Continuing Saga: For Whom Does the Insurance Agent Work?
The question often arises in insurance litigation concerning whether the insurance agent is an "agent" for the insurance company, or an agent for the insured. Whenever this issue arises, the insurance industry argues that the agent is the agent of the insured. This way, the insurance company can argue that any mistakes by the agent can't be used against the insurance company.
I previously wrote on ways to prove an agent is the agent for the insurance company. That article can be accessed by clicking here. In a recent article, Joe Plumeri, head of Willis Group Holdings (an international insurance brokerage firm), points out another good reason that insurance agents should be considered agents of the insurance company. Mr. Plumeri discusses the practice of insurance agents accepting contingency fees paid to the agents by the insurance companies.
Mr. Plumeri, chairman and chief executive officer of Willis, wrote that “whether you’re a big global broker like Willis or a local insurance agency…you can only serve one master. It’s either the carrier or the client. You can’t work for both.”
Mr. Plumeri wrote that those who accept volume-based contingent bonuses might be tempted to compromise their primary duty to place a client’s business with the best company for the best terms and price, while profitability-based fee deals create a disincentive to provide aggressive claims service.
“Willis, unlike most retail brokers and agents, has planted its flag firmly on the side of its clients. That means not taking bonuses from insurance companies that would put us at odds with our clients’ best interests,” he wrote.
Addressing a more fundamental issue, he added that when doing business with an agent, buyers should be aware that “they are dealing with a sales representative of the insurance company. There is nothing ‘independent’ about an independent agent. They work for the carrier, not the customer.”
He also wrote that since “some agents count on these [contingent] payments for, maybe, 100 percent of their annual profits…those who buy coverage through an agent should know those agents aren't’t obligated to get them the best price, terms and conditions, or fight for them when they have a claim. No amount of compensation disclosure will change that fact.”
In many cases, the insurance agent makes a mistake during the application and procurement process. If the agent is the "agent" of the insured then the insurance company is not responsible for the results of those mistakes. But, if the agent is the "agent" for the insurance company, then the insurance company can be held responsible for those mistakes. Thus, in the cases where the agent makes a mistake, either in the application or procurement of insurance, it is critical that the insured prove that the agent is the agent for the insurance company.
In every litigated case where this issue arises, the attorney for the insured should dig deeply into the agreements between the insurance company and the insurance agent. Further, the attorney must be aware that these contingent bonuses may be set forth in a stand alone agreement separate and distinct from any other agreements between the insurer and the agency. These contingent bonus agreements may not even be in writing, so the attorney must thoroughly explore this issue during deposition discovery. Obviously, this compensation structure helps prove for whom the insurance agent is actually working. Additionally, the agreements between the insurance agent and the insurance company typically show a high degree of control by the insurance company over the insurance agent. This level of control is another strong indicator that the agent is the actual agent of the insurance company.
