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Insurance Agents Aren't Real Professionals


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8/1/2016
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Disruptive technology [DT] is technology (mostly via the Internet) that replaces or removes a traditional way of doing business. DT is disruptive, because it destroys jobs. For the most part, DT does not relieve the need for the service; instead it simply redirects who gets to make a profit from whatever activity is being disrupted. The insurance industry is squarely in the scope of DT and I’m not sure they don’t deserve it.

OUR TRUST IN OUR INSURANCE AGENTS IS MISPLACED

Insurance policies are complicated. The language is archaic and pretty meaningless to laypeople who buy insurance. Even smart business owners who are not in the insurance business don’t necessarily understand all of the arcane language contained in the policy. For lay people, trust is the only tool at their disposal allowing them to conclude what they are buying is what they will need when a catastrophic event upends their life. When the policy arrives no one reads it, because reading it wouldn’t make a bit of difference. After all you can’t negotiate terms. Which is why it is called a contract of adhesion.

It has to be trust that makes makes most people fork over huge premiums every month. 

Most laypeople simply trust they have been treated fairly. They trust the insurance agent, their insurance agent.

And you probably think, “Yeah, but that’s why we have insurance agents. They are there to help us pick the right insurance. Right?Answer: Not on your life….

If people understood the import of today’s case they would be dumbfounded, confused and bewildered.

Here is the name and link to today’s case: Carlson v. Midwest Prof'l Planners, No. 15-2562 (8th Cir. 2016)

Justia Opinion Summary - Plaintiffs filed suit against Midwest, alleging that an insurance agent carelessly and negligently failed to designate plaintiffs as owners of the insurance policy at issue. The district court concluded that the complaint failed to state a viable claim and dismissed the case. The court concluded that, under the policy, control over the policy during the lifetime of the insured - including the power to name a new owner - belonged solely to the insured in this case. Therefore, Midwest cannot be liable for negligence for failing to do something it had no power to do. Accordingly, the court affirmed the judgment.

In this case the owners claimed they were led to believe, that they were the owners of the policy. To them that meant the beneficiary could not be changed without their approval. After all most people won't pay the life insurance premium if they can't control the named beneficiary. 

So what the heck happened with this $1.5 million life insurance policy?

In this negligence action against the insurance agent they alleged he negligently failed to list the plaintiffs as co-owners of the life insurance policy.  Just prior to his death the one business partner changed the beneficiary to someone other than his business partners. He could do that because the agent did not name the business partners as co-owners of the life insurance policy.

When the insurance application was filled out the box for naming [the name of the applicant (the owner)] the owner was left blank. This gave the person whose life was being insured the right to re-designate the beneficiary. This should make every spouse in a rocky marriage a little nervous. And it should send every business owner with life insurance premiums calling their agents.

The owner of a policy has the right to change the beneficiary, no matter what was intended. And even if the agent is told otherwise the courts won’t rewrite the policy to effect what was then intended. [After all this isn’t a justice system, it’s a legal system. Right Ed?]

And so you are likely left wondering, why can’t we sue the agent for malpractice?

Because the law doesn’t consider what the agent is doing as something you can sue them over. Unless you are paying the agent more than just a premium they are pretty much bullet proof from malpractice. This has never made sense to me; and it is why disruptice technology is already affecting the insurance business. [Progressive Insurance]

Here is why.

If as a lawyer I give you advice but you can’t ever sue me for giving the wrong advice, would the advice I give be worth paying for? Probably not. And if you could never sue me over bad advice then why would I care about the accuracy of my advice? I wouldn’t and neither would you. And if as a personal injury lawyer I was receiving payment from the insurance industry, who would I likely be loyal to? Not the injured person, that’s for sure. I’d be sort of like the company doctor in a workers’ compensation case. I’d be beholden to State Farm or Nationwide or Farm Bureau or Liberty Mutual, but not to the injured person, because they would only be my customer.

You see if I am loyal to someone other than the injured person then they are simply my customer, but they aren’t my client. My client is whoever pays me and directs customers to me. They are the people to whom I owe my loyalty.

In a real profession our customers are our clients and therefore our duty of loyalty is to them and no one else.

But that’s not true in the insurance business. The insured is the customer who pays the premium, but that is not where the insurance industry’s loyalties lie. Their loyalties, the insurance agents, lie with the insurance industry. The claims’ department and underwriting get far more attention than do the person who actually buys the insurance policy. When you buy insurance you are a “customer”, but not a client.

So I am not surprised when this court decision, in applying existing law and industry standards, finds the agent had no duty to the guys who bought and who were paying for the insurance coverage. This life insurance policy was for a lot of money and was supposed to provide a death benefit to the partners in a business. But just before dying the one changed the beneficiary.

He could do this because the agent provided no useful advice through the application process as to how to protect against a change of beneficiary. These guys paying for the policy got zip. Nada. Zero. Who knows this better than the business owners in this case. 

And by the way, not all disruptive technology is all good. DT for the most part simply redirects who gets the money. Like Amazon one man is a billionaire while 100,000 workers are idled while we await the creation of other food service jobs. OUCH!

Justia Opinion Summary

Plaintiffs filed suit against Midwest, alleging that an insurance agent carelessly and negligently failed to designate plaintiffs as owners of the insurance policy at issue. The district court concluded that the complaint failed to state a viable claim and dismissed the case. The court concluded that, under the policy, control over the policy during the lifetime of the insured - including the power to name a new owner - belonged solely to the insured in this case. Therefore, Midwest cannot be liable for negligence for failing to do something it had no power to do. Accordingly, the court affirmed the judgment.

This confirms research I did in the 1980's. The courts are not moving the chains closer to the insurance agents as being professionals who owe a duty to their customers. I won’t call them clients because it’s obvious they are not in any professional relationship beyond simply binding over a policy based on the application filled out by the customer. And this is one of the reasons why Progressive and other online insurance platforms are taking more and more business away from local agents. Local agents aren’t professionals, they are salesmen and saleswomen who perform a perfunctory job. Bottom line is they are useless and probably unnecessary and moving closer and closer to extinction. If agents don’t lobby the legislature into making them professionals, sooner or later they will all be replaced by a computer terminal.

Quoting language from the decision:

According to the Carlsons, they bought the policy with James in 1995. Eric Madson, an agent for the issuing insurance company, sold the policy to them. On the application form, the Carlsons were listed as the beneficiaries and James as the insured, but the box labeled “Name of Applicant (Owner) If Other Than Proposed Insured” was left blank. By the clear terms of the policy, that made Jamesthe owner, with the power to “exercise all rights granted by the policy without the consent of anyone else.”2 Madson later changed jobs, eventually joining Midwest in 2000. As far as we can tell from the complaint, Midwest had nothing to do with the policy on James’s life before hiring Madson. In 2009, exercising his prerogative as the sole owner of the policy, James told Midwest to remove the Carlsons as beneficiaries. As nonowners of the policy, the Carlsons were powerless to stop the change. “Immediately” afterward, James died.

Practice Pointer: Those buying and paying for insurance should on an annual basis review all of the insurance declaration pages (DEC Page) and make sure the insurance is as you want it to be. Instead of asking the insurance agent you’d be better off paying a lawyer to review it and to advise you about what is and is not covered. The lawyer working with the insurance agent can then provide advice that more fully explores the issues of liability and payouts. It’s easier than you might think. Take all your insurance policies or DEC pages and place them in a three-ring binder. That way you have them all in one place and it’s easier to review. 



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