Agents E&O Standard of Care Project
Pennsylvania Survey
To gain a deeper understanding of the differing agent
duties and standard of care by state, the Big “I” Profes-
sional Liability Program and Swiss Re Corporate Solu-
tions surveyed their panel counsel attorneys. Each
attorney was asked to draft a brief synopsis outlining
the agents’ standard of care in their state. They were
also asked to identify and include a short summary of
the landmark cases. In addition, many of the summa-
ries include sample case studies emphasizing how
legal duties and issues with standard of care effected
the outcome. Finally, recent trends in errors in the
state may also be included.
This risk management information is a value-added
service of the Big “I” Professional Liability Program
and Swiss Re Corporate Solutions. For more risk man-
agement information and tools visit
www.iiaba.net/EOHappens. On the specific topic of
agents’ standard of care check out this article from the
Hassett Law firm, our E&O seminar module, and this
risk management webinar.
Disclaimer: This document is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re
shall not be held responsible in any way for, and speciϔically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the
information contained or referenced in this document. The information contained or referenced in this document is not intended to constitute and should not be
considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this document
do not necessarily represent the views of the Swiss Re Group ("Swiss Re") and/or its subsidiaries and/or management and/or shareholders.
CIPRIANI & WERNER
A PRO F ESSIO N A L COR P ORATION
_______
www.C-WLAW.com
ATTORNEYS AT LAW
Suite 700
650 Washington Road
Pittsburgh, Pennsylvania 15228
Telephone (412) 563-2500
Fax: (412) 563-2080
Summary of Law of Insurance Agent/Broker Standard of Care
Pennsylvania
Under Pennsylvania law a plaintiff may have a claim against his insurance agent/
broker when the broker fails to procure the insurance coverage requested, does not follow
the instructions of the client, or where the policy is void or materially defective through the
broker’s fault. The duty of care owed is to obtain the coverage that a reasonably prudent
professional insurance broker would have obtained under the circumstances. The broker’s
duty of care is subject to the client’s contributory negligence such as failing to provide the
requisite information for the broker to procure coverage which may bar the client’s claim.
Pennsylvania does not impose a general duty to advise. Such a duty may be imposed,
however, where the broker undertakes to act and does so negligently or where a
special/confidential relationship with the client exists. The determination of whether a
special relationship exists is fact-driven and turns on whether the broker acted as an
insurance advisor/consultant, or as an intermediary to facilitate the purchase of insurance
selected by the client.
Pennsylvania Cases
Laventhol & Horwath v. Dependable Ins. Assoc. Inc., 579 A.2d 388, 391 (Pa. Super.
1990) (plaintiff may acquire cause of action against insurance broker where the broker
neglects to procure insurance, or does not follow instructions of the client, or where the
policy is void or materially defective through broker’s fault).
Berlin v. Md. Cas. Co., No. 99-09597, 2002 Pa. D&C Cnty. Dec. Lexis 168 (Dec. 19,
2002) (standard of care is to obtain coverage reasonably prudent professional would under
circumstances but where insured fails to provide information necessary to procure
coverage failure may constitute contributory negligence and bar negligence claim; liability
for gap in coverage under builder’s risk policy for special project lies with plaintiff who
after inquiring failed to respond to broker’s questionnaire and other follow-up regarding
high value construction project).
Northwest Mut. Life Ins. Co. v. Babayan, Civ. A. Nos. 03-717, 03-1622, 2004 U.S. Dist.
Lexis 17155 at *59-60 (E.D. Pa. Aug. 25, 2004) (standard of care is to provide professional
services consistent with those expected of the profession; allegations that broker failed to
properly record answers to medical questions on disability policy not actionable; plaintiff
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knowingly withheld medical information on application which cause carrier to rescind
policy).
Wisniski v. Brown & Brown Ins. Co. of PA, 2006 Pa. Super 216, 906 A.2d 571, 579 (Pa.
Super. 2006) (insurance broker is middle-man between insured and insurance company
and relationship is arm's-length; broker/client relationship is not always or even generally
confidential but for great majority of cases is not; in arm’s-length insurance transaction,
insured is presumed to know type of insurance coverage needed); (broker is not under
affirmative duty to inspect a property and recommend flood insurance for commercial
building).
Allegrino v. Conway E&S, Inc., Civ. Action No. 09-1507, 2010 U.S. Dist. Lexis 106734
(W.D. Pa. Oct. 6, 2010) (applying Pa. law and citing Wisniski -- no general duty to advise as
to appropriate commercial insurance to protect plaintiff’s business interests; plaintiff
alleged sufficient facts for claim that broker undertook to procure/add certain coverage s
but not to show breach of duty to recommend appropriate insurance).
Stern Family Real Estate Partnership v. Pharmacists Mutual, Civ. A. No. 06-130, 2007
U.S. Dist. Lexis 22296 (W.D. Pa. Mar. 27, 2007) (applying Pa. law and citing Wisniski; no
general duty to provide insurance advice absent a special relationship; agent who
undertakes to provide advice regarding coverage by conducting review, including visiting
property, meeting and consulting with client, measuring building, and recommending
policy limits, assumes a duty by affirmative actions and may be liable for negligent
performance).
Dardzinski v. Foley Ins. Agency, Inc., No. 04141, 2009 Phila. Ct. Com. Pl. Lexis 178
(Aug. 25, 2009) (noting distinction between allegations of reliance on specialized skill of
professional broker and special/confidential relationship; plaintiff failed to alleged
sufficient to show special relationship for claim of breach of fiduciary duty even though
agency held itself out as insurance counseling and brokerage business).
Case Study No. 1
DO YOU KNOW ENOUGH ABOUT YOUR CLIENT’S BUSINESS?
a. Line of coverage involved General Liability/Commercial Auto
b. Position of person in the agency involved Licensed Producer and CSR
c. Personal or Commercial Lines Commercial
d. Type of coverage involved Non-owned/hired auto
e. Procedural or knowledge-based error Both
f. Claimant Allegation Failure to recommend, advise, explain
g. Settlement or Trial Settlement
h. Description of alleged error Failure to offer non-owned hired auto
i. Tip to avoid claim Know your client’s business; document the file
j. Summary of case
Page 3
A CSR took an unsolicited call from a business owner who bought and sold used
steel pipe. The business owner had operated for over 17 years without business insurance.
He was in immediate need for commercial general liability coverage with $1M limits to
satisfy the insurance requirements of a large company with whom he was doing business.
The business owner had no employees, worked in an office in his home, had telephone calls
with various companies to buy used pipe and contracted the loading, transport, and
delivery of the pipe to the buyer. What he failed to tell the agency at the time insurance
was initially sought, was that he did go on site to oversee the loading of pipe onto the hired
tractor-trailers.
The agency obtained CGL policy for its new client for the year at issue and renewed
the coverage for a number of years thereafter without incident. At the time of the second
policy renewal the client advised the agency that he had purchased trailers that would be
used by the contract carriers he engaged to haul the pipe and requested coverage for the
trailers. The agency obtained coverage under the CGL policy advising the client that
coverage was only for the time the trailers were stationary and communicated this to the
insured. Eventually, the trailers were all sold and the coverage dropped. The CSR told the
client that there would be coverage for the trailers while “on the road” through the contract
carrier’s insurance and that he must obtain certificates of insurance from their carriers to
show that his company was listed as an additional insured. There was no follow up on this
issue.
The E&O claim against the agency arose following a tragic automobile accident
involving the death of a mother and her adult daughter when a tractor-trailer loaded with
used pipe being transported by a contract carrier decoupled due to a malfunction or
alleged overloading. The client was sued in the wrongful death actions brought on behalf of
the women’s estates and tendered his defense to the CGL carrier which denied coverage
based upon the auto exclusion. The carrier was a non-admitted carrier that drafted its own
exclusionary provision that had changed several times over the years including with regard
to “loading and unloading.” The client sued the CGL carrier and, in the alternative, the
agency for failing to provide suitable and appropriate coverage for his business and to
advise the business owner of the effect of the carrier drafted exclusion. The case was
defended on the basis that there is no general duty in Pennsylvania imposed upon an
insurance broker to advise of or recommend specific coverages or explain standard
exclusions under Pennsylvania law and because there was no request for or failure to
procure a specific type of coverage. Contributory negligence was asserted as a complete bar
based upon the client’s failure to provide requisite information for the broker to procure
the correct coverage.
What helped the defense:
The description of the client’s business was documented in the file sufficient
to show that the client gave inconsistent testimony regarding what he told the agency
about his business.
Page 4
The agency prepared a written proposal for insurance that the agency was
only quoting commercial general liability coverage. The proposal had adequate disclaimer
language.
The agency transmitted the policy to the client in a timely fashion and noted
each year the changes to the policy including the amended auto endorsement exclusion
when it was first added to the policy. The transmittal letter also asked the client to contact
the agency if he had any questions regarding the endorsement.
Teachable moments:
Ask the hidden questions behind the information volunteered by the client
about their business.
Having suggested that the client require additional insured status, the agent
failed to followed up with the client. The suggestion was not documented in the file to the
client but was in correspondence to a third party. The better practice would have been a
letter to the insured or note to the file with follow up.
No inquiry was made, prior to the accident, or after the client purchased
trailers, to determine whether the insured maintained commercial auto coverage with non-
owned hired endorsement or whether non-owned hired coverage could be endorsed to the
CGL policy.
When the carrier first amended the exclusionary language the producer
asked the CSR to request that the carrier remove the amendatory endorsement. The
carrier replied that the change was mandatory for all policies. This inquiry raised an
inference in the case that the agency had undertaken to act. The request and carrier
determination was not communicated to the insured.
After the claim was made the agency learned the client had commercial auto
coverage through another agent and carrier for his personal autos. The CSR told the client
to call the agent and ask whether the auto policy included non-owned hired coverage. This
post-claim communication was documented in the file and pointed to the agency’s
knowledge that such coverage might have been considered earlier in time. Best practices
are to provide notice of the claim and not comment on or provide opinions or advice after a
claim is filed.
Case Study No. 2
DO YOU KNOW ENOUGH ABOUT YOUR CLIENT’S PROPERTY?
a. Line of coverage involved Homeowners/Travel Trailer
b. Position of person in the agency involved Licensed CSR
c. Personal or Commercial Lines Personal
d. Type of coverage involved Flood
e. Procedural or knowledge-based error Both
f. Claimant Allegation Failure to obtain full coverage, explain exclusion
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g. Settlement or Trial Trial/Non-Suit
h. Description of alleged error Failure to recommend flood/proximity to creek
i. Tip to avoid claim Ask questions; document your file
j. Summary of case
A 20+ year homeowner’s insurance client of the agency purchased a trailer and
contacted the agency about obtaining insurance for the trailer which would be
permanently parked at a campground and used as a seasonal home on weekends and in the
summer. The trailer would be located within close proximity to a creek that traversed the
property. Following this first inquiry for insurance, the agency received calls from three of
the client’s relatives who also had trailers at the campground. Based upon the information
provided by the clients, the agency procured “manufactured home” insurance policies
written by a carrier who specialized in such insurance. The policies provided coverage
similar to homeowner’s insurance and like homeowner’s insurance contained a flood
exclusion.
Not long after the coverage was in place, three of the trailers were damaged beyond
repair and one swept away in flood water following a 100 year-flood event. Plaintiffs
tendered their claims to the insurance carrier which denied coverage based upon the flood
exclusion. Plaintiffs brought suit against the insurance carrier, the insurance agency, and
others. After the flood, the clients learned that some of the other trailer owners had “travel
trailer” insurance that provided comprehensive auto coverage for trailers that were taken
“on the road” and did not exclude flood. One trailer owner had insurance for his stationary
trailer that did not exclude flood coverage.
Plaintiffs brought suit against the carrier and agency. At trial, plaintiffs testified that
they requested insurance for their “travel trailers” and “full coverage” in their
communications with the agency. This testimony conflicted with notations in the client
files that the trailers would be stationary or permanently parked. Plaintiffs also admitted
that they were aware of the proximity of the creek to their trailers but did not request or
make inquiry about flood insurance.
The agency files had applications for the policies signed by the insureds that showed
plaintiffs applied for “manufactured home” (not travel trailer) policies. The plaintiffs
testified that after filling out and returning the applications some received a declarations
page and some the policy which referred to the insurance as a “manufactured home policy.”
To varying degrees the plaintiffs read the declarations and the policy, but didn’t notice the
exclusion, received the declarations and the policy but did not read them, or claimed not to
have received them at all. The agency file did not contain policy transmittal letters.
Plaintiffs asserted that the agency owed a duty to them to disclose that the insurance
policies did not provide "full coverage." According to plaintiffs, they had a reasonable
expectation that they would receive insurance coverage for any occurrence/peril.
At the conclusion of the plaintiffs’ case, the carrier and agency moved for and were
granted a nonsuit. The trial court’s nonsuit was affirmed on appeal. Key to the decision
Page 6
was the fact that the plaintiffs did not request flood coverage. The court also found that it
was unnecessary for the declarations page to note the flood exclusion because there was a
reference to the policy form which contained the exclusion. For those plaintiffs who
claimed they did not receive or read the policy, the court held that they were nonetheless
responsible for knowing its provisions. As to the agent’s duty to inspect and recommend
flood insurance, the Court stated that the Wisniski case was properly applied.
What helped the defense:
The agency files were documented with notes from the telephone calls with the
clients showing that they requested insurance for trailers that would be stationary
or permanently parked and used as seasonal homes.
The declarations issued by the carrier upon which the agency added typewritten
information regarding policy forms and endorsement contained an adequate
disclaimer that the insured should review the policy.
Plaintiffs’ testimony that full coverage means without any exclusions was not
credible.
The seminal Wisniski decision was rendered during the course of the litigation and
applied to the effect that there was no agency duty to inspect the property and
recommend flood insurance.
Teachable moments:
The agency file did not contain policy transmittal letters or other documentation
telling the insured to read their policy and call with any questions or if they needed
additional coverage.
The CSRs involved did not read the policy nor was it their practice to tell clients to
do so.
The agency followed a protocol in asking certain underwriting questions for the
application, but did not inquire as to whether these vacation trailers were located
near a body of water.
To the extent the agency added typewritten notations on the declarations that
certain perils were excluded from the policy, the better practice was to include the
flood exclusion.
Case Study No. 3
DO YOU HAVE ACCESS TO SPECIAL MARKETS FOR NEW LAST MINUTE CLIENT?
a. Line of coverage involved Commercial Package
b. Position of person in the agency involved Licensed Agent/Producer
c. Personal or Commercial Lines Commercial
Page 7
d. Type of coverage involved Garage/Repossessor’s Liability/“On Hook”
e. Procedural or knowledge-based error Procedural
f. Claimant Allegation Failure to timely/costly effect coverage
g. Settlement or Trial Settlement
h. Description of alleged error Untimeliness, lack of available markets
i. Tip to avoid claim Don’t procrastinate; update client
j. Summary of case.
A business owner with specialized insurance needs, in a very limited market,
contacted an agent in response to an agency marketing brochure that stated the agency’s
experience in providing business insurance. Unbeknownst to the agent, the business owner
was in a dispute with his current agent for not helping him with a large claim and was told
that the agent no longer wanted to do business with him and would not renew the
insurance. The existing coverage was set to expire in less than two months. The agency
agreed to assist the new client. The client supplied the agent with a certificate of insurance
that listed the coverages he needed, but the agent was unable to find a carrier to write the
coverage. The day before the existing package policy was to expire, the agent met the client
with a proposal for commercial auto coverage only, at a cost far in excess of the auto
coverage for the prior year. The client accepted the proposal, knowing that the other
coverages would not be supplied in time and agreed to allow the agent to continue looking
for a package policy. The agent had the client sign the insurance proposal and an
application for commercial auto coverage only.
A few months later the agent found a carrier willing to write a package policy, again,
at a cost well in excess of the prior year. The client accepted the high cost coverage but then
went to a specialty broker he found on the Internet and was able to obtain replacement
coverage at a much cheaper premium. The client sued the agency claiming it was negligent
in failing to obtain adequate coverage at a competitive price seeking damages for his out-
of-pocket premium costs and lost profits for business suspended by his customers due to
lack of evidence of adequate insurance coverage. The case was settled after a jury was
selected for the out-of-pocket loss only.
What helped the defense:
The agent obtained the client’s signature on both the application and proposal for
insurance for commercial auto coverage only, which called into question the client’s
oral testimony that he thought that he was receiving all of the coverages necessary
for his business.
Teachable moments:
No one at the agency had any prior experience with a client in this line of business
and had no access to specialty carriers.
The agent did not maintain contact with the client and communicate with him about
the difficulty she was having finding a carrier willing to write the coverage.
Page 8
To the extent there were communications with the client prior to the day before the
expiration of the prior policy there was no documentation in the file reflecting such
communications.
