A few weeks ago, Corey Harris and I briefly wrote about liability that can fall back on the insured in our respective posts, Errors in Insurance Application May Leave You with No Coverage and More on Errors in Insurance Applications. This week, presents a situation in which liability may fall back on the insurance agent. Similar to the situations mentioned the posts above, an insurance agent may be liable for errors in an insurance application, for giving improper insurance advice, or negligently failing to procure insurance for a customer. The laws vary from state to state, but generally insurance agents owe a duty to their customers, that, if breached, could make an insurance agent liable for resulting harm.
In Florida, the Supreme Court has recognized that an insurance agent may be liable to a customer under theories based both in contract and negligence. See Wachovia Ins. Services v. Toomey, 994 So. 2d 980, 990 n.4 (Fla. 2008). In Toomey, the Florida Supreme Court noted that an insurance customer may sue his or her insurance agent for negligence if:
 [the insurance agent] knew or should have known that the [customer] ‘wanted to purchase [an] insurance policy…;’  that [the insurance agent] owed a duty to the [customer] to procure such an insurance policy;  that [the insurance agent was] negligent in failing to procure such an insurance policy; and  as a result of [the insurance agent’s] negligence, damages were suffered. Romo v. Amedex Ins. Co., 930 So. 2d 643, 653 (Fla. 3d DCA 2006).
Also in Toomey, the Court noted that an insurance agent owes a duty of reasonable care in rendering advice on insurance matters. Insurance agents generally know about this duty and purchase errors and omissions insurance (E&O insurance) to protect themselves from liability if that duty is breached.
In a recent news story out of Georgia, The Brunswick News reported that Glynn County Georgia continued paying thousands of dollars in insurance premiums for a building even after the building was razed in 2003. The county’s insurance agent admitted that his agency was responsible for a clerical error on the policy, asserting that the policy was actually intended to cover the building next door to the demolished building. The agent had reason to believe that the insurance company would have honored a claim made on the intended property, but was also quick to point out that the insurance agency “carries a significant amount of ‘errors and omissions insurance’ that would have covered a claim.” The insurance agent obviously wanted the article to be clear that his client would have been covered despite his error.
While each case depends on the specific facts leading to the problem and the particular law of the jurisdiction, generally, if it turns out that an insurance claim is denied because there is no coverage due to an insurance agent’s error, the insured may able to collect from the insurance agent or the agent’s errors and omissions insurance. However, the amount of damages that may be recovered from the agent or E&O insurance is generally limited to the terms of the policy that the customer should have received. See Klonis v. Armstrong, 436 So. 2d 213 (Fla. 1st DCA 1983).