Interesting Iowa Supreme Court Ruling

The Iowa Supreme Court has issued an interesting ruling that an insurance agent did not have a duty to advise a client about insurance coverage that the client did not inquire about. This case involves several important issues, not only what the duties of an insurance producer are, but also involving Workers Compensation insurance for a self-employed truck driver.

Timothy Merriam was a self-employed truck driver who purchased various personal lines of insurance from Farmers' agent Steven Stonehocker. Stonehocker had discussed some other coverages that Merriam might consider, but did not ask about whether or not Merriam might need Workers Compensation coverage, and Merriam did not raise the issue. Merriam later was severely injured on the job, and was not apparently covered by the Workers Compensation coverage of the company using his services.

The suit had claimed that Stonehocker had a duty to advise Merriam on the need to obtain Workers Compensation coverage for himself, and had failed to do so. But the Iowa courts found otherwise.

The decision noted that the relationship between the agent and the client had been of short duration, and that the agent's advice to add auto coverage did not create a duty to advise about other coverage areas that were not raised by the client.

This case illustrates an important and often-misunderstood point about insurance agents: their duties to clients are limited, unless certain circumstances serve to increase them. Having a long-standing relationship with a particular client can serve to increase the duty owed, and so can the agent's holding himself out as having particular expertise in certain insurance areas.

But without those special circumstances, an agent may only have a duty to be an honest and accurate order-taker.

This can fly in the face of the expectations of clients, who often assume that an insurance agent automatically will serve as an insurance advisor and point out potential problem areas involving insurance.

Many insurance agents voluntarily do act as insurance advisors, of course, and once they do so they then create a higher duty for themselves towards clients. But insurance consumers need to be aware that not all agents choose to serve as advisors, and in those cases the duty the agent owes may well be more limited.

The particulars of just what duty an insurance agent owes to a particular client can be a bit complicated, and depend significantly upon the unique circumstances of the particular agent/client relationship, and also upon the state where the insurance transactions occurred (many states have statutory or case law requirements that bear on this subject.)

But insurance consumers would be wise to make explicit any desires for their insurance agent to provide insurance and risk management advise, to avoid unhappy disputes such as this one.

The other interesting aspect of this case is that it involves a self-employed truck driver who apparently was not covered by the company he was working for. Again, this is a subject that is very much dependent upon the particular state involved, as statutory and case law can vary significantly from one jurisdiction to another. Many states have, in recent years, addressed the issue of how "self employed" workers, particularly truck drivers, are treated under Workers Compensation, so the rules on this have been evolving in many jurisdictions.