Articles

Indiana Supreme Court Leaves Door Open For Expanding Insurance Broker Duties

In March of this year, the Indiana Supreme Court issued a split decision in addressing a familiar fact pattern involving whether the extent of duty owed by an insurance broker included the duty to advise concerning the adequacy of coverage.  In Indiana Restorative Dentistry PC v. The Laven Insurance Agency Inc. et al., case number 49S05-1407-PL-491, the Court declined to accept the underlying insured’s assertion that an implied contract existed pursuant to which the insurance broker defendant agreed to secure “full coverage,” but it concluded nonetheless that a question remained as to whether a sufficient “special relationship” could be established to impose a duty on the defendant broker to advise regarding sufficiency of coverage.

This case arose from an underlying fire which caused extensive damage to a dental office and its contents.  The dental office was underinsured.  The policy which had been procured by the broker defendant paid the limits on the claim, leaving a shortfall of approximately $500,000.  The dental office alleged that its broker breached its duty of care to advise that its insurance coverage was inadequate, a duty that it claimed should be imposed as a result of an alleged “special relationship” resulting from their business relationship of more than 15 years.  It contended further that the longstanding relationship with the defendant broker created an implied contract that obligated the broker to advise as to the inadequacy of the coverage.

The Indiana Supreme Court rejected the implied contract claim, determining that there had not been a “meeting of the minds” regarding the specific extent of coverage that the dental office sought.  While it stopped short of holding that a contract could never be implied that would impose on a broker the responsibility for securing “full coverage,” the Supreme Court held that the facts did not support an implied request to secure coverage for all potential risks since the insured had made an insufficiently definite request for coverage.

However, the Supreme Court was more receptive to the dental office’s tort claim for breach of an alleged duty to advise. The Court reversed, and held that the dental office was entitled to have a jury make a factual determination concerning the existence of a “special relationship,” which could theoretically give rise to a duty to advise on the part of the insurance broker defendant.  Though it held that mere duration of a relationship is not conclusive, the Supreme Court explained that the nature of the relationship could create a duty to advise regarding adequacy of coverage.  In considering whether a “special relationship” existed, the Court explained that the fact finder should be guided by four factors, including the extent of discretion afforded the broker, whether the broker demonstrated a particular expertise regarding the insurance sought and/or held itself out as an expert in the particular type of insurance, and whether the broker received compensation above the customary premium paid.  While the Supreme Court noted that only one prior decision involving an insurance broker defendant found that a “special relationship” existed, it did identify mixed evidence in the record presenting potentially conflicting inferences regarding whether the nature of the relationship rose to a “special relationship” level.

When disaster strikes, insurance broker defendants are commonly confronted with claims that they failed to secure adequate coverage.  Many of those claims will turn on the extent of the duty owed based on tort and/or contractual principles applied in the particular jurisdiction.  Indiana Restorative Dentistry PC offers policyholders, in Indiana at least, a path to potentially circumvent the threat of summary disposition of their claims based on implied duties not reflected by the actual terms of the parties’ contracts.

Related Practices

• Professional Liability