Every property owner requires insurance coverage that appropriately reflects the specifics of their particular property or development project. Insurance agents sell this insurance. They often also help the property owner to decide which insurance makes sense. Agents usually know what they’re doing, so owners usually rely on them.

But what happens if the agent is wrong? For example, the agent may indicate that an owner does not require a certain type of coverage. Later, the owner could suffer damage and attempt to make an insurance claim. But the insurance company could refuse coverage because the owner should have had the type of coverage that the agent said was not necessary.

This happened recently in a federal case, just one of many similar cases. The property owner had undertaken a construction project of a somewhat limited scope – partial refurbishment of a hotel. The insurance agent said the owner did not need builders liability insurance and could rely on their regular insurance package for the risks arising from the project.

During the project, a flood damaged some stored materials. The property owner tried to recover through his regular insurance. The insurance company denied coverage but apparently (although this is not stated) the company would have covered the loss if the property owner had taken out builders liability insurance. The owner sued his insurance agent for negligence because the insurance agent had told the owner that he did not need builder’s liability insurance coverage. The owner lost.

The court said owners should know what insurance coverage they need for their properties and projects. The agent has no legal obligation to educate or even advise an owner on these issues. The agent’s legal responsibility is to sell the owner the insurance that the owner desires. The owner therefore had no claim against the insurance agent.

Many cases have come to a similar conclusion. Sometimes, however, the courts make an exception when there is a “special relationship” between the owner and the agent. In this litigation, the owner attempted to prove that such an exception was applied. The owner argued that the agent developed a deep and complex understanding of the owner’s business over the course of a series of face-to-face meetings at the owner’s offices. The agent had aggressively touted the owner’s business, promoted the agent’s “insurance capabilities” and devised a new structure for the owner’s entire insurance program. None of this made any difference to the court, which stated, “It would be the rare agent who doesn’t turn out to be highly skilled, and the rare insured who doesn’t rely on the agent’s skills for insurance selection.” So no exception was made and no liability for the insurance agent.

What can the owner do when an owner does not have the necessary expertise to design their own insurance program, cannot legally rely on their insurance agent and does not want to take their risk? Answer: The owner will likely need to hire an outside insurance consultant or adviser to help them structure their insurance program and negotiate with their insurance agent. The agent can certainly advise the owner and sell insurance, but the owner needs someone else – not just the agent – to look over their shoulder during this process.