Does my Insurance Agent Represent me or the Insurance Company?

The answer to this question is usually "both." As an initial matter, the term "insurance agent" does not adequately distinguish between professionals who sell insurance. In Michigan, there are insurance producers, brokers, captive agents, independent agents, certified insurance counselors, and others. The type of insurance professional, the extent to which they consult on risk management, and each particular transaction dictate the legal standard of care the agent must meet.

The duties imposed on insurance agents arise from three legal sources, that is legislative, contracts, and common law (i.e., court cases). Each source must be considered when evaluating the agent's standard of care. A starting point may be determining the designation or classification of the agent. Captive agents are employed by the insurance company, independent agents can sell insurance for several carriers, certified insurance counselors receive additional training, and wholesale brokers sell insurance for nonadmitted carriers.

Michigan case law follows the general rule that an independent agent is considered the agent of the insured and not the insurer. However, this rule falls short when the agent's statutory and contractual duties to the insurer are considered. Under the Michigan Insurance Code, a licensed agent that receives a premium is considered a fiduciary of the insurer. There is no higher legal duty than that of a fiduciary. Therefore, when an independent agent receives a premium from an insured, he is not exclusively the agent of the insured. Even more, independent agents are granted authority to sell insurance policies under their producer agreements with each carrier. Those producer agreements expressly impose duties on the agent that run to the insurer, not the insured.

For these reasons, insurance agents are best described as dual agents with duties owed to both the insured and the insurance company (with the possible exception of wholesale brokers who usually have no direct contact with the insured). The correct approach is to examine each relationship on its own terms. Retail agents (agents who sell policies directly to insureds) have a duty to procure the insurance that the insured requested. Under Michigan case law, absent a "special relationship," there is no duty to advise the insured as to the adequacy of that insurance.

A special relationship results from (1) the agent misrepresenting the nature or extent of the coverage offered or provided, (2) an ambiguous request being made that requires clarification, (3) an inquiry being made that may require advice and the agent, though he need not, gives advice that is inaccurate, or (4) the agent assuming an additional duty by either express agreement with or promise to the insured. Where there is a special relationship, there is a heightened duty of care and the insurance agent is no longer considered just an "order taker."

In sum, insurance agents are dual agents under the law and the legal standard of care is dependent on a host of factors. Usually, when those factors are all considered, the agent owes different duties to each party to the transaction.