Iowa Supreme Court: Agent not Required to Suggest Unrequested Coverage

The Iowa Supreme Court sided with an insurance agent in a case involving whether the agent has a duty to advise clients as to the need for insurance coverage about which the clients had not inquired.

In considering an appeal brought by plaintiffs Timothy L. Merriam and Justine Merriam against their insurance agent, Steven Stonehocker, the high court affirmed that Stonehocker had not “breached his duty of care to act as a reasonably prudent insurance agent when he failed to advise and recommend that Timothy Merriam, a self-employed over-the-road truck driver, procure self-employment workers’ compensation insurance.”

In the written opinion filed by the Iowa Supreme Court on Feb. 4, 2011, Chief Justice Cady wrote that the “primary issue in this case is whether Stonehocker had an affirmative duty to inquire or advise the Merriams on Timothy’s need for self-employed workers’ compensation insurance coverage.”

In previous jobs, Timothy Merriam’s workers’ comp insurance had been provided by employers. But as a self-employed person, he had not purchased the coverage for himself.

The Merriams carried homeowners insurance through Farm Bureau Insurance. When Stonehocker joined Farm Bureau Insurance Agency, he was assigned the Merriams’ account.

Upon reviewing their homeowners’ and other property coverage, Stonehocker suggested the Merriams insure their personal vehicles with Farm Bureau to benefit from a package policy with a better rate. They discussed other coverages as requested by the Merriams, but not workers’ comp, which they did not ask about.

Several weeks after the initial visit, Timothy Merriam was severely injured in an accident with the dump truck he was operating. He did not have workers’ comp coverage through Landstar Ranger, his contract employer.

According to the Court, the Merriams alleged that “Stonehocker was negligent in failing to advise them that, as a self-employed over-the-road truck driver, Timothy had no workers’ compensation insurance unless he purchased the additional coverage himself. … The Merriams [also] alleged Farm Bureau was vicariously liable for Stonehocker’s inaction because he works as its agent.”

Justice Cady noted that at the time of the accident, “the relationship between Stonehocker and the Merriams had been one of short duration.” Still, the Merriams said Stonehocker’s awareness of Timothy’s self-employment status combined with the agent’s unsolicited recommendation for other insurance coverage, supported “a conclusion that Stonehocker, a licensed agent with more knowledge than the plaintiffs, was holding himself out as an insurance specialist, thus enlarging his duty to make recommendations to the Merriams regarding workers’ compensation coverage.” The Court disagreed.

“The Merriams made no specific inquiry with respect to self-employed workers’ compensation insurance and did not expressly or impliedly seek Stonehocker’s assistance in assessing any of their insurance needs other than those specifically requested,” Justice Cady wrote. Stonehocker’s suggestions for personal auto coverage were made only “in an effort to obtain a more favorable rate for the property the plaintiffs sought to insure, the residences.”

The Court said Stonehocker had no expanded duty to inquire about the insureds’ additional insurance needs beyond those that about which the Merriams inquired. “If that were the case,” the Court stated, “then every trained and licensed insurance agent would have a duty to provide an assessment of all of an insureds’ insurance needs, whether requested or not.” The Court also found that Farm Bureau could not be held “vicariously liable.”

The case is: Timothy L. Merriam, An Individual; Justine Merriam, Both Individually and as Next Friend of Christopher Merriam, A Minor, Kayla Merriam, A Minor, and Collin Merriam, A Minor, Appellants, vs. Farm Bureau Insurance, A Corp. and/or Farm Bureau Insurance Services, A Corporation; and Steven C. Stonehocker, An Individual, Appellees. No. 08D1635