Broker’s Liability and Duties
An insurance broker is responsible to act on behalf of the individual or entity that has been insured. The broker’s obligations are important not just so that the broker performs their job well, but also because these duties can have financial and legal ramifications on the clients the broker represents. As such, it is imperative that a broker acts diligently and reasonably when acquiring insurance for their clients. Otherwise, a broker who reneges on their duties is opening themselves up to potential lawsuits.
While in some jurisdictions brokers can have a fiduciary duty to their clients, and thereby if they fail to act on this duty they can be sued by said client, California does not instil this level of duty of care to the broker. The waters are a bit murky on this topic; however, the broker is generally required to use diligence and reasonable care. No more is required of them, but this duty of reasonable care can change its threshold based on the circumstances of the client’s case.
Furthermore, it is in the broker’s best interest to have written documentation of all communication with the client and relevant parties. This will allow for the client to have an explicit understanding of exactly what has happened in their insurance case. Moreover, a broker has no duty to run a full background check on the financial state-of-affairs of an insurance company. While the broker would obtain the best possible insurance for the client, the regulatory aspect of it is left to the relevant insurance institutions.