Opinion ID: 1917377
Heading Depth: 1
Heading Rank: 7

Heading: an action for breach of contract to procure insurance is an appropriate cause of action when brought against a broker

Text: [4] We have recognized a negligence action for an insurance agent's failure to obtain insurance coverage: An insurance agent who agrees to obtain insurance for another but negligently fails to do so is liable for the damage proximately caused by such negligence; the measure of damages is the amount that would have been due under the policy if it had been obtained by the agent. [6] The personal representative directs us to two cases that she claims implicitly recognize a claim for breach of a contract to procure insurance. [7] Yet, the personal representative does not direct us to any cases, nor has our research uncovered any cases, in which we expressly recognized a cause of action for breach of contract to procure insurance. One commentator has explained, In most jurisdictions, the cause of action for an insurance agent's failure to procure insurance may be either in contract or in tort. [8] We believe, however, that we must qualify the general rule that a plaintiff may bring an action in contract for an insurance agent's failure to procure insurance. To provide context for our qualification, we first digress and address agency principles. [5] We have often used the term insurance agent loosely. And other courts often do the same. But because the term invokes agency principles, we must identify the principal for whom the insurance intermediary is an agent. A party who negotiates an insurance contract to cover someone else's risk is acting as an agent for either the insured or the insurer. [9] Depending on whose interests the insurance agent is representing, he or she may be a broker or an agent. A critical distinction exists: A representative of the insured is known as an insurance broker. A broker represents the insured by acting 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, places it with a company selected by the insured, or if the insured has no preference, with a company selected by the broker. In contrast, an insurance agent represents an insurer under an exclusive employment agreement by the insurance company. [10] Whether an insurance intermediary is an agent of the insured or the insurer is generally a question of fact. [11] Having recognized the distinction between a broker (the insured's agent) and an agent (the insurer's agent), we consider how agency principles affect the intermediary's contract liability. [6-8] When a party contracts with a known agent acting within the scope of his or her authority for a disclosed principal, the contract is that of the principal only and the agent cannot be held personally liable thereon, unless the agent purports to bind himself or herself, or has otherwise bound himself or herself, to performance of the contract. [12] Commentators have recognized this principle in the insurance context: In the absence of an express undertaking of a broader duty, an agent of the insurer who acts in an authorized, lawful manner is not personally liable to the insured for his or her acts or for any contracts which the agent makes on behalf of his or her disclosed principal. . . . [13] We conclude that an action for breach of contract to procure insurance is inappropriate when brought against an insurer's agent who, within the scope of his or her authority, contracted on behalf of the disclosed principal and did not bind himself or herself personally. Specifically, an insurance agent's mere promise to procure requested coverage through his sole principal is insufficient to create the agent's personal liability because that promise is clearly within the scope of the agent's authority. [14] However, we will recognize a cause of action against a broker for breach of contract to procure insurance because the broker is the insured's agent.