Frequently Asked Questions
What is the insurance agent's responsibility to explain policy conditions?
The agent has a responsibility to explain policy conditions and limitations of coverage. The degree of responsibility is affected by several factors. These factors include whether or not a "special relationship" exists and the level of sophistication of the insurance buyer. -- Return to Top -- What is the insured's responsibility to read and understand his or her insurance policy?This responsibility can vary from state to state. For example, in the state of Colorado the insured has a positive duty to read and understand the insurance contract. However, the reading is not required to be an "expert reading” nor is the agent or the insurer entitled to benefit from any wrongdoing. -- Return to Top -- What is the distinction between a sophisticated insurance buyer and an unsophisticated insurance buyer?A sophisticated insurance buyer is a person who has wide experience purchasing insurance and negotiating insurance contracts and coverage. An unsophisticated insurance buyer is someone who does not have this type of experience. This can be a very significant factor in determining the level of agent responsibility. -- Return to Top --
What is the importance of a "special relationship" between the insurance producer and the insurance client?The importance of a "special relationship" is that the level of insurance agent's professional responsibility is greatly enhanced if a special relationship is found to exist. -- Return to Top --
What are the relevant factors in determining if a special relationship exists? -
Specific knowledge on the part of the producer regarding the customer's business and insurance needs. -
Clear reliance by the insurance customer on the producer's expertise. -
The ceding of responsibility to negotiate an insurance contract by the customer to the producer. -
A long-standing relationship between the customer and the producer where the client has demonstrated reliance on the producer's expertise. -- Return to Top --
What is the significance of the application for insurance?The application for insurance is very significant especially if it is signed by the insured. Generally speaking, a signed application indicates that the prospective insured understands and agrees to the limits and coverage indicated in the application for insurance. A signed application for insurance however does not completely relieve the agent of his or her responsibility to counsel as to appropriate coverage and policy limits. An unsigned application indicates clear understanding of the client's needs by the agent. -- Return to Top --
What is the paramount duty of the insurance agent?The paramount duty of the insurance agent is to follow the instructions of the insurance client. It is the client’s duty to give clear instructions. If the instructions are not clear, the agent has a right to make reasonable assumptions as to the wishes of the insurance client. -- Return to Top --
What is the distinction between an insurance agent and an insurance broker?An insurance agent is defined as a representative of the insurer; an insurance broker is defined as a representative of the insurance buyer. This definition can be extremely important since it may help in determining who is responsible if an error or omission has occurred. Unfortunately, it is very common in the insurance industry for the insurance producer to be both an agent for the company and a representative of the insured at the same time. -- Return to Top --
What is the potential "conflict of interest" of an insurance agent?By contract, an insurance agent is a representative of the insurance company and thus has a duty to represent the insurance company interests. However, this contractual arrangement does not relieve the agent of his or her duty to the insured. It is easy to see how such an arrangement creates the possibility of a conflict of interest. -- Return to Top --
What is the insurance agent's/broker's responsibility for the acts of the agency/brokerage employees?The individual or organization holding the agency contract or the broker representing various insurers is responsible for the acts of their employees. This responsibility is not limited to the actual acts of the employees. It is also the employer's responsibility to provide training and implement systems that serve to reduce or eliminate wrongful acts. -- Return to Top --
What is the insurer's responsibility to the insurance agent when canceling an insurance contract?Although most insurance agency contracts call for 30 days notice of cancellation by either party to cancel the contract, in many states there are statutes, which provide for rehabilitation or additional training in an effort to avoid contract cancellation. -- Return to Top --
Is the agent or broker expected to be an expert concerning the risk to be insured?The answer to this question is no. It is not possible for the insurance producer to be an expert in connection with every risk to be insured. Therefore, it is quite likely that there would be many instances where the agent would rely on the insured or other experts for appropriate policy limits and conditions, rather than the insured relying on the agent. -- Return to Top --
What is "coinsurance" and what is its significance?The definition of coinsurance as it applies to a property insurance policy is as follows: in order to collect the full amount of a partial loss the insured must carry a limit equal to the amount required by the coinsurance clause contained in the policy. Total losses are not affected by coinsurance clauses in the insurance contract. This means that if a policy had a 100 percent coinsurance clause and a building was valued at $100,000 the insured is required to carry a limit of $100,000 in order to avoid any coinsurance penalty. -- Return to Top --
What is required for a claim to be reported in a timely manner, and what are the consequences of reporting a claim late?Generally speaking a claim must be reported promptly or as soon as it is reasonably possible to do so. The effect of reporting a claim late varies from jurisdiction to jurisdiction. Unless there is specific statutory or case law, late reporting is generally not a factor unless the insurer has been damaged by the late report. -- Return to Top --
Disclaimer: The information contained in these pages is for informational purposes only. Various states interpret similar issues differently. Furthermore, it is not meant to be a legal interpretation nor is it meant to be a final opinion.
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