Michigan’s Common Law considers an independent insurance agent to be an agent of the insured
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When an independent insurance agent (called a “broker” in most states) is usually an agent of the insured, not the insurer, the Court of Appeals was asked to determine whether the legislature abrogated this principle of Michigan common law when it amended Insurance Code, MCL 500.100 a seq., 2018.
IN Ahmed Al-Hajjaj v. Hartford Accident And Indemnity Company, and Ahmed Odah Salem Alderawi, Safeco Insurance Company Of Illinois, Sam Saeidi, Golden Insurance Agency, LLC and GOLDEN INSURANCE AGENCY OF OHIO, LLC, and Prime Transportation Service, LLC, and Batol Alyunisi, no. 359291, Court of Appeals of Michigan (January 26, 2023). The key issue on the interlocutory appeal is whether our Legislature abrogated the Michigan common law principle when it amended the Insurance Code, MCL 500.100 a seq., 2018.
Ahmed Al-Hajjaj is a co-owner of Prime Transportation Service, LLC, and he sought insurance coverage for Prime’s vehicles from Golden Insurance Agency, LLC. Al-Hajjaj spoke with Sam Saeidi, a principal and insurance agent for Golden. Golden is an independent insurance agency that underwrites policies for over ten different insurers, including Hartford Accident and Indemnity Company. Saeidi recommended that Al-Hajjaj purchase a policy for his company through Hartford, and Al-Hajjaj agreed to do so.
The policy application Saeidi filled out with Al-Hajjaj listed “Prime LLC” as the company, as opposed to the full name, “Prime Transportation Service, LLC.” More critically, the filing falsely stated that the company was a physical therapy office that did not transport patients, when in fact the company provided medical transportation services for patients. Based on Golden’s application, Hartford issued a policy to “Prime LLC.”
Al-Hajjaj was subsequently injured in a vehicle collision, and he sought personal injury coverage from Hartford. As part of its coverage investigation, Hartford discovered the errors in the application. The insurance company canceled the policy because of what it characterized as material inaccuracies in the application, and Al-Hajjaj sued Hartford, Golden and others.
The plaintiff alleged that Golden, the insurance agent, was a contractual agent of Hartford, the insurer. Golden had a contract with Hartford that only gave the agency the authority to “order, quote and bond insurance” for certain policies offered by Hartford. The insurer can cancel all policies placed by Golden with the insurance company. As a limitation of the relationship, the agreement stated:
2.2 Restrictions. You [Golden] has the power and authority to act as our agent only to the extent expressly provided in this Agreement and no further authority or power is implied. You are an independent contractor and not an employee of us for any purpose, and your right to represent other companies is not limited by this Agreement. Any authority granted hereunder to solicit, quote or bind insurance products on our behalf is non-exclusive, unless we agree otherwise in writing.
Al-Hajjaj also argued that the Legislature abrogated the Michigan common law principle that an independent insurance agent was an agent of the insured, not the insurer, for purposes of applying for and placing insurance. The trial court denied Hartford’s motion for summary disposition, concluding that the contractual relationship between Hartford and Golden meant that the latter was the former’s agent.
When it comes to statutory interpretation, the court is bound to give effect to the intention of the legislature. The Legislature is presumed to intend the meaning clearly expressed, and this court must give effect to the plain, ordinary or generally accepted meaning of the legislature’s terms.
There were two issues in the Court of Appeal:
- if the legislature abrogated the common law principle of independent insurance agents; and if not,
- whether the contract between Hartford and Golden made the latter the agent of the former in view of any defects in the application.
CONDUCT OF COMMON LAW
The record confirmed that Golden is an independent insurance agency, not a captive. It offers to place policies from at least ten different insurance companies. It has long been Michigan common law that, when insurance is facilitated by an independent insurance agent or broker, the independent insurance agent or broker is considered an agent of the insured rather than an agent of the insurer.
This principle makes sense in the context of an independent insurance agent, who can offer an individual customer a variety of options from any of the insurers with whom the agent has contracted. A customer can approach an independent insurance agent and expect to compare all available insurers, unlike when a customer goes to a captive insurance agent, who only has one insurer to offer.
An independent insurance agent who had to balance fiduciary duties between competing underwriters would effectively be frozen into inaction by a web of intersecting and conflicting obligations and interests. Instead, in recognition of the significantly different circumstances of a client dealing with an independent insurance agent versus a captive insurance agent, courts have concluded that an independent insurance agent owes his primary fiduciary a duty of loyalty to the client.
Al-Hajjaj argues that this principle of customary law was abrogated by our legislature.
Prior to the adoption of the new Public Act, MCL 500.1201(a) defined “agent” as “an insurance producer,” and in turn, subdivision (e) defined “insurance producer” as “a person required to be licensed under the laws of this state to sell , apply for or negotiate insurance.”
Where Al-Hajjaj sought insurance through Golden, an independent insurance agent, and not through an agent-to-agent transaction, the independent agent represents only the insured.
Hartford and Golden entered into an agency agreement that included Saeidi as Golden’s principal. By all accounts, this was a standard contract between an insurance company and an independent insurance agent. The agreement authorized Golden to “order, quote and bind insurance” on behalf of Hartford, but the contract also significantly limited Golden’s authority. In addition, the agreement recognized that Golden was an independent insurance agent with the right to select and place policies with other insurers.
The Hartford/Golden Agreement established that the independent insurance agent or broker is considered an agent of the insured rather than an agent of the insurer. Here, Golden owed its primary duty of loyalty to Al-Hajjaj as its client, rather than to Hartford as one of the ten insurers for which it placed policies.
Considering the standard language used in the agreement between the independent insurance agent and the insurer here, the trial court erred in concluding that the independent insurance agent was the insurer’s agent in this case and denied summary disposition on that basis. The Court of Appeal revoked and remanded for further proceedings in accordance with its view.
Independent insurance agents continue to owe their primary fiduciary duty of loyalty to their clients, ie. the insured, rather than the insurance companies whose policies they underwrite. This common law principle survived the Legislature’s amendments to the Insurance Code in 2018 PA 449. The trial court erred in concluding that the agreement between Hartford and Golden modified this principle.
An “independent insurance agent” in Michigan is similar to a “broker” in California which is defined as a person who underwrites policies with but not on behalf of an insurer and is therefore concerned only with his duty to the insured. A minor statutory change to the definition did nothing to change the fact that the independent insurance agent’s duty, in Michigan, is the insured. The case will go to trial to determine who was responsible for the misrepresentation in the application that allowed the insurer to rescind.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org
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