Court of Appeals confirms insurance agent's duty to use "reasonable care" in procuring insurance
Posted on 02/02/2016 at 10:45 AM by Mollie Pawlosky
In L40 Cattle Company, LLC v. Prins Insurance, Inc., No. 15-0232 (Iowa Court of Appeals, Jan. 27, 2016), L40 Cattle sued Prins Insurance, a procurer of insurance, for negligence, breach of contract, and breach of fiduciary duty in failing to ensure that L40 retained or obtained workers' compensation coverage, after L40 paid a monetary settlement to an injured worker. After the district court entered summary judgment on all claims in favor of Prins, L40 appealed.
Regarding the scope of Prins' duty, the Court quoted Iowa Code section 522B.11(7) (2013), Unless an insurance producer holds oneself out as an insurance specialist, consultant, or counselor and receives compensation for consultation and advice apart from commissions paid by an insurer, the duties and responsibilities of an insurance producer are limited to those duties and responsibilities. Thus, the agent's general duty is to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.
The Court held that Prins satisfied its duty by obtaining the insurance when requested and later cancelling the insurance when requested; no more was required, because Prins did not receive any additional compensation for its services. The Court also relied upon Code section 522B.11(7) to affirm the summary judgment on the breach of contract claim against Prins. The Court assumed that the section applied without affirmatively so holding. Even though the Iowa Supreme Court has not applied the section to breach of contract cases, L40 also assumed that the same standard governed tort and contract claims, and other states follow a similar approach. Regarding L40's claim that Prins breached a fiduciary duty, the Court recognized that although a breach of fiduciary duty claim could be stated against Prins, that conclusion did not aid L40. Summary judgment was again appropriate, because Prins received no additional consideration. Finally, on a tangential issue, the Court of Appeals affirmed the trial court's decision that Curt Hartog, an owner of L40, had no standing to bring a claim against Prins; Hartog failed to show that Prins owed him a special duty, or that Hartog suffered an injury different from the injury suffered by other shareholders. Nor did Iowa Code section 522B.11(7)(e) result in a different conclusion, because Hartog was not the policy owner, the person in privity of contract with the insurance producer, or the principal in the agency relationship with the producer. L40 Cattle Company, LLC v. Prins Insurance, Inc. is notable because there is scarce appellate authority addressing Code section 522B.11(7).
Coincidentally, on the same date that L40 Cattle Company, LLC issued, the Court of Appeals issued an opinion in 3140 LLC v. State Central Financial Services, Inc., which also recognized the procurer's general duty to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. Because there is scant appellate authority addressing 522B.11(7), and because the Court of Appeals applied the same section to both tort and contract claims, in the absence of guidance from the Iowa Supreme Court, L40 might seek further review from the Iowa Supreme Court, such that interested practitioners should continue to monitor the area for further developments. For questions regarding L40 Cattle Company, LLC v. Prins Insurance, Inc., or regarding commercial litigation in Iowa, contact Mollie Pawlosky.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
Categories: Commercial Litigation, Mollie Pawlosky, Banking Law
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