Where Liabilities Lie: The Differences Between an Insurance Broker and Agent
The alarm industry and related fields are a niche market, and there are only a handful of brokers or agents who are truly knowledgeable about the industry and able to guide you properly.
What is the liability of an insurance broker to its customer? Some common issues could be:
- Failure to place the requested insurance
- Failure to recommend adequate insurance
- Failure to remit a premium payment
- Failure to explain why some claim isn’t going to be accepted for coverage
- Failure to explain why a claim is going to be handled under a reservation of rights
- Failing to remind you to renew in time
- Failing to get you the best premium
I suppose the list could go on. The answer to the question isn’t as easy as you may think. In fact, the answer may depend on what state you are in. The first issue you need to focus on is the status of your “broker.” Is he or she a broker or an insurance agent? What’s the difference?
The agent represents the insurance company, a broker represents you. An agent is either captive or independent. A captive agent represents one insurance company. An independent agent represents multiple insurance companies. A captive agent will receive an appointment from a carrier, a contract, specifying the agent’s responsibilities and authorization to act on behalf of the insurance carrier, including writing the insurance and binding coverage.
Brokers solicit insurance from multiple insurance carriers, requesting quotes by submitting completed applications; they cannot bind coverage. Coverage is obtained when an insurance carrier, or its agent, issues a binder.
A binder provides temporary insurance coverage and is replaced by the policy of insurance. The binder must be signed by the carrier or the agent, so watch for that.
So who can you sue? Well, the agent represents the carrier, not you. Unless you are dealing with the agent directly and not through your broker, the agent need only provide you with what you or your broker asked for. Other than a fraud claim it’s not likely you’ll be thinking about suing the agent. The broker is another matter.
The broker can be sued for negligence or breach of contract. But whether you can actually successfully sue your broker can depend on what state you are in. Two good examples are New York and New Jersey.
In New York, your broker is a salesperson who only needs to sell you the insurance you ask for. The exception to that general rule is when the broker has a “special relationship” with you, and that could be hard to prove since there are no reported cases in New York where a special relationship was found.
New Jersey is quite the opposite. In New Jersey your broker is considered a “fiduciary” with a heightened duty to protect your interests. All you need is to find some promotional statements on the broker’s website telling you how the broker is going to protect you, has unique skills in a particular industry, will design the right program, etc.
Then mistakes in coverage (which may become obvious only after you have a claim) will form the basis of a lawsuit against the broker.
Broker liability can arise when you find out you could get similar coverage for half the price; you thought you had alarm industry E&O, and you don’t; you were told that your coverage limits were sufficient, and turns out they aren’t; you thought you’d be covered for a claim, and you aren’t, etc.
The alarm industry and related fields are a niche market and there are only a handful of brokers or agents who are truly knowledgeable about the industry and able to guide you properly. But even they have their divided loyalties because while they depend on you for their business, you don’t pay them.
You should ascertain whether you are dealing with the carrier directly (like the Security America Rick Purchasing Group, or SARPG, if you call it yourself ), an agent, such as the Costanza Insurance Agency in Texas, or brokers.
You will realize why one broker may recommend only one product while another is open to different insurance companies, though you will find that even they have their “first go-to” carrier because they have a better relationship with it, or it pays the higher commission, or your broker has friendships there, etc.
The important issues for you to consider are:
- Premium
- Coverage
- How claims are handled
- How often the carrier declines to write or renew policies
- How often the carrier has canceled policies for other than nonpayment
A useful list of brokers and agents can be found in the Insurance Category at kirschenbaumesq.com/page/alarm-exchange.
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About the Author
Ken Kirschenbaum, SSI Contributor
Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.
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