Agents E&O Standard of Care Project
EŽƌƚŚĂƌŽůŝŶĂSurvey
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.
Manning, Fulton & Skinner, P.A.
P. O. Box 20389
Raleigh, NC 27619
Phone: (919) 787-8880
INSURANCE AGENT’S STANDARD OF CARE IN NORTH CAROLINA
By Michael T. Medford, Attorney at Manning Fulton
This article addresses the standard of care applicable to insurance agents under North Carolina
law. The article deals with the standard of care for claims by agency customers. The duty owed
by insurance agents to insurance carriers and others is beyond the scope of this article.
THE BASIC DUTY
The central governing rule is that the agent must do, with reasonable care, skill and competence,
whatever he undertakes to do for the customer. “Reasonable Care” means that degree of care
which a reasonable person would take for the protection of himself or others under all the
circumstances. In the context of insurance agents, “reasonable skill and competence” means that
degree of competence possessed by a reasonable ordinary insurance agent. If an agent holds
himself or herself out as having a greater degree of skill or competence than the ordinary
insurance agent, however, the courts may hold the agent to the higher standard represented.
As the North Carolina Supreme Court held in Wiles v. Mullinax, 267 N.C. 392, 148 S.E.2d 229
(1966), appeal after remand, 270 N.C. 661, 155 S.E.2d 246 (1967) an agent who agrees to
procure specified insurance has two related duties to his customers:
He must exercise reasonable care and skill to procure the agreed insurance.
If the agent is unable to procure the agreed insurance, he must timely notify the customer
so that the customer can attempt to obtain the coverage through other sources or take
other action to protect himself.
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If a breach of the duty is established, then the agent may be liable to the customer for the benefits
that the promised insurance would have provided if the promised coverage had been procured.
Similarly, if the agent agrees to provide the customer with advice about what insurance to obtain
or to advise the customer about the meaning of an insurance policy, the agent must exercise
reasonable care, skill and competence in providing that advice. If she provides negligent advice
– i.e. advice lacking reasonable care and skill – then she can be liable for any loss suffered by the
customer as a result of reasonable reliance on the advice.
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For example, if the agent notifies the customer that he has been unable to obtain requested automobile coverage,
the customer can elect not to drive his vehicle until coverage is located.
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LIMITS ON THE BASIC DUTY
No Duty to Procure Insurance Absent Undertaking
The basic duty discussed above applies only if the insurance agent has undertaken to procure
coverage or provide advice. An agent is not obligated to assume the duty of procuring insurance
for a customer – and therefore is not liable – if the particular coverage at issue was not requested
or promised.
For example, in Baggett v. Summerlin Ins. & Realty, Inc., 354 N.C. 347, 554 S.E.2d 336 (2001),
adopting dissent at Baggett v. Summerlin Ins. & Realty, Inc., 143 N.C. App. 43, 49, 545 S.E.2d
432, 467 (2001), the customer requested the agent to add a new business location to its existing
property insurance policy. The existing policy expressly excluded coverage for flood. Although
the new location had substantial flood exposure, the customer did not request the agent to
procure flood coverage. After the new location flooded during a hurricane, the customer brought
suit against the agent, claiming that the agent should have recommended and procured flood
insurance on the location. The North Carolina Supreme Court held that the agent was not liable
because the customer had not requested flood insurance and the agent therefore had no duty to
procure flood insurance. The Supreme Court adopted the dissenting opinion of Judge Tyson in
the Court of Appeals that stated:
“An insurance agent has a duty to procure additional insurance for
a policyholder at the request of the policyholder.” . . . “[T]his duty
does not, however, obligate the insurer or its agent to procure a
policy for the insured which has not been requested.” . . . Thus,
the insurance agent’s duty to a policyholder is limited to the nature
of the policyholder’s request to the agent.
Id. at 50-51, 545 S.E.2d at 467 (emphasis added and citations omitted).
The North Carolina courts have applied this principle in multiple other situations:
An insurance agent who procured a workers’ compensation policy for a customer
had no liability for failing to recommend or procure property insurance that would
have covered the building after substantial completion because the customer did
not request such a policy. Baldwin v. Lititz Mut. Ins. Co., 99 N.C. App. 559, 393
S.E.2d 306 (1990).
An agent who had procured a general liability policy for a business was not liable
to the customer for failing to recommend or procure workers’ compensation
coverage. The customer had not requested workers’ compensation coverage.
Bigger v. Vista Sales & Mktg., Inc., 131 N.C. App. 101, 505 S.E.2d 891 (1998).
An agent who procured the minimum limits automobile policy requested by his
customer had no duty to recommend and procure a policy with greater limits so
that plaintiff could have underinsured motorist coverage. Phillips by Phillips v.
State Farm Mut. Auto. Ins. Co., 129 N.C. App. 111, 497 S.E.2d 325 (1998).
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An insurance agent who procured the particular disability policy requested by
plaintiff did not have a duty to recommend or procure a different disability policy
that might have been preferable. Cobb v. Pa. Life Ins. Co., 215 N.C. App. 268,
715 S.E.2d 541 (2011).
An agent who procured a dwelling policy with coverage limits of $119,500 as
requested, had no duty to procure or recommend higher limits when it turned out
(after a loss) that it would require more than policy limits to actually replace the
house. Carter v. W. Am. Ins. Co., 190 N.C. App. 532, 661 S.E.2d 264 (2008).
An agent who procured coverage protecting a vacant building against fire and
other risks did not have a duty to recommend or procure a policy that also would
have protected it against theft, when theft coverage was not requested by the
customer. Rayfield Props., L.L.C. v. Bus. Insurers of the Carolinas, Inc., No.
COA12-791, 2012 N.C. App. LEXIS 1429 (N.C. Ct. App. Dec. 18, 2012)
(unpublished).
No Duty to Explain Policy Provisions Absent a Request
Unless the customer asks, the applicable standard of care in North Carolina does not require the
agent to explain policy terms. For example, in Greenway v. N.C. Farm Bureau Mut. Ins. Co., 35
N.C. App. 308, 241 S.E.2d 339 (1978) the insurance policy procured by the agent contained a
provision requiring plaintiffs to install a working telephone in order to qualify for 100%
coverage. When the house was destroyed by fire, the policyholder could not recover the full
amount of the loss because the house had no working telephone. The policyholder then sued the
agent, contending that the agent should have explained the telephone requirement to them. The
North Carolina Court of Appeals held that the policyholder did not have a valid claim:
There is conflicting testimony as to whether plaintiffs knew of the
telephone requirement. This conflict, however, does not raise a
material issue of fact. It is clearly not the duty of an insurer or its
agent to inquire and inform an insured as to all parts of his policy:
“We cannot approve the position that in the absence of a
request it was the agent’s legal duty to explain the meaning
and effect of all the provisions in the policy, . . .” Hardin v.
Liverpool & London & Globe Ins. Co., 189 N.C. 423, 427,
127 S.E. 353, 355 (1925).
Plaintiffs in this case made no request for explanation. ...
Another example is Cobb, 215 N.C. App. 268, 715 S.E.2d 541, in which the North Carolina
Court of Appeals held that the agent did not have a duty to explain the difference between “own
occupation” disability insurance and “any occupation” disability insurance in the absence of a
request by the customer.
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No Duty to Recommend Coverage Not Requested Absent Special Circumstances
Plaintiffs often argue that the insurance agent should have recommended additional or different
coverage beyond that requested. As the cases cited above suggest, however, an insurance agent
generally has no legal duty under North Carolina law to procure or recommend coverage beyond
that specifically requested by the customer. In Baggett, 354 N.C. 347, 554 S.E.2d 336 for
example, the plaintiff contended that the flood risk at the new location was so obvious that the
agent should have recommended flood insurance even if it was not requested. The Supreme
Court rejected that contention, holding that the agent’s obligation was limited to what the
customer had requested. The other cases cited above reach similar conclusions.
Lawyers for policyholder often argue that the insurance agent had a duty to recommend
additional coverage because a “fiduciary relationship” exists between and insurance agent and
his customer. A few North Carolina cases do say that insurance agents have fiduciary duties.
The two primary examples are Fli-Back Co. v. Phila. Mfrs. Mut. Ins. Co., 502 F.2d 214 (4th Cir.
1974) and R-Anell Homes, Inc. v. Alexander & Alexander, Inc., 62 N.C. App. 653, 303 S.E.2d
573 (1983).
Subsequent court cases, however, have held that an agent’s “fiduciary duty” is limited and
consists only of the duty of procuring the policy requested by the customer and providing
accurate advice, when advice is requested or given. In the recent case of Carter, 190 N.C. App.
532, 661 S.E.2d 264, the court expressly declined to extent the fiduciary duty to impose a duty
on the agent to recommend increased coverage not requested by the customer.
THE AGENT’S DUTIES CAN BE EXPANDED BY EXPRESS OR IMPLIED AGREEMENT
The discussion in Part II describes the limits on the agent’s standard of care under North
Carolina law in the absence of a different agreement between the agent and her customer. An
agent, however, can agree with the customer to assume greater duties than the law would
otherwise impose. Such an agreement can be created by express words or it can be implied in
the relationship between the parties. As noted at the beginning of Part I, the central rule is that
the agent must do, with reasonable care, skill and competence, whatever he undertakes to do for
the customer.
Express Agreements
Agents sometimes agree with a customer to review the customer’s circumstances and
recommend what insurance the customer needs. Such an undertaking by the agent creates a duty
to exercise reasonable care, skill and competence in (i) evaluating the customer’s needs, (ii)
determining what insurance would be prudent for the customer to obtain and (iii) accurately
communicating the recommendations to the customer. In other words, the agreement to perform
the risk analysis creates a duty that would not have been imposed on the agent without the
agreement.
As another example, insurance agents do not generally have a duty to advise customers on “how
much” insurance they need; but an agent may have a greater duty if she undertakes to measure
the customer’s property and estimate replacement cost for purposes of determining policy limits.
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Having undertaken such a task, the agent is required to perform it with reasonable case, skill and
competence.
Similarly, if an agent purports to explain parts of a policy, then the agent must use reasonable
care and competence to provide an accurate explanation.
Implied Undertaking to Procure or Advise
Agents can assume greater than normal duties even without expressly agreeing to do so. The
North Carolina courts have held that an insurance agent may have an implied duty to recommend
coverage not requested by the customer or to give advice not expressly requested if the
circumstances would lead a reasonable customer to believe that advice and recommendations
will be provided without request. See, e.g., Alford v. Tudor Hall & Assocs., 75 N.C. App. 279,
282, 330 S.E.2d 830, 832 (1985):
In determining whether an agent has undertaken to procure a
policy of insurance, a court must look to the conduct of the parties
and the communications between them, and more specifically to
the extent to which they indicate that the agent has acknowledged
an obligation to secure a policy. Where “an insurance agent or
broker promises, or gives some affirmative assurance, that he will
procure or renew a policy of insurance under circumstances which
lull insured into the belief that such insurance has been effected,
the law will impose upon the broker or agent the obligation to
perform the duty he has thus assumed”. . . . Further, if the parties
have had prior dealings where an agent customarily has taken care
of the customer’s needs without consultation, then a legal duty to
procure additional insurance may arise without express and
detailed orders from the customers and acceptance by the agent.
[Emphasis added.]
The Court of Appeals recently announced a similar test in determining whether an agent has an
implied duty to advise the policyholder about the scope of coverage. See, Cobb, 215 N.C. App.
at 275, 715 S.E.2d at 548:
An implied duty to advise may only be shown if “(1) the agent
received consideration beyond mere payment of the premium; (2)
the insured made a clear request for advice; or (3) there is a course
of dealings over an extended period of time which would put an
objectively reasonable insurance agent on notice that his advice
[was] being sought and relied on.” [Emphasis added; citations
omitted]
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Thus, if an agent does not want to assume a duty to provide recommendations or advice not
specifically requested by the customer, he should avoid conduct that would lead a reasonable
customer to believe that recommendations and advice will be provided without request. Conduct
that risks creating an implied duty includes, but is not necessarily limited to, the following:
Regularly taking care of a customer’s needs without advance consultation.
Recommending some types of coverage not requested by the customer without
informing the customer that the agent has not done a full risk analysis and that
there might be other types of insurance needed.
Representing that the agent has special expertise in recommending or procuring
insurance for the customer’s type of business.
Having a practice of reminding customers when they have received notices of
premium nonpayment so that the customer comes to believe that he can rely on
the agent to remind him of past due bills rather than paying attention to the bills
received directly from the carrier.
Any conduct that might create the impression that the agent will look after the customer without
specific request should be accompanied by a disclaimer (preferably in writing). For example, an
insurance proposal that offers various types of insurance should include a statement that other
types or levels of insurance are available upon request by the customer. An agent who
undertakes to explain part of a policy’s provisions should make it clear that there are other policy
provisions that might limit coverage in certain circumstances and that the customer should
review the entire policy and ask questions.
CASE STUDIES
CASE NO. 1
Line of coverage
involved
Property and Casualty
Position of person in the
agency involved
Owner of agency
Personal or Commercial
Lines
Commercial Lines
Type of coverage
involved
Flood coverage
Procedural or
knowledge-based error
Failure to document offer of flood insurance
Claimant Allegation
Claimant requested that new location be added to existing property
and casualty policy. New location was surrounded on three sides
by water, and the claimant contended that the agent failed to
recommend that flood insurance be added despite the obvious flood
risk.
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Settlement or Trial
Summary judgment granted in favor of agent and ultimately
affirmed by the North Carolina Supreme Court.
Description of alleged
error
Failure to recommend flood insurance
Tip to avoid claim
Although we won this case, the case would have been easier and
cheaper to defend if the agency had documented its offer of flood
insurance to the plaintiff in writing ― at least in an activity note in
the file and preferably in a written communication to the customer.
The case also would have been easier to defend if the “provided by
the agency” and not specified “all risk’ insurance. Although this
was a term of art in the insurance industry, the agent overlooked
that customers are not always conversant with industry terms.
Summary of Case No. 1
The plaintiff had a place of business in Jacksonville, North Carolina. She purchased property
and casualty coverage for that business through the defendant agency which quoted the
coverage as “all risk.” That policy had an express exclusion for flood coverage, and there was
no particular flood risk at the Jacksonville location.
Plaintiff subsequently contacted the agency, and advised that she was opening a new location in
Swansboro, North Carolina, which is surrounded on three sides by large bodies of water.
Plaintiff requested that the Swansboro location be added to the existing policy. The processing
agent recalled that he suggested that the plaintiff also secure flood coverage for that location,
but she declined. The agency did not document this offer in writing.
The Swansboro business flooded and suffered substantial damage during Hurricane Bertha.
Plaintiff’s insurance claim was denied based on the exclusion for flood coverage, and plaintiff
brought a lawsuit contending that (1) the agent should have recommended flood insurance and
(2) the existence of the flood exclusion was inconsistent with the agent’s original quotation on
property and casualty policy as “all risk.”
We were ultimately successful in persuading the trial and the North Carolina Supreme Court
that the disagreement between plaintiff and defendant about whether flood insurance was
offered was irrelevant because (1) the agent’s duty was limited to complying with the
customer’s request, (2) the customer’s request was to add the new location to the existing
policy, which the agent accomplished, and (3) the flood exclusion was clearly set forth in the
existing policy which plaintiff would have known if she had complied with her duty to read the
policy.
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CASE NO. 2
Line of coverage
involved
Property and Casualty
Position of person in the
agency involved
Customer service representative (licensed agent)
Personal or Commercial
Lines
Personal lines
Type of coverage
involved
Homeowners ― fire
Procedural or
knowledge-based error
Failure to procure requested coverage
Claimant Allegation
Claimant claims to have called and requested agency to procure
replacement homeowner’s policy.
Settlement or Trial
Two trials: one hung jury and one verdict for the plaintiff at
compromise amount
Description of alleged
error
Agency allegedly failed to comply with plaintiff’s request that it
procure homeowner’s coverage to replace policy that was being non-
renewed because the carrier was withdrawing from the market
Tip to avoid claim
Maintain thorough activity log documenting communications with
customers. Consider a follow-up letter to customers who have not
replaced insurance, confirming that their insurance purchased through
the agency has expired without being replaced.
Summary of Case No. 2
The agency had a substantial book of homeowner’s business with an insurance carrier that was
withdrawing from the market. All policyholders received notices from the carrier that their policies
would not be renewed, and the agency sent letters advising the customers that they could contact
the agency if they wanted the agency to obtain replacement coverage for them.
The plaintiff contended that he called the agency in response to these communications and
requested that the agency replace his coverage. The agency denied that it ever received such a call.
Unfortunately, the agency did not maintain activity logs documenting client contacts, and it did not
send follow-up letters to customers who had not responded to the invitation to replace coverage by
the time their policies expired.
Plaintiff’s house suffered a major uninsured fire loss after his policy with the withdrawing carrier
had expired. Plaintiff therefore brought a standard “failure to procure” claim.
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We defended, contending that the testimony of the agency’s customer service representatives was
more credible than the plaintiff’s testimony for a variety of reasons. We also argued that Plaintiff’s
credibility was undermined because he did not contact the agency when he did not receive a policy
or a premium bill for the replacement coverage. We also used this point to support a contributory
negligence defense.
The first trial of the case resulted in a hung jury with 10 members of the jury voting for the defense
and two voting for the plaintiff. The second trial resulted in a verdict for the plaintiff, but for
damages substantially less than claimed by the plaintiff.
CASE NO. 3
Line of coverage
involved
Property and casualty
Position of person in the
agency involved
Agency owner
Personal or Commercial
Lines
Commercial lines
Type of coverage
involved
Worker’s compensation
Procedural or
knowledge-based error
Agency mistakenly issued certificate of insurance certifying the
existence of a worker’s compensation policy that had been cancelled
months earlier.
Claimant Allegation
Building contractor who received the erroneous certificate of insurance
contended that it relied on the certificate in allowing the subcontractor
to work on the job on which the claimant was injured.
Settlement or Trial
Industrial Commission trial resulting in decision for agent
Description of alleged
error
Agent was requested to issue a certificate of insurance for a customer’s
worker’s compensation coverage to a general contractor for whom the
customer was a subcontractor. In issuing the certificate, the agent
overlooked that the policy had been cancelled several months earlier.
Tip to avoid claim
Use one of the agency management software programs that generates
certificates of insurance based on information in the computer file, and
make sure that the information in the computer is promptly updated
when policies are cancelled. Here, the agent did a manual certificate of
insurance and failed to check the file for cancellations before issuing
the certificate. Using a well maintained agency software system to
issue certificates of insurance would reduce the likelihood of this
happening.
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Summary of Case No. 3
The agency’s customer was a subcontractor on residential construction jobs. The subcontractor
purchased worker’s compensation coverage through the agency, but that coverage was cancelled
due to failure to pay audit premiums.
The subcontractor customer subsequently wanted to do work for a general contractor who, in
accordance with North Carolina law, required all subcontractors to provide certificates of worker’s
compensation insurance. The agent, forgetting that his customer’s worker’s compensation
coverage had been cancelled, sent a certificate of insurance to the general contractor.
Several months later, an employee of the subcontractor suffered a fall on the job resulting in
paralysis and a worker’s compensation claim of over $7 million. Because the subcontractor did not
have worker’s compensation coverage, the claimant contended that he was entitled to recover under
the worker’s compensation policy of the general contractor. That carrier, in turn, contended that it
was entitled to be indemnified by the agent based on the incorrect certificate of insurance. That
claim was asserted in the worker’s compensation proceeding in the North Carolina Industrial
Commission.
We contended that the Industrial Commission did not have jurisdiction over an errors and
omissions claim and, in any event, that the general contractor did not reasonably rely on the
certificate as a matter of law because North Carolina law requires the general contractor to obtain a
separate certificate of insurance for each project, and the claimant was injured on a project different
than the one on which the parties were engaged at the time of the certificate. The Industrial
Commission agreed with both of these contentions.
The entire dispute ultimately was rendered moot because the North Carolina appellate courts
concluded that the carrier that had cancelled the subcontractor’s worker’s compensation coverage
had not properly followed the statutory procedure for cancellation so that the policy was still in
effect.
CASE NO. 4
Line of coverage involved
Property and casualty
Position of person in the
agency involved
Customer service representative
Personal or Commercial
Lines
Personal
Type of coverage involved
Homeowners
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Procedural or knowledge-
based error
Filling out homeowner’s application for plaintiff without double
checking information in agency file
Claimant Allegation
Plaintiff claimed that agency agreed to procure homeowner’s
coverage for the plaintiff’s house and that the policy was rescinded by
the carrier due to misrepresentations in the application filled out by
the agency.
Settlement or Trial
Settlement for compromise amount
Description of alleged
error
Checking “no” in response to the application question about prior
cancellations when the agency that filled out the application for the
customer had documentation in its file that there had been prior
cancellations, and providing a date of construction that allegedly was
wrong.
Tip to avoid claim
If the agency is going to fill out an application for the customer, the
agent should be careful to check the entire file for all information
responsive to the application. Equally important, the agent should
have a standard practice of stressing to customers the need for them
to review and correct application entries entered by the agency before
signing.
Summary of Case No. 4
Agency’s customer called to say that she was on her way into town and would like to sign the
application for new homeowner’s coverage while there. The agent’s CSR therefore scrambled to
prepare the application quickly in order to have it ready by the customer’s arrival. In her haste, she
checked “no” to the question about whether the customer had had previous cancellations or non-
renewals. This undisputedly a mistake because the agency’s own file reflected cancellations and a
non-renewal based on payment history. The record was ambiguous about whether the agent urged
the customer to double-check all entries before signing.
The customer’s house was subsequently destroyed by fire with an alleged loss in the range of
$450,000 to $550,000. After investigation, the insurance carrier announced that it was denying the
claim and rescinding the policy due to misrepresentations on the application. In addition to the
misrepresentation about prior cancellations, the carrier contended that the application misstated the
date of construction of the house because it used the date on which the house was completely
reconstructed with respect to all elements except the frame rather than the date on which the frame
was originally constructed.
The customer brought suit against both the carrier and the agency, contending that they were
entitled to recover on their claim under the policy or, in the alternative, that the agency was liable
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for the loss because its mistakes in filling out the application resulted in a failure to procure.
Our primary defense was that the plaintiff had been contributorily negligent in signing the
application without reading it carefully and correcting the mistaken entries. We also disputed the
accuracy of the contents portion of plaintiff’s damage claim.
The case settled at mediation with the insurance carrier contributing a small amount to the
settlement and the plaintiffs accepting a substantially discounted amount in light of the contributory
negligence defense and the uncertainty about the amount of their contents loss.
CASE NO. 5
Line of coverage involved
Property and casualty
Position of person in the
agency involved
Processing Agent and CSR
Personal or Commercial Lines
Commercial lines
Type of coverage involved
Worker’s compensation and general liability
Procedural or knowledge-
based error
Failure to clarify scope of agency’s undertaking
Claimant Allegation
Plaintiff contended that the agency held itself out as having
expertise in managing claims but allowed the insurance carrier to
pay excessive claims, resulting in excessive payments under the
self-insured restrictions and in increased experience rating and
higher premiums for future policies.
Settlement or Trial
Settlement
Description of alleged error
Agency held itself out as having expertise in assisting customers
to track and manage their worker’s compensation claims.
Plaintiff contended that the agent mismanaged the portfolio of
worker’s compensation claims by failing to make sure that the
insurance carrier did not overpay the claims.
Tip to avoid claim
Be careful to clarify with the customer the limits on the agent’s
scope of engagement. Here, the agency meant that it would help
customers keep track of their worker’s compensation claims, act
as a conduit of information between the customer and the carrier
and provide risk management training to the customer’s
employees to reduce claims. The agency did not mean that it
would control the worker’s compensation carriers’ adjustment of
worker’s compensation claims. This distinction, however, was
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not particularly clear in the agency’s promotional materials and
communications with the customer.
Summary of Case No. 5
The agency’s customer had industrial locations throughout the United States with substantial
worker’s compensation exposure. The agency represented that it had expertise in recommending
various types of insurance and in managing worker’s compensation claims. The agency meant that
it would help make sure that appropriate information from the customers communicated to the
adjusters handling worker’s compensation claims for the worker’s compensation carrier, keep track
of the adjustment of high dollar claims and make suggestions to the insurance adjusters were
appropriate. Although the agency did not mean that it would micromanage the handling of
individual claims by the insurance carriers’ adjusters, this was not clearly spelled out, and the
parameters of the agent’s obligations therefore were fuzzy. The agency charged a separate fee for
its services with respect to worker’s compensation claim.
The customer subsequently brought suit alleging that the agent had been negligent in handling 26
worker’s compensation claims resulting in overpayments costing the customer between $800,000
and $1.5 million.
Our defense was that primary responsibility for adjusting the worker’s compensation claims lay
with the worker’s compensation carrier, not with the agent and that plaintiff’s claims should be
asserted against that carrier, not the agency. We also developed evidence that the customers were
wrong in contending that a number of the claims had been mishandled. Many of the customer’s
grievances arose from frustrations inherent in dealing with a significant number of worker’s
compensation claims. We also challenged damage calculation because most of the claims would
have required some payment, so that the amount that would have been paid on a well-managed
claim should be deducted from the amounts actually paid.
After we incurred the expense of extensive discovery at locations throughout the eastern United
States, the customer agreed to drop its claims against the agent in exchange for an agreement by us
not to pursue a claim for recovery of the attorney’s fees we had incurred in the defense.
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ABOUT THE AUTHOR
Michael T. Medford is a Shareholder member of Manning Fulton & Skinner PA in Raleigh and a
member of the firm’s litigation section. He has more than 35 years of experience litigating a
broad range of business and commercial disputes, including extensive experience representing
insurance professionals, insurance carriers and businesses in disputes relating to the procurement
and issuance of insurance, interpretation of insurance policies and handling of claims under
insurance policies. Mr. Medford earned his BA from the University of North Carolina in 1973,
and his JD degree from Columbia Law School in 1976.
