INSURER FINANCIAL STABILITY – WHAT TO SAY AND WHEN TO SAY IT
By: Maria Elena Abate, Esq.
An agent has both a fiduciary and common law duty to exercise reasonable skill and diligence in placing an insured’s policy with a financially sound insurer.1 But what is an agent’s duty after the policy is placed? Is there a duty to monitor an insurance company’s financial health?
As a general rule, an agent is not a guarantor of the financial condition of an insurer.2 If an insurer was solvent at the time the policy was procured, an insurance agent should not be liable for the insurer’s subsequent insolvency.3
In Florida, an agent has a statutory duty to inform an insured of the insolvency of an insurer. Pursuant to Section 631.341, Florida Statutes, that duty is triggered when the Receiver informs the agent that delinquency proceedings against the insurer in which the policies have been cancelled:
(1) The receiver shall, immediately after appointment in any delinquency proceeding against an insurer in which the policies have been canceled, give written notice of such proceeding to each general agent and licensed agent of the insurer in this state. Each general agent and licensed agent of the insurer in this state shall forthwith give written notice of such proceeding to all subagents, producing agents, brokers, and service representatives writing business through such general agent or licensed agent, whether or not such subagents, producing agents, brokers, and servicing representatives are licensed or permitted by the insurer and whether or not they are operating under a written agency contract.
(2) Unless, within 15 days subsequent to the date of such notice, all agents referred to in subsection (1) have either replaced or reinsured in a solvent authorized insurer the insurance coverages placed by or through such agent in the delinquent insurer, such agents shall then, by registered or certified mail, or by e-mail with delivery receipt required, send to the last known address of any policyholder a written notice of the insolvency of the delinquent insurer.
So what happens if an agent learns that a company has been downgraded or is experiencing financial difficulties, but the company is not yet in full blown delinquency proceedings? Florida courts have not weighed in on this specific question and the answer will lie on whether a “special relationship” exists between the agent and the insured.However, best practice would be to inform insureds of any facts that have come to the agents’ attention and offer the opportunity for insureds to explore their options.A word of caution, however, is necessary as to what type of information to relay. Speculation, rumors and unsubstantiated reports regarding a carrier’s financial stability may prove libelous. Whatever information is ultimately provided to an insured should be factual and devoid of hearsay or gossip.
1 Wachovia Ins. Services v. Toomey, 994 So. 2d 980, 990 (Fla. 2008); Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., 991 F.Supp.2d 1271 (S.D. Fla. 2014).
2 AYH Holdings, Inc. v. Avreco, Inc., 826 N.E. 2d 1111 (Ill 1 App. Ct. 2005); Higginbotham & Associates v. Greer, 738 S.W.2d 45, 47 (Tex. App. 1987).