Client misrepresentations could leave you on the hook for insurance fraud

March 11, 2024

Insurance agents are the middlemen—they act as intermediaries between insureds and insurers. With this positioning, there are times when agents are put into situations in which they are unsure of what side to take—especially when evidence of a misrepresentation has surfaced.

What happens when your client makes you aware that he or she is trying to avoid reporting known losses by changing deed ownership of a property? Or, if your client makes you aware of losses he or she incurred but you failed to include them in an insurance application? Situations such as these fall under the umbrella of misrepresentations to insurance carriers, and they could leave you liable for insurance fraud should you not report them.

Insurance fraud in the United States continues to be a massive issue. According to The Coalition Against Insurance Fraud, fraud costs businesses and consumers roughly $308.6 billion per year.[1] The FBI estimates that for nonhealth insurance, the total cost of insurance fraud is estimated to be more than $40 billion per year, which costs the average U.S. family between $400 and $700 per year in the form of increased premiums.[2]

When is it a misrepresentation?

In the context of the insurance industry and insurance transactions, misrepresentations are considered any statement that is false or misleading. If such a misrepresentation is material, then it can even lead to a voided insurance contract. That is because these types of material misrepresentations could have influenced the insurer’s decision to accept the risk and on what terms.

All parties to an insurance contract must deal in good faith when disclosing relevant information that could influence the decisions of the other parties involved in the agreement. Such specific disclosure obligations vary from jurisdiction to jurisdiction. They also are based on an insurance carrier’s policies and the terms of an agent’s agreement with any such insurance carrier. An agent’s failure to disclose a misrepresentation to an insurance carrier could not only result in a fraud accusation, but also an unwanted breach of contract claim.

Generally, insurance agents should be aware of the following duties associated with their role:

A duty of accurate representation. All information that an insurance agent relays from his or her clients to the insurer must be accurate and complete, including correcting any inaccuracies or omissions that he or she is aware of—or become aware of in the future.

A duty to notify. If an insurance agent becomes aware of a misrepresentation—regardless of whether such misrepresentation was intentional or accidental—a duty is typically owed to the insurance carrier to notify it of such misrepresentation. Insurance carriers rely on accurate information to assess risk and determine premiums, and failure to correct such misrepresentation could leave an agent on the hook for insurance fraud.

Ethical and legal obligations of the profession. Insurance agents also are bound by ethical guidelines and legal requirements that govern the industry, which often include the obligation to act in the best interests of both their clients and the insurance companies to combat insurance fraud.

Regulatory compliance. The insurance industry is regulated heavily. Therefore, many jurisdictions have laws explicitly requiring agents and brokers to report fraudulent activities, including such misrepresentations.


The exercise of these duties can be complex, as they can conflict with the duties owed to your clients, including confidentiality restrictions. However, there is no obligation to aid a client in breaking the law or committing fraud.

In these types of scenarios, it would serve an agent to advise his or her client to correct any misrepresentations. However, if a client refuses, an agent may need to inform an insurance carrier directly to avoid participating in or condoning any illegal activity.

Consulting with your agency’s attorney and participating in training on how to handle these types of situations in accordance with your state’s law and agency policies can help combat insurance fraud as well.

For more information on what an agent or agency can do to prevent fraud in the insurance industry, PIA Northeast members can access The wide reach of insurance fraud in the PIA QuickSource library.

[1] NAIC–Insurance Fraud

[2] Insurance Fraud

Danielle Caswell, Esq.
PIA Northeast

Danielle Caswell joined PIA Northeast as associate counsel in the Government & Industry Affairs Department in 2023. She earned her bachelor’s degree from New York University and her law degree from Brooklyn Law School with a particular focus on intellectual property, information, and media law. Prior to joining PIA, Danielle was an associate at a law firm in New York City where she focused primarily on intellectual property and entertainment-related transactional and litigation matters.

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