Woodland Hills personal injury lawyer Barry P. Goldberg is a student of all things insurance. When it comes to this topic the average person turns off immediately and just somehow trusts that the person they buy the insurance from, and then the insurer, will somehow take care of everything. In California, it is the rule that most consumers buy their personal lines insurance products directly from a name brand insurer. Consumers are bombarded with television and radio ads to call directly and save hundreds of dollars in a matter of minutes. However, most consumers never consider that the person they are buying insurance from represents the insurer—not, the buyer. This can cause many problems down the line when there is actually a claim to be paid. Even more problems arise when the premium money never gets to the insurer or is late!
California courts recognize that the primary distinction between an insurance agent and an insurance broker is that an agent acts on behalf of the insurance company, while a broker acts on behalf of a policyholder. “[A]n agent is defined as one who is ‘authorized, by and on behalf of an insurer, to transact all classes of insurance’ except for life insurance [citation] while a broker is ‘a person who, for compensation and on behalf of another person, transacts insurance other than life with, but not on behalf of, an insurer.’” (Krumme v. Mercury Ins. Co. (2004) 123 Cal.App.4th 924, 928–929; Ins. Code, §§ 31, 33, 1621, 1623.) An insurance agent represents the insurer in transacting business with the general public, and has the authority to bind the insurer on coverage. A broker has no such authority. Thus, “[a]n insurer, as a principal, may be vicariously liable for the torts of its agent if the insurer directed or authorized the agent to perform the tortious acts, or if it ratifies acts it did not originally authorize.” (Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1118.) A person’s status as an agent or broker is not determined by the labels used, but their conduct. (See Loehr v. Great Republic Ins. Co. (1990) 226 Cal.App.3d 727, 733.)
As explained in Krumme v. Mercury Ins. Co., supra, 123 Cal.App.4th 924, “‘[a]n “insurance broker” is one who acts as a middleman between the insured and the insurer, soliciting insurance from the public under no employment from any special company, and, upon securing an order, placing it with a company selected by the insured or with a company selected by himself or herself; whereas an “insurance agent” is one who represents an insurer under an employment by it. A broker is, in essence, employed in each instance as a special agent for a single purpose, while the very definition of agent indicates an ongoing and continuous relationship. . . . [B]rokers and insureds are ordinarily involved in what can be viewed as a series of discrete transactions, while agents and insureds tend to be under some duty to each other during the entire length of the relationship.’ [Citations.]” (Id. at p. 929.)
In some cases, a licensed broker may act in a dual capacity and place insurance (acting as a broker) but may also collect premiums and deliver policies to the insured (acting as an agent). In that case, the broker retains the status of a broker. “A person acting as an insurance broker may, on behalf of an insurance company, collect and transmit premium or return premium and deliver policies and other documents evidencing insurance. Performance of those functions shall not be construed for any purpose to mean that the person is an insurance agent.” (Ins. Code, § 1732.)
Not surprisingly, statutory presumptions exist with respect to each category. A broker is presumed to be a broker if he or she posts any required bond and discloses to the applicant the nature of his or her services, the amount of fees charged, and any compensation from the insurer. (Ins. Code, § 1623.) Where a licensed broker-agent places insurance with an insurer that has appointed the broker-agent as an agent for that purpose, the broker-agent is acting as an agent. (Ins. Code, § 1731.) In other situations, the determination is made on a case-by-case basis. (Ins. Code, § 1623.)
“Ostensible agency” is a form of vicarious liability that applies “when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.” (Civ. Code, § 2300.) “Before recovery can be had against the principal for the acts of an ostensible agent, three requirements must be met: The person dealing with an agent must do so with a reasonable belief in the agent’s authority, such belief must be generated by some act or neglect by the principal sought to be charged and the person relying on the agent’s apparent authority must not be negligent in holding that belief. [Citations.] Ostensible agency cannot be established by the representations or conduct of the purported agent; the statements or acts of the principal must be such as to cause the belief the agency exists. [Citations.] ‘“Liability of the principal for the acts of an ostensible agent rests on the doctrine of ‘estoppel,’ the essential elements of which are representations made by the principal, justifiable reliance by a third party, and a change of position from such reliance resulting in injury. [Citation.]” [Citation.]’ [Citation.]” (J.L. v. Children’s Institute, Inc. (2009) 177 Cal.App.4th 388, 405–404.)
When a claim is made and the agent-broker-agent/broker messed up either by not adequately securing coverage, had no right to bind coverage with an insurer or there is a gap in coverage, the above analysis is made to determine whether the principle insurance company should be required to pay on the claim. This gets very confusing when the agent/broker posts a particular insurance company on its window or has previously had the authority to bind a particular company. It is also complicated when various proofs or certificates of coverage are issued by someone other than the actual insurer.
It is highly recommended that consumers shop around for insurance and utilize the services of a fully bonded and qualified insurance broker. If a dispute arises concerning coverage, a consumer should immediately consult with counsel completely familiar with the nuances of insurance coverage, agency and brokerage.
