus insureds are the final decision makers in such risk management determinations).
Absent an express undertaking to do so, neither the insurer nor its agents have any duty to disclose that the limits of insurance are sufficient or insufficient. Aetna Cas. & Surety Co. v. Summar, 545 S.W.2d 730, 733 (Tenn. 1977). A majority of states hold that only “a special relationship” between the insured and the agent could impose upon an insurance agent an affirmative duty to provide advice regarding the availability or sufficiency of insurance coverage. See Harts v. Farmers Ins. Exchange, 461 Mich. 1, 10, 597 N.W.2d 47, 52 (1999); Murphy v. Kuhn, 90 N.Y.2d 266, 269, 660 N.Y.S.2d 371, 682 N.E.2d 972, 974–75 (1997).
In Colorado, it may be difficult to establish that the policyholder justifiably relied on the alleged misrepresentations of the insurance agent
To establish a claim for negligent misrepresentation, a plaintiff must show that the defendant: (1) supplied false information to others in a business transaction, (2) failed to exercise reasonable care or competence in obtaining or communicating that information, and (3) the other parties justifiably relied on the information. Burman v. Richmond Homes Ltd., 821 P.2d 913, 919 (Colo. App. 1991). Under Colorado law, a plaintiff cannot justifiably rely on an alleged misrepresentation when that plaintiff has access to information that was equally available to both parties and would have led to the discovery of the true facts. Balkind v. Telluride Mountain Title Company, 8 P.3d 581, 587 (Colo. App. 2000). Many courts have held that once insureds are provided a copy of their policy and/or declarations page, insureds could not have justifiably relied on an agent’s misrepresentations that were contrary to the provisions of the policy. This is especially true in Colorado and other states where an insured has a duty to read his or her policy. See Spaur v. Allstate Insurance Company, 942 P.2d 1261, 1265-66 (Colo. App. 1997) (citing Concialdi v. Pueblo Gas & Fuel Co., 328 P.2d 98, 103 (Colo. 1958).).
In Colorado, an insurance agent/producer has no fiduciary duty to an insured
In order to establish a fiduciary duty, a plaintiff must demonstrate the existence of a particularized and enhanced duty of care. See Martinez v. Badis, 842 P.2d 245, 251-52 (Colo. 1992). Existing Colorado case law indicates that there is no “special relationship” between an insurance producer and an insured, and therefore there is no relationship of the type necessary to support a fiduciary duty claim. See Cary v. United Omaha Life Ins. Co., 68 P.3d 462, 466-67 (Colo. 2003) (insurance producer does not have a special relationship with an insured).
Unfortunately, in Colorado and many other states, public perception does not match the law when it comes to insurance agent services and responsibilities. Insurance television ads (“You’re in good hands with Allstate,”) and many more like State Farm’s “agent jingle” commercial are partly responsible for this misperception. Unless Colorado and other states legislate change or public awareness campaigns are better funded, it is unlikely this misperception will be corrected.
