Insurance Experts: Does It Really Take One to Know One?

When an insurance agent is sued for professional negligence, a question arises as to whether the breach of the agent’s duty of care requires the testimony of another insurance agent or broker who testifies that the agent breached the professional standard of care, and thereby committed professional negligence. In some cases it is unnecessary for the plaintiff to retain an insurance agent expert because the type of professional conduct is within the common knowledge of the jury to assess and determine whether there has been a breach of the insurance agent’s duty.

That was the case in Fillinger v. Northwestern Agency Inc. of Great Falls, 283 Mont. 71, 938 P.2d 1347 (1997), where the issue before the court was the standard of care of an insurance agent in procuring insurance coverage that had been specifically requested by the insured. The facts were undisputed that the insureds had requested a specific policy, and that they did not receive that policy from the agent.

In determining whether an expert witness was necessary to establish that the agent breached the professional standard of care, the court observed that “the determination of whether an insurance agent reasonably fulfilled his or her duty and procured the coverage requested, is easily within the common experience and knowledge of lay jurors” and therefore, the testimony of an expert witness on the professional duty of care was not required.

However, depending upon the transaction involved, a claimant may be required to proffer an insurance agent or broker as an expert witness to establish a breach of the professional standard of care.

Dulaney v. State Farm

The issue of whether expert testimony was required to identify the standard of care of an insurance agent in procuring a policy with adequate coverage recently came before the Montana Supreme Court in Dulaney v. State Farm Fire & Cas. Ins. Co., 324 P.3d 1211 (Mont. 2014). In the Dulaney case, the insured, Deborah Dulaney, operated a floral shop from 2001 to 2006. During those years, the floral shop was insured by State Farm through a policy that was issued by the State Farm insurance agent Shawn Ori.

Dulaney reopened her business in 2007 at a new location. Dulaney met with Ori about the purchase of insurance for the new business. According to Dulaney, she told Ori at a meeting that she needed insurance coverage for a new “huge” building that she was renting and the policy would also need to provide $1 million in liability insurance, as requested by her landlord.

Dulaney alleged that she told Ori that she had “absolutely no idea” of the value of business property she wanted insured and, therefore, she asked Ori to come out to the business location to see the property for himself. According to Dulaney, she never asked for a specific amount of coverage, nor did she tell Ori to use the same coverage limit that she had for her former business. On the other hand, Ori testified that during their meeting Dulaney had informed Ori that her former business property limit was sufficient for the business.

The evidence showed that Dulaney’s 2007 tax return valued her business property at $9,825 although Dulaney asserted that the value of her business greatly exceeded that amount. The evidence also showed that Ori had no knowledge of any valuation or inventory of Dulaney’s business property at the time Dulaney purchased the policy.

As a result of the meeting in 2007, an insurance application was prepared indicating on its face, a $20,000 coverage limit for business personal property together with the requested $1 million of liability coverage. The facts did not establish whether Dulaney signed the application or not. Dulaney testified that she had no recall whether she assisted in, or was present, when the application was being filled out.

The evidence was undisputed that Ori never inspected the business premises or even agreed to do so. Then, after obtaining the policy, Dulaney made significant purchases for the business including a $10,000 walk-in cooler, a $2,000 espresso machine, and a $7,000 business software system. Ori was not informed of additional purchases.

In 2008, Dulaney received a renewal notice from Ori which disclosed the limits of business personal property coverage of $20,000. Dulaney’s floral shop was destroyed by a fire in 2009. State Farm paid the full policy limits on the loss. However, Dulaney maintained that Ori’s professional negligence caused her over $190,000 in uncovered damages. Dulaney then sued Ori alleging that Ori had a professional duty to ascertain or advise her of the adequate amount of coverage for her business and Ori’s failure to do so constituted professional negligence.

Insurance Expert Witness

Dulaney did not retain an insurance expert to support her claim against Ori. Due to Dulaney’s failure to name an expert witness to establish the standard of care applicable to an insurance agent, the trial court granted summary judgment in favor of Ori. The summary judgment was affirmed by the Montana Supreme Court.

The Montana Supreme Court in the Dulaney case distinguished its prior ruling in Fillinger where the court found no expert testimony was necessary to present the professional negligence claim against the agent. In the present case, unlike the facts before the court in Fillinger, Dulaney’s damages allegedly resulted from Ori’s failure to procure a policy that adequately covered her business assets, not from an alleged failure to procure a specific type of policy that the insured indisputably requested, as was the case in Fillinger.

The question of duty before the Montana Supreme Court therefore went beyond the duty articulated in Fillinger and required testimony of an expert witness to establish the relevant factors that an insurance agent should consider.

The court noted that Dulaney, on appeal, asserted that the agent was required to view the business contents of the store and determine the value of her business personal property, business inventory and supplies. Dulaney argued that the agent should have looked at her business property, given her advice on coverage options, and perhaps looked at depreciation schedules.

Addressing Dulaney’s allegations, the Montana Supreme Court found that “[t]he only way for a jury to resolve whether an insurance agent placing a business policy had the legal duty to perform the foregoing tasks [identified by Dulaney] would be to receive expert testimony on the duties of an insurance agent under [those] circumstances.” The court noted that “[a]mong the questions that would be squarely before the jury are whether it [was] the obligation of the insured or the agent to place a value on an owner’s property and inventory, and whether it [was] incumbent upon the insured or agent to monitor the insured’s ongoing property acquisitions and periodically suggest an upgrade in coverage amounts.”

Although the court acknowledged that while not every claim against an insurance agent were to require the testimony of an expert, because the answers to the questions raised by Dulaney’s allegations would not be readily apparent to a lay person, the court concluded that expert testimony on the nature and extent of an agent’s duties was required to present the claim.

Therefore, the Montana Supreme Court in the Dulaney case answered the question of whether it takes one to know one, at least in cases where the allegations are that the agent should have made an independent evaluation of the amount of coverage being provided to an insured to adequately protect that insured’s interest.