The year was 2006, and certain aspects of insurance law in Michigan were under scrutiny. Ralph Chapa poised the question: “What happens when a policyholder suffers a loss that is not covered on their limited policy?” Ralph Chapa goes on to explain that in many cases, people that are insured will attempt to place the blame on the insurance company, or the insurance agent who sold them their current policy. He goes on to explain that despite this, Michigan law at the time did not require insurance agents to advise insureds in this capacity, regarding the adequacy of the policy they were purchasing.
Ralph Chapa then brings up two important cases that helped solidify the courts’ decisions in this matter: Bamal Corp. v. Chassis Powder Coating, Inc. (the more recent court case), and Harts v. Farmers Insurance Exchange (which initially set forth the test that was later applied by the Bamal Corp. v. Chassis Powder Coating, Inc. case).
Ralph Chapa goes on to reference a third case, which took place earlier than the afore-mentioned cases: Bruner v. League Gen. Ins. Co., which had set the previous precedent for how the courts viewed insurance agents’ duties regarding advising insureds on their policies. According to Ralph Chapa, this case established the precedent that “an agent owed no duty to recommend coverages until a ‘special relationship’ existed”.
The nature of a “special relationship” was described thusly: “a special relationship existed either by an express agreement or when a long-established relationship of entrustment from which it clearly appears the agent appreciated the duty of giving advice, and compensation for consultation and advice was received apart from the premiums paid by the insured”.
Ralph Chapa points out that this was the norm until the Harts v. Farmers Insurance Exchange case in 1997, which fundamentally changed the way a relationship between the insured and an insurance agent is viewed. According to Ralph Chapa, The Court, in this case, established the ruling that “an insurance agent owes no such duty to an insured”, and further clarified that “the agent functions as simply an order taker for the insurance company”.
Ralph Chapa wraps up by pointing out that these cases did not answer one important issue: “does the same standard of care imposed upon insurance agents govern insurance counselors?”, and concludes that until the courts make a solid ruling on this subject, an insurance counselors duties would still be up for debate.
Ralph C. Chapa, partner, Kaufman, Payton & Chapa, is an aggressive, experienced litigator. His practice concentrates on insurance coverage and commercial litigation, as well as professional, premises, products and general liability.