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Insurance Agent Negligence or Misrepresentation

Having insurance is essential for most people. You need insurance coverage if you experience anything from severe illness or property damage following a natural disaster. Having insurance coverage brings peace of mind and addresses risk management.

Insurance plays a critical role in your life and the financial sector. Insurance agencies sell many insurance policies through their agents and insurance brokers. Common types of insurance include the following:

  • Life insurance
  • Health insurance
  • Homeowners insurance

Insurance companies collect over $1 trillion in premiums annually in the United States. The insurance industry is heavily regulated and offers vital benefits to policyholders.

As a result of the critical role insurance plays in the economy, state laws impose specific responsibilities on insurance agents. The insurance contract contains common law duties as well as statutory duties.

If your insurance agent fails in their duties under state (or federal) laws and you get denied coverage, you might have a negligence claim. This article will address insurance agent negligence or misrepresentation. FindLaw discusses bad faith insurance claims and breach of contract claims in detail in other articles.

Negligence Generally

Negligence is a type of legal action. It is a tort action. The law requires people to conduct themselves in a way that conforms to a certain standard of care. If a person fails to conform to that standard, the person can be liable for the damages. Sometimes, the standard of conduct requires a person to act. The omission of an act can give rise to a negligence claim.

Elements of a Negligence Claim

In general, suing someone for negligence requires you to prove the following elements:

  • Duty: The person you're suing must act or refrain from acting in a certain way
  • Breach: The person failed in their duty toward you
  • Causation: The breach of duty caused you harm that the offender should have foreseen
  • Damages: The harmed person suffered actual damages (such as lost wages and medical expenses)

Someone can be guilty of negligence without intending to cause harm. The negligent person is legally responsible for the damages if you prove the elements above.

Insurance Agent Duties and Actions That May Constitute a Claim

The primary duty of insurance agents is to use reasonable care, diligence, and judgment in selling insurance policies. An agent has a special relationship with their clients. Among other things, they must sell the coverage appropriate for their customers.

Each state's insurance laws outline specific duties. But, similarities exist across the board. Among other things, insurance agents owe a fiduciary duty to their clients during the underwriting and selling process.

Examples of Insurance Agent Negligence

The following actions may amount to insurance agent negligence in your state:

  • Failing to sign you up for requested coverage available in the marketplace: Insurance brokers and agents should assess your needs and requests before selling you the appropriate amount and type of insurance.
  • Failing to pass on notification of your claim: If you notify your agent of a claim under your policy, they must inform the insurer of the claim.
  • Failing to notify you that your policy is about to get canceled.
  • Failing to notify you of insurer issues: If your insurer faces financial problems, such as insolvency, the agent must inform you.

Also, agents who hold themselves out as experts or specialists in a given area usually owe you an even higher duty of care.

Examples of Insurance Agent Misrepresentation

  • Misrepresenting what's in your policy: Agents should be well-versed in the policies they sell. An agent makes a material misrepresentation when they lead you to believe you're covered for something not included in the policy.
  • Application misrepresentations: As an agent walks you through the insurance application, they must complete it accurately and truthfully.

Any of these actions could mean that you don't have insurance coverage. It could lead to a claim denial by the actual insurer. If your insurer denied or underpaid your claim because an agent was negligent or made misrepresentations, you may be able to recover damages against the agent.

Compensation for Insurance Agent Negligence or Misrepresentation

The types of damages you can seek in a lawsuit for negligence are generally more limited than those for intentional actions like insurance fraud, and limitations vary by state.

You could recover damages if denied coverage or suffered other damages because of insurance agent negligence. For example, if successful, you could get awarded an amount equal to what you would have gotten in benefits or payments if it weren't for the agent's negligence.

You may also be able to seek damages for the inconvenience and emotional costs of getting denied the expected coverage. In California, for example, damages are "the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not."

In most jurisdictions, agents can't escape liability by claiming that a policyholder failed to read their policy. But, the agent may argue that neglecting to do so makes you at least partially responsible for the harm done (a principle known as contributory negligence).

It's important to read your policy. But, you may still have a claim even if you relied on your agent's advice and representations of the policy's coverage.

Do You Have a Claim? Get Legal Help

Negligence by an insurance agent can have huge ramifications. But it can be challenging to know what makes up negligence. The same is true for misrepresentation, which makes a bad-faith claim.

You must be aware of the relevant statute of limitations. This determines how much time you have to file such a lawsuit. If you suspect your insurance agent is guilty of negligence or other wrongdoing, contact an experienced insurance attorney. They can tell you about your options and legal rights.

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