SW Legal Educational Publishing

Agent's Duty Is to Principal, Not a Customer of the Principal
Description Michigan high court affirmed that an insurance agent, like any other agent, has a fiduciary duty to represent his employing principal. The agent's relationship with customers is a contractual relationship; based on agency law, the greatest duty is owed to the principal.
Topic Agency
Key Words Negligence, Duty
C A S E   S U M M A R Y
Facts The Harts bought auto insurance through a licensed insurance agent who sold insurance exclusively for Farmers Insurance Exchange. The policy did not include optional uninsured motorist coverage. The Harts suffered large losses when they were hit by an uninsured motorist. They sued Farmers and the Farmers' agent for negligence for selling them an inadequate policy because it did not include uninsured motorist coverage. The Harts knew about the availability of such coverage, since they had cancelled that coverage on another vehicle they had owned before. They had also been sent notices about the availability of such coverage. The lower courts held for Farmers; the Harts appealed.
Decision Affirmed. The agent was Farmers' agent. "As such, under the common law, he had a duty to comply with the various fiduciary obligations he owed to Farmers and to act for its benefit. Moreover, because he was Farmers' agent, he has no common-law duty to advise plaintiffs. The general common-law rule is no doubt premised, at least in part, on the nature of the relationship of the parties. Specifically, the relationship between the insurer and insured is a contractual one. The relationship between the insurer and its agent is controlled by the principles of agency. ... Thus, under the common law, an insurance agent whose principal is the insurance company owes no duty to advise a potential insured about any coverage. Such an agent's job is to merely present the product of his principal and take such orders as can be secured from those who want to purchase the coverage offered."
Citation Harts v. Farmers Insurance Exchange, 597 N.W.2d 47 (Sup. Ct., Mich., 1999)

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