Iowa Court of Appeals summarizes historical development of an insurance agent’s duties in procuring insurance

(Before It's News)

The Iowa Court of Appeals recently provided a historical summary of an insurance agent’s duties in procuring insurance requested by an insured. In 3140 LLC v. State Central Financial Services, Inc., No. 14-1602 (Iowa Court of Appeals, Jan. 27, 2016), the appellate court ultimately concluded that a procurer has a general duty “to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.” 3140 LLC was issued the same day as L40 Cattle Company, LLC v. Prins Insurance, Inc., No. 15-0232 (Iowa Court of Appeals, Jan. 27, 2016), wherein the Court reached the same conclusion.

The Court’s recitation of history was needed in order to render a decision in 3140 LLC—the interpretation of the insurance procurer’s duty had changed from the time that the facts of the case occurred, throughout the time that the case was litigated.

When the claim arose, State Central had the duty “to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.” Then, in 2010, the Iowa Supreme Court overruled that position, holding “that it is for the fact finder to determine, based on a consideration of all the circumstances, the agreement of the parties with respect to the service to be rendered by the insurance agent and whether that service was performed with the skill and knowledge normally possessed by insurance agents under like circumstances.” That standard applied on the date on which the district court ruled on the summary judgment, causing the district court to grant summary judgment to State Central as to the claim of negligence in State Central’s failing to provide necessary or requested coverage.

But, the standard was then legislatively overturned, effective July 5, 2011, with Iowa Code section 522B.11(7). Thus, the prior expansion of duty, which occurred after the suit was filed, was abrogated by the legislative contraction, which was effective on July 2011, and the duty owed by State Central to 3140 LLC at the time a new trial was ordered by the district court in March 2012 was the same as at the time the case was filed—and was limited to those duties and responsibilities prior to the Iowa Supreme Court’s expansion.

3140 LLC argued that the district court should not consider section 522B.11(7), because State Central “never raised the issue of Iowa Code section 522B.11 as amended by the legislature after filing and arguing the motion for summary judgment.” Although the Court of Appeals suggested that State Central had, in fact, raised the section, the Court further held that because “section 522B.11(7) ‘address what duties an insurance agent owes the insured’…, the district court did not err in looking to section 522B.11(7) to determine whether State Central owed a duty to 3140 LLC when considering the motion for summary judgment.”

Because State Central simply had the general duty “to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured,” summary judgment was appropriate in State Central’s favor; 3140 LLC presented no evidence that State Central held itself out as an insurance specialist, consultant, or counselor, or received compensation for consultation and advice apart from commissions.

Although the Court of Appeals has now issued two opinions addressing section 522B.11(7), in the absence of guidance from the Iowa Supreme Court, interested practitioners should continue to monitor the area for further developments. For questions regarding either 3140 LLC v. State Central Financial Services, Inc.; L40 Cattle Company, LLC v. Prins Insurance, Inc.; or regarding commercial litigation in Iowa, contact Mollie Pawlosky.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

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