On November 1, 2017, Republican State Senator Rick Jones introduced Proposed Senate Bill No 644, which if enacted would significantly limit a consumer’s ability to pursue a claim or legal action against a licensed insurance agent.
https://mirsnews.com/bills/details/35459
Section 4 of the proposed bill abolishes all claims and/or causes of action against an insurance “licensee” including claims for fraud, misrepresentation, and/or negligence in exchange for a single action under the statute which only applies if there is “special relationship” between the agent/agency and the customer with respect to the specific matter dispute. Absent such a “special relationship” there can be no civil claim or cause of action against an insurance licensee either in law or in equity.
Under the proposed bill, an insurance licensee owes no duty to advise the customer regarding the adequacy of their insurance needs or to explain the coverage terms of an insurance contract. If a “special relationship” is found to exist, the issue as to whether an agent acted improperly can only be maintained if supported by expert testimony (1) establishing the requisite standard of care; (2) violation of the requisite standard of care, (3) and damages that were proximately caused by the licensees breach. Recoverable damages are specifically limited to the insurance benefits that would have otherwise been available plus interest, but for the breach and would in no way allow for any additional measure of damages such as lost profits, consequential or exemplary damages.
Since “licensee” is defined as any individual or agency that is required to maintain a license in order to solicit or sell a contract of insurance in the State of Michigan, it would appear that the act would also apply to the activities of individuals and/or agencies selling life insurance, annuities, health, long term care, and disability policies in addition to traditional property and casualty policies.
Most cases against insurance agents do not involve overt or intentional misrepresentation; rather they fit within a category of failure to inform or failure to properly represent the interest of the insured (i.e. negligence and/or silent fraud). In order to maintain a silent fraud or negligence action against an insurance agent, a plaintiff must show that agent had a duty to disclose pertinent information or to act for the betterment of the insured through some sort of recognizable fiduciary relationship or other legal duty. However, under Michigan law an insurance agent does not stand in a fiduciary relationship with his/her clients and therefore owes no duty to act in the insured’s best interest.
Most other licensed professionals (i.e. accountants, attorneys, brokers, financial advisors) either stand in a fiduciary relationship with their clients or are subject to other regulations that impose a duty to act in the client’s best interest. With regard to an insurance agent selling an investment product such as an annuity or life insurance policy, a licensee is required to have a reasonable basis to believe that the product being sold is suitable for the customer’s given needs given their financial status, investment objectives, given access to full and accurate information under the relevant provisions of the Insurance Code. MCL 500.4155 However, the Insurance Code does not provide for or allow a private cause of action for a violation for any provision contained therein.
This is not the first time that the activities of the insurance industry have been exempted from civil liability under other consumer protection scheme. In 2000 the Michigan Consumer Protection Act (“MCPA”) was revised to specifically exclude the insurance industry from civil claims involving false and/or deceptive practices in the sale of insurance products. MCL 445.904(3) “This act does not apply to or create a cause of action for unfair, unconscionable or deceptive method, act, or practice that is made unlawful by chapter 20 of the insurance code of 1956, 1956 PA 218, MCL 500.2001 to 500.2093.”
Under the proposed bill, insurance agents would be afforded complete immunity from civil liability for recommending or selling an insurance product that may well be inappropriate or unsuitable. The net effect would be to transform the role of an insurance agent and customer to that of a caveat emptor/buyer beware relationship.