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How do Insurance Agents Get Sued for Negligence?

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Those in the insurance industry offer critical financial protection services every day, but insurers are heavily regulated because they play such a crucial role in an individual’s life and the financial sector as a whole. State and federal laws hold those who sell and promote insurance policies to the public to a specific standard. When insurers fail to perform their duties individually, clients can file a claim for negligence against the agent. If agents do not fulfill what they have guaranteed their clients, it could cause substantial financial ramifications. Insurance agent negligence should not be taken lightly, as there are serious consequences. First, you will need to know what constitutes neglect to avoid a lawsuit. 

Negligence in a Broad Sense 

Suing someone for negligence will typically call for one or more of the following:

  • Duty: The individual being sued had an obligation to act or refrain from acting in a certain way.
  • Breach: The individual failed to follow through with their duties. 
  • Causation: The breach of duty caused the client harm that the offender could have prevented. 
  • Damages: The harmed individual has faced actual damages (i.e. lost wages, medical expenses).

Regardless of intentions, if any of the above elements are proven to be true, then the negligent person is held liable for the harm done. 

What Constitutes as Negligence as an Insurer? 

So you may be wondering what duties and actions may constitute neglect as an insurer. An agent’s primary duty is to always act with reasonable care, diligence, and judgment in selling policies that are appropriate for each specific client, based on their unique needs. Specific duties are clarified in state statutes. The following actions generally constitute insurance agent negligence: 

  • Failing to sign clients up for the requested coverage available in the marketplace: Agents must assess client requests and requirements, so set them up with the appropriate coverage type and amount. 
  • Misrepresenting the policy: Agents must be well-versed in the policies they offer so they can explain to their clients what is and isn’t covered. 
  • Application misrepresentations: Agents must walk clients through the insurance application to complete it accurately. 
  • Failing to pass on claim notification: When agents are notified of a claim under their client’s policy, they must notify the direct insurer. 
  • Failing to notify clients of policy cancelation: You must always inform clients if their policy will be cancelled earlier than planned by the insurer.
  • Failing to notify clients of insurer issues: The agent must notify their client if the insurer is facing financial issues (i.e. insolvency). 

Any of these actions means that clients were misled, resulting in a claim denial by the actual insurer. Agents who classify themselves as experts or specialists in a specific area usually reach a higher duty of care. 

The Consequences 

Those who are denied coverage or suffered other damages due to insurance agent negligence are entitled to a hefty settlement. Clients may also be able to collect damage costs for the inconvenience and distress of being denied the coverage they thought they could secure. Typically, agents will not be able to get out of liability by claiming that the client failed to read the policy, but you may be able to argue that neglecting to do so makes the client somewhat responsible for the harm inflicted. Regardless, the client can easily have a case, even just by relying on your advice and representations no matter what the policy says.

About IPRO Agency Insurance Services

IPRO Agency Insurance Services is  is a specialty insurance brokerage with the expertise to protect your firm, assets and to help you retain clients.  Our services offer all types of professionals the protection they need so they can stay committed to their work with ease.  We are connected with leading insurers to bring you the best coverage for your unique needs and areas of risk. Get in touch with us at 888- 673-8039 so we can begin to safeguard your success.