Agent Liability for Insurer Insolvency

February 6, 2013:  The most recent article in “Burke’s Law,” a monthly column featured at, reviewed the issue of agent liability for insurer insolvency.  Agents’ errors and omissions (E&O) policies offer protection for insurance agents, but many E&O carriers exclude coverage for liability related to an insurer’s insolvency.  “Insolvency exclusions” are typically based on an insurer’s rating or other requirements imposed by the E&O carrier.  But the requirements of the E&O policy are not the same as the legal standard of care, and the emphasis on an insurer’s rating is misplaced.  The case law reveals that ratings are not dispositive of due care and are not the legal standard for agent liability for insurer insolvency.

An agent’s duty is not fulfilled simply by consulting rating opinions.  Courts have found that placing business with an insurer that has an unfavorable rating will not necessarily result in liability for the agent should the insurer become insolvent.  Likewise, agents relying on a favorable may not have fulfilled their duty to the insured.  While agents are expected to find the most advantageous policy terms and premium for their clients, the requirements of E&O policies can often interfere with the agent’s ability to do so.  Agents should understand their legal duties and should be cautious to substitute the judgment of their E&O carrier for their own.

The article can be read at: