A “Wyatt” Standard for Insurance Brokers?
Mortgage Vintage, Inc.
In November of 1966, Joseph and Clarice Wyatt walked into the Stockton office of Union Home Mortgage to borrow $2,500. They had no idea that the loan(s) they would get, and the ultimate litigation, would be referenced in numerous lawsuits against brokers, well into the next century. Union, as a broker, failed to draw Wyatt’s attention to specific, unfavorable clauses in the loan, allegedly “breaching their fiduciary duty.” They were found, among other allegations, to have engaged in a “conspiracy” against the borrower. The case is often referenced in litigation, to indicate a broker’s duty to look out for the interests of the borrower.
Punitive damages were awarded against the broker – $200,000. That was “a lot of money” in 1979, the year the broker lost their appeal.
In the world of insurance brokerage, a new decision, Murray v. UPS Capital Management, seems to impose a “Wyatt-like” duty on insurance brokers. Basically, Murray sued the insurance broker for failing to make the insurance policy understandable. (Can insurance brokers really do that?) The policy he purchased didn’t even cover the ultimate loss against which he sought to be insured.
The decision considered that the broker, (UPS) held themselves out as specializing in the type of insurance purchased by Murray.
In lawsuits against mortgage brokers, Wyatt v. Union Home Mortgage is cited in at least one out of three cases. It’s interesting to see Murry v. UPS as the “Wyatt” of insurance brokerage. More important to us, it may help expand our understanding of the standards imposed by Wyatt, something we should all be aware of. Consider Googling Wyatt v. Union Home Mortgage. Reading the first eight or so paragraphs will give you a good overview of the issues. An interesting note, one of the attorneys in the appellate case was Bruce H. Newman, who was the original General Counsel for CMA (before Phillip M. Adleson and now, Robert Finlay).
A special thanks to Attorney Craig Forry, of Forry Law, author of the following article about Murry v. UPS Capital Insurance Agency, Inc. He was kind enough to allow us to provide his article along with this introduction. I’m fortunate to be on Mr. Forry’s e-mail list (www.ForryLaw.com).
In the recent decision in Murray v. UPS Capital Insurance Agency, Inc., the California appellate court reversed the trial court’s granting of summary judgment, and remanded the action for a jury trial, because Murray raised triable issues of fact as to whether UPS Capital undertook a special duty by holding itself out as having expertise in inland marine insurance, and Murray reasonably relied on its expertise. Murray purchased used computer equipment worth nearly $40,000, which was damaged by the United Postal Service (UPS) while it was being transported from California to Texas. Murray believed he purchased appropriate insurance to cover the loss, but the insurance company denied his claim.
Murray sued his insurance broker, UPS Capital Insurance Agency (UPS Capital), for breach of contract and negligence. He asserted UPS Capital owed him a special duty to make the insurance policy language understandable to an ordinary person and to explain the scope of coverage. The court granted UPS Capital summary judgment after concluding there was no heightened duty of care and dismissed Murray’s lawsuit.
On appeal, Murray asked to create a new rule that brokers/agents, specializing in a specific field of insurance, who hold themselves out as experts, are subject to a heightened duty of care towards clients seeking that particular kind of insurance. The appellate court declined the invitation to create a per se rule; however, it reversed the judgment and remanded the matter, and in doing so confirmed some basic principles of liability for insurance brokers/agents.
In 2018, Murray contacted UPS Capital and requested insurance coverage for a shipment that same day from California to Texas. He completed UPS Capital’s form application for a house policy coverage and paid $350. On the form, Murray described the shipment as used computer equipment valued at $37,000. That same day, Tokio Marine America Insurance Company (Tokio) issued a Marine Certificate of Insurance (Certificate), which Murray believed fully insured the shipment in the event of any loss or damage by UPS. The Certificate contained a Free From Particular Average (FPA) provision, providing a limitation on coverage.
At some point during the shipment to Texas, UPS damaged the equipment and Murray submitted a $36,666.85 claim. Tokio rejected the claim on the grounds the coverage Murray purchased did not cover the loss. Specifically, Tokio argued the Certificate’s FPA provision did not apply to the shipping damages. Murray later learned the policy covered only catastrophic losses such as the entire destruction of the vehicle in which the shipment was carried by UPS, and not damage caused by factors other than a catastrophic loss such as mishandling the freight or other causes.
Murray sued UPS Capital, and his negligence claim was based on the premise UPS Capital owed a special duty to the public and to Murray to exercise reasonable care in its dealings including a duty of disclosure to inform Murray of the products available to cover in-transit cargo loss and damage in the absence of a catastrophic loss and further to fully explain technical provisions such as the FPA provision.
Murray maintained UPS Capital breached its duty of care by failing to fully explain the FPA provision in the Certificate, by not disclosing other available insurance products to Murray, and by not giving Murray the opportunity to purchase insurance that would cover loss or damage caused by factors other than a catastrophic loss. Murray argued an insurance agent may assume additional duties by an express agreement or holding itself out as being a specialist. Because UPS Capital held itself out as having expertise, it had a duty to inform Murray of the basic coverage details of the insurance policy.
The trial court granted UPS Capital’s motion for summary judgment and dismissed the lawsuit, concluding California law is well settled as to the limited duty of insurance brokers, which is only to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. Murray contended the trial court erred because he presented facts establishing UPS Capital owed a heightened duty to advise Murray that All-Risk insurance was available and/or explain the limitations of FPA coverage.
The appellate court found no published cases on the issue of whether insurance brokers, selling one kind of policy, automatically assume additional duties simply because they are specialists, implicitly holding themselves out as having expertise in that given field of insurance. Murray proposed it create a per se rule imposing a heightened duty of care for all specialized agents/brokers.
While the appellate court declined to institute such a rule, it concluded public policy supports the creation of a reasonable inference of expertise when there is evidence the agent specializes in a particular field of insurance.
The undisputed evidence of UPS Capital’s specialization, in addition to Murray’s other evidence, created a triable issue of material fact that, if found true in Murray’s favor, would show UPS Capital assumed a special duty to advise Murray about the limited coverage available to ship his used goods with UPS.
As a general rule, an insurance agent assumes only those duties found in any agency relationship such as reasonable care, diligence, and judgment in procuring the insurance requested by an insured. An insurance agent has no duty to affirmatively advise an individual seeking insurance about different or additional coverage. There is no fiduciary duty to (1) make available to them a particular kind of insurance, (2) advise them of the availability of such coverage elsewhere in the industry, or (3) advise them of inadequacies in coverage of which plaintiffs should, as reasonable persons, have themselves been aware.
However, an insurance agent may assume a greater duty to the insured when one of the following three exceptions arise: (a) the agent misrepresents the nature, extent or scope of the coverage being offered or provided, (b) there is a request or inquiry by the insured for a particular type or extent of coverage, or (c) the agent assumes an additional duty by either express agreement or by holding himself out as having expertise in a given field of insurance being sought by the insured.
Whether a duty of care exists is a question of law for the court. Also, whether, and the extent to which, a new duty is recognized is ultimately a question of public policy. Any extension of the existing exceptions or creation of a new duty is ultimately a question of public policy.
The appellate court found no case law specifically defining the phrase “holding themselves out as having expertise,” but it discussed the factors that should be considered when applying this exception, as discussed in the 1997 decision in Fitzpatrick.
The Fitzpatrick first of three exceptions, when the agent misrepresents the nature, extent or scope of the coverage being offered or provided, was based on the court‘s analysis of three cases: Nacsa – agent misrepresented policy provided full coverage to replace business personal property in case of total loss; Desai – agent misrepresented insured getting 100 percent replacement cost coverage with real property insurance policy; and Free – homeowner specifically inquired if coverage limits adequate to rebuild home.
The second exception, when “there is a request or inquiry by the insured for a particular type or extent of coverage”, was based on Westrick, where an insurance agent failed to disclose facts about immediate coverage for a recently purchased truck in response to a specific inquiry about coverage. The court determined the agent had a duty to explain a limiting provision to the insured because the insured made prior inquiries regarding coverage of a welding truck under his existing policy and the agent had superior knowledge of the scope of the policy’s automatic coverage clause.
The third exception applied when “the agent assumes an additional duty by either express agreement or by ‘holding himself out’ as having expertise in a given field of insurance being sought by the insured.
The appellate court concluded in Murray that neither case authority nor public policy support creation of a per se rule regarding specialists, but rather courts must utilize a totality of the circumstances approach.
Evidence of specialization at a minimum creates a presumption the agent/broker anticipates their clients will rely on their acknowledged expertise, and supports courts imposing an extended duty.
While UPS Capital’s evidence adequately refuted application of the second exception (applicable when there is a request/inquiry), Murray’s evidence raised a triable issue of material fact regarding application of the third exception (holding itself out as having expertise).
The case was remanded to permit a jury to resolve the triable issue of material fact as to whether UPS Capital was holding itself out as having expertise in a specialized area of insurance, and therefore, assumed a heightened duty of care.
- The duty of insurance brokers/agents is limited to those found in any agency relationship such as reasonable care, diligence, and judgment in procuring the insurance requested by an insured.
- An insurance agent may assume a greater duty to the insured when one of the following three exceptions arise: (a) the agent misrepresents the nature, extent or scope of the coverage being offered or provided, (b) there is a request or inquiry by the insured for a particular type or extent of coverage, or (c) the agent assumes an additional duty by either express agreement or by holding himself out as having expertise in a given field of insurance being sought by the insured.
Craig B. Forry, Esq., FORRY LAW GROUP, (818) 361-1321 ForryLaw@Aol.com.