How Giving Advice and Making Representations Can Be Risky Business for Agents

• June 23, 2025

By Caryn Mahoney

An agent needs to be cautious about what they represent to their clients. For instance, agents must exercise caution when making statements that a claimant is “fully covered.”

In many states, an agent simply has to procure the coverage requested by the client. The duty to obtain coverage is generally distinct from the duty to advise clients on the adequacy of their coverage or alternative options. If an agent makes assurances about the adequacy of coverage and those assurances are incorrect, they may be exposing themselves to liability if there are gaps in coverage.

The general rule is that an agent is not responsible for selecting appropriate coverage unless they voluntarily assume that responsibility. However, if a client makes an ambiguous request for coverage that requires clarification and the agent fails to follow up, the agent may be held accountable.

In the 2013 Missouri Court of Appeals case of Gateway Hotel Holdings Inc. v. Chapman-Sander Inc. and Tom Bormann, an agency arranged coverage for a production company that was hosting boxing matches. The producer requested “athletic participant coverage,” but the agent mistakenly assumed this meant accident insurance rather than liability coverage.

The producer believed he had a $5 million policy covering all liabilities related to the event. However, the policy placed by the agent did not cover injuries to the boxers arising from the producer’s liability. When a boxer collapsed and suffered injuries due to the alleged absence or delay of an ambulance, litigation ensued.

The trial court awarded $13.7 million in damages against the facility and carrier. The facility and carrier later entered into a consent judgment with the producer for nearly $6.75 million, which the producer sought to recover from the agent and agency.

Some states do require agents to inform clients about available coverage options, but even in these cases, agents must be careful not to imply that a particular policy provides complete protection.

An agent is typically not obligated to advise an insured to obtain more coverage than what is required or described in the policy. Agents must strike a balance between recommending suitable coverage and refraining from providing opinions on whether specific losses are covered under a given policy. It’s a delicate Catch-22 situation.

Agents should also exercise caution when they make determinations as to whether a claim should be reported to an excess carrier. Usually, an agent is better off reporting it than not. Seemingly minor issues can escalate into significant problems over time.

Providing assurances to policyholders about coverage can also be problematic. In one instance, an agent told an engineer he would be covered under the extended reporting period (ERP) for work performed during that time period. However, when the engineer faced a lawsuit related to that work, he discovered there was no coverage.

Another issue arises when an agent advises a client on the insured value of their property. Once an agent assumes this responsibility, which is typically not part of their duty, they risk liability if coverage proves inadequate.

Agents also need to be careful in making post-loss statements about where coverage applies for loss. In one case, a claimant asked an agent whether a residential pool that was destroyed by a tornado was covered under the dwelling or other structures limit. While the agent noted that the carrier had final authority, the agent also provided an incorrect opinion that it was considered part of the dwelling coverage.

Although the claimant may not have relied on the agent’s statement in securing the policy, such a statement could support an argument that, due to the agent’s misunderstanding of the policy terms, there were insufficient limits for “other structures.”

In another case, an agent incorrectly determined that a pollution claim was not covered under any policies placed for a client. Later, it was found that coverage existed but the carrier denied the claim due to late notice rather than lack of coverage.

In yet another example, a claim involved a mixed-use commercial and residential rental property destroyed by fire. The carrier paid the policy limits, but the claimant argued that the property was underinsured based on the replacement cost value limits. The claimant alleged that the agent repeatedly assured her she had sufficient replacement cost coverage and that her policy would fully cover rebuilding costs.

The claimant testified that the agent told her the policy would “cover the building 100% if it burned down.” The claimant had provided the square footage details to the agent, and the agent calculated the limits from that information. The claimant later argued that the agent’s statements prevented her from realizing her limits were inadequate, resulting in a $400,000 shortfall in coverage.

Agents must also be cautious when stating that a replacement policy is identical to the one it replaces. Even small differences in policy language or coverage agreements can lead to significant discrepancies. If an agent makes such a statement, they could be held liable when a loss occurs that would have been covered under the prior policy but is excluded under the new one.

It is crucial agents accurately understand policy coverage and take care when making representations about policy coverage to clients. Misstatements or assumptions can have severe financial and legal repercussions.

Caryn Mahoney is an assistant vice president and claims specialist with Swiss Re Corporate Solutions and works out of the Kansas City office. Insurance products are underwritten by Swiss Re Corporate Solutions America Insurance Corporation and Swiss Re Corporate Solutions Capacity Insurance Corporation, a member of the Swiss Re group of companies (“Swiss Re”). This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of Swiss Re and/or its subsidiaries.