I have written before of my love of the legal lexicon. My dedicated readers know I have some favorite legal words, like champerty and tortfeasor.[1] But as every Ying needs a Yang, there are some legal words that I shudder to see—particularly in a legal opinion. My least favorite is rather innocuous when compared with the myriad Latin terms judges love to throw into their opinions. Yet, its placement in a legal opinion almost always leaves me scratching my head. The term is special relationship.
Why does that term bother me so?[2] There are several reasons. First, the term special relationship suggests something seedy or unethical. Overt nepotism or some sort of quid pro quo situation. When in fact, a special relationship—at least in the legal context used in this article—doesn’t have anything to do with that. In the insurance world, a special relationship relates to the relationship that an insurance agent or broker has with a particular client. The presence of a special relationship is a game changer in an insurance producer errors-and-omissions case. Which brings up the second reason why I dislike the term: No one has any idea what that means. But, I’m getting ahead of myself.
To attempt to understand a special relationship, it’s important to understand the essential elements of proving a claim of negligence, which serves as the basis of any insurance E&O lawsuit. So, a plaintiff must prove three essential legal elements,[3] which are:
1. that a legal duty existed;
2. that the duty was breached; and
3. that the breach caused the injury claimed in the lawsuit.
While much could—and has been written on each element—it is the first element—the legal duty—in which a special relationship comes into play.
Duty
Insurance producers unquestionably owe a duty to their clients. This duty, sometimes referred to as the duty or standard of care, is not found in any compendia of laws and regulations. Instead, a producer’s duty to his or her clients has been established through court cases—which are known as common law. Like laws and regulations, the common law of one state can, and often does, differ from that of another state. For insurance producers who operate in multiple states, this means they need to be aware of the standard for each state in which they do business, as it could determine whether an E&O claim is successful.
The good news is that most states’ common laws have a similar definition of what a producer’s standard of care is to his or her client.[4] Most of the courts that have considered this question have held that insurance producers owe their clients a duty of reasonable care and diligence. Courts have interpreted that to mean that insurance producers have a duty to obtain the coverage and limits that clients request; or advise them of the coverage’s unavailability. Generally, what is not included in that duty is a reasonability to advise a client continually or proactively as to availability of insurance products or sufficiency of limits.
If that was the end of the story on producer standard of care, that would make for a short and straight-forward article. Unfortunately for producers (and readers), that is not the end of the story, and this article persists. There are certain special situations in which a producer may be found to have a heightened duty to a client. One that would require the producer to not only procure requested coverage, but to provide ongoing advice as to the extent and sufficiency of insurance coverage. As I hope you have guessed, that heightened duty exists when there is a special relationship between a producer and a client. And, therein lays the rub.
Most states that subscribe to the ordinary negligence standard acknowledge the special relationship. While the way courts have applied a producer’s ordinary standard of care has been consistent, the application of special relationship has been inconsistent.
A nice illustration of the inconsistency and evolution of special relationship can be found in the common law of three states: New Hampshire, New Jersey and New York. Each of these states has almost the same standard of care and in some cases, one state’s common law on this issue has been influenced by another state’s common law.
Once upon a time in New Jersey …
We start our legal journey in the Garden State. The year is 1984. Prince’s When Doves Cry is playing on the radio and the case of Sobotor v. Prudential is being decided in the Superior Court of New Jersey, Appellate Division.[5] The plaintiff, Bernard Sobotor, had just moved to New Jersey from New York state, and he was referred to an insurance agent, Charles Redmond, for auto insurance. In discussing his auto insurance needs, Sobotor specified that he wanted liability coverage of $100,000/$300,000 and the “best available” package for any remaining coverage.[6]
In turn, Redmond procured a policy with the requested liability limits, but uninsured motorist coverage in the amount of $15,000/$30,000. Sobotor was involved in an auto accident and, shockingly, he was underinsured. He brought a lawsuit against Redmond alleging that Redmond was negligent in failing to advise Sobotor of the availability of higher amounts of UIM coverage.
You may be thinking that an insurance producer has no duty to advise a client—and normally you would be right. But, in this case, the court was asked to find that a special relationship existed between Redmond and Sobotor—and that Sobotor relied on the special relationship to his detriment. Here we come to our first encounter with the frustrating world of special relationship. In this case, the court applied a standard that will appear frequently in producer E&O cases, and which makes insurance defense attorneys break into a cold sweat. The court states that whether a special relationship exists is a fact-specific question, and it depends upon the particular relationship between the parties. In the Sobotor case, the court found that Redmond had held himself out to have special expertise in insurance.[7] The court determined that Sobotor relied on Redmond’s expertise. That reliance created a special relationship and a duty for Redmond to advise Sobotor of the need for higher limits.
A long time ago in a New York far away …
Our next stop is in New York state in the year 1997. That is the year the New York Court of Appeals decided the case of Murphy v. Kuhn. The insurance agency of Kuhn, Kuhn & Pedulla, had been providing insurance to Thomas Murphy in one capacity or another since 1973. In 1990, Murphy requested that his son be removed from Murphy’s personal auto policy. Instead, he requested that his son be added to a commercial auto policy that Kuhn also handled. The commercial auto policy had limits of $250,00/$500,000. Murphy at no time requested higher coverage. Murphy’s son was involved in an accident and policy limits were exhausted. Murphy then brought a lawsuit against Kuhn alleging that the agent had failed to advise Murphy of the need for higher insurance limits.
The New York court was asked to find that a special relationship existed between Murphy and Kuhn. The New York court first acknowledged that an agent does not have a duty to advise under normal circumstances. However, the court does state that a special relationship could exist that would require an increased duty to advise. The New York court cites other jurisdictions that have recognized a special relationship. Special relationships were found in instances in which agents received compensation for consulting, when there was some interaction regarding a question of coverage and it’s clear that the insured is relying on the expertise of the agent, or when there is a course of dealing over an extended period of time that would make it reasonable to assume that the client is seeking the agent’s expertise.
Each of these situations could all give rise to a special relationship. While the New York court acknowledges the special relationship and those factors, interestingly it found that in the case of Murphy that a special relationship did not exist and that it was merely the normal client-agent relationship. As such there was no duty to advise of the need for higher coverage.
Something funny happened on the way to the Granite State
Our final stop is New Hampshire in the year 2002. The Supreme Court of New Hampshire decided the case of Sintros v. Harmon. Like Sobotor and Murphy before it, this case dealt with an auto insurance policy.
The plaintiff, Thomas Sintros purchased automobile insurance from Thomas Harmon. Sintros had been a client of Harmon’s for at least seven years and Harmon provided coverage to Sintros’ family as well. Over that time period, the Sintroses communicated with Harmon regarding new vehicles, additional drivers, and other relevant changes.
In 1997, Sintros’ son was seriously injured in an automobile accident while riding as a passenger in a friend’s vehicle. The damage exceeded the $100,000 liability limit of the primary policy. Sintros’ own policy only provided a $100,000 UM/UIM liability limit. Making additional coverage unavailable. Sintros brought a lawsuit against Harmon alleging that Hamon breached a duty to advise of the need for higher UM/UIM limits.
Following in the footsteps of New Jersey and New York, the New Hampshire Supreme Court recognized that normally a producer has no duty to provide ongoing advice to a client. However, a special relationship could exist that would create a duty to advise. To find a special relationship, the court repeats the ill-fated phrase from Sobotor. The particular relationship between the parties is determined on a case-by-case basis. However, the court does provide examples in which a special relationship may exist. They echo similar criteria in New York: instances in which an expressed agreement is in place; a long-established relationship exists; situations in which additional compensation apart from premium payments is paid; and the agent identifying as a highly skilled expert coupled with the reliance of the insured.
After articulating these factors, the court applied them to the relationship between Sintros and Hamon. The court found that Sintros had failed to establish that a special relationship existed and that Hamon’s communications with Sintros through their years-long relationship did not amount to anything more than routine communication between a producer and client.
A recap
What do these cases all have in common? And more importantly, why do they matter?
In each case, a court was asked for the first time to consider whether insurance producers in that state had a duty to advise and when that duty arose. That is important—as it was not necessarily the last time. Since acknowledging that a special relationship could exist in Murphy, the New York Court of Appeals has never found an instance in which a special relationship existed. That has not been the case in the other states.
New Jersey courts have found several instances in which special relationships existed since the Sobotor ruling. None of which have articulated a clear criterion for establishing a special relationship.
New Hampshire’s common law recently changed—or at least shifted—with the case of 101 Ocean Blvd. LLC v. Foy Insurance Group. In that case, the court found a special relationship existed between an agent and client despite the client failing to establish the elements of a special relationship spelled out in Sintros.
In Connecticut and Vermont
My apologies to readers in Connecticut or Vermont for not highlighting standard-of-care cases in your state. I meant no offense. The cases referenced in this article were chosen because they highlight the evolution of special relationship, as well as how arbitrarily it is applied.
Connecticut and Vermont have their own interesting history of standard-of-care cases. But each state falls in line with the standards articulated in the cases highlighted in this article.
In Vermont,[8] producers have an obligation to provide the insurance coverage and limits requested by a client or provide notice to the client of their inability to do so. That duty does
not extend to a responsibility to advise on adequacy of limits or future coverage needs, absent a special relationship. While courts in Vermont have at least alluded to the possibility of a special relationship existing, they have yet found one to exist in an actual case. Vermont falls on the New York end of the spectrum.
Connecticut falls close to the New Jersey side of the spectrum—with conflicting case law as to the standard of care. The seminal case[9] on this issueestablished the ordinary standard discussed earlier in this article, but it took the standard one step further stating that a producer had an obligation not only to procure the insurance coverage requested but explain unknown coverages, as well as the consequences of low limits to the client, particular uninsured/under insured motorist coverage. However, at least one subsequent case in the Nutmeg State acknowledged that absent a special relationship, a producer has no duty to advise.[10]
And, outside the Northeast?
Like Connecticut and Vermont, Tennessee has its own standard-of-care cases, which also fall in line with the standards articulated in the cases highlighted in this article.
In Tennessee,[11] producers have an obligation to provide the insurance coverage and limits requested by a client or provide notice to the client of their inability to do so. That duty does not extend to a responsibility to advise on adequacy of limits or future coverage needs, absent a special relationship. While Tennessee courts have at least alluded to the possibility of a special relationship existing, the state has yet to find one to exist in an actual case. Tennessee falls on the New York end of the spectrum.
Where do we go from here?
The amorphous nature of special relationship, as well as the fact-specific analysis that goes along with it, can be frustrating for agents.
PIA is working on a long-term solution with stakeholders in multiple states to change the common law to help better protect insurance producers.
On the ground level though, individual insurance producers can best protect themselves by developing and maintaining sound recordkeeping methods. It’s mundane, but good recordkeeping is critical. Since special-relationship cases are so fact-specific, proper documentation can demonstrate whether the relationship with a client was that of a normal producer-client or whether there was something that elevated the relationship to the special status.
This article originally appeared in the December 2023 issue of PIA Magazine.
[1] Fun fact: I named my law school intramural basketball team the Harlem Tortfeasors. That was my biggest contribution to the squad.
[2] It bothers me enough to use the phrase: bother me so.
[3] Feel free to read this next part to the tune of Three is The Magic Number.
[4] Thanks, in part, to another great Latin term Stare decisis.
[5] Cue Law & Order sound effect
[6] 491 A.2d 737, 336
[7] The decision barely touches on what Redmond did to hold himself out as an expert.
[8] Rocque v. Co-Operative Fire Ins. Ass’n, 140 Vt. 321, 438 A.2d 383 (1981)
[9] Dimeo v. Burns, Brooks & McNeil Inc., 6 Conn.App. 241, 504 A.2d 557 (1986)
[10] Preston v. Chartkoff 2004 Ct. Sup. 1093 (Conn. Super. Ct. 2004)
[11] Massengale v. Hicks, 639 S.W.2d 659 (Tenn.App.1982)
Bradford J. Lachut, Esq.
Bradford J. Lachut, Esq., joined PIA as government affairs counsel for the Government & Industry Affairs Department in 2012 and then, after a four-month leave, he returned to the association in 2018 as director of government & industry affairs responsible for all legal, government relations and insurance industry liaison programs for the five state associations. Prior to PIA, Brad worked as an attorney for Steven J. Baum PC, in Amherst, and as an associate attorney for the law office of James Morris in Buffalo. He also spent time serving as senior manager of government affairs as the Buffalo Niagara Partnership, a chamber of commerce serving the Buffalo, N.Y., region, his hometown. He received his juris doctorate from Buffalo Law School and his Bachelor of Science degree in Government and Politics from Utica College, Utica, N.Y. Brad is an active Mason and Shriner.
