Presented by the Insurance Agents & Brokers Liability Practice Group

A Primer on Insurance Agents and Brokers Liability in Maryland

July 6, 2018

Courts in Maryland have long held that an independent insurance broker (or agent) is viewed as an agent of the insured, not the insurer. In American Casualty Co. v. Ricas, 179 Md. 627, 631 (1941), the Maryland Court of Appeals first considered whether an insurance broker who placed policies with several insurers, and who was not employed by any single insurer (i.e., a captive agent), was to be deemed an agent of the insurer. The court reasoned:

[A]n insurance agent, so far as the insurer is concerned, is a person expressly or impliedly authorized to represent it in dealing with third parties in matters relating to insurance, and an insurance solicitor, or broker, is one who acts as a middle man between the assured and the insurer, and who solicits insurance from the public under no employment from any special company, but having secured an order, either places the insurance with a company selected by the assured, or in the absence of any selection by him, then with a company selected by the broker. Ordinarily, the relation between the insured and the broker is that between principal and agent. An insurance broker is ordinarily employed by a person seeking insurance, and when so employed, is to be distinguished from ordinary insurance agent, who is employed by insurance companies to solicit and write insurance by, and in the company.

Thus, in light of this principal/agent relationship, an independent agent or broker generally owes a duty “to exercise reasonable care and skill in performing his duties. And if such a representative fails to do so, he may become liable to those…who are caused a loss by his failure to use standard care. Typically, the…duty of an agent or broker stems from a relationship of ‘confidence and trust’ that an insured has placed in an ‘experienced and knowledgeable’ insurance agent or broker.” Sadler v. Loomis Co., 139 Md. App. 374, 395-96 (Md. Ct. Spec. App. 2001) (citations omitted). See also Insurance Co. of N. Am. v. Miller, 362 Md. 361, 386 (2000) (“Like conventional agents, an insurance agent must exercise reasonable care and skill in performing his duties. And if such a representative fails to do so, he may become liable to those, including his principal, who are caused a loss by his failure to use standard care.”) (citations omitted).

An insurance agent or broker who fails to meet the standard of care under the circumstances may be sued in tort (negligence) or contract. See Popham v. State Farm Mut. Ins. Co., 333 Md. 136, 153 (1993) (“The principal may sue the agent, either in contract or for negligence in the performance of the duty imposed by the contract.”). To establish a valid cause of action in negligence, a plaintiff must prove the existence of four elements: (1) that the agent/ broker was under a duty to protect the plaintiff from injury; (2) that the agent/ broker breached the duty; (3) that the plaintiff suffered actual injury or loss; and (4) that the loss or injury proximately resulted from the agent/broker’s breach of the duty. See Miller, 362 Md. at 387 (citations omitted). In order to recover on a breach of contract claim, a plaintiff must prove that two or more parties formed a contract, that the defendant breached the contract, and that the plaintiff suffered actual damages as a result of the breach. See Parlette v. Parlette, 88 Md. App. 628, 640 (Md. Ct. Spec. App. 1991) (Permitting breach of contract claim against insurance agent by third-party beneficiary of insurance policy).

On the other hand, an agent or broker does not have a continuing, affirmative duty to render unsolicited advice to the insured concerning the advisability or availability of liability coverage in a greater amount than was selected by insured. Rather, “the onus is…squarely on the insured to inform the agent of the insurance he requires.” Sadler supra at 378. Furthermore, “[i]t is the obligation of the insured to read and understand the terms of his insurance policy, unless the policy is so constructed that a reasonable man would not attempt to read it. . . . If the terms of the policy are inconsistent with his desires, he is required to notify the insurer of the inconsistency and of his refusal to accept the condition.” Cooper v. Berkshire Life Ins. Co., 148 Md. App. 41, 61 (Md. Ct. Spec. App. 2002). The failure on the part of the insured to meet this obligation may give rise to a defense of contributory negligence that will serve as an absolute bar to recovery on a negligence claim. See Int’l Bhd. of Teamsters v. Willis Corroon Corp., 369 Md. 724, 738-39 (2001) (“The alleged duty to read the policy also lies at the heart of the contributory negligence defense asserted to a claim of negligence on the part of the broker. If that duty is breached and the breach constitutes at least a contributing cause of the loss complained of—the lack of coverage—there can be no recovery.”).

Chris is a shareholder in our Harrisburg, Pennsylvania office who is admitted to practice in Maryland, New Jersey and Pennsylvania. He can be reached at cjconrad@mdwcg.com.

_{The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive this complimentary Legal Update for Insurance Agents & Brokers, please contact tgventura@mdwcg.com. If however you continue to receive the alerts in error, please send a note tgventura@mdwcg.com.}