Ruling on when insurance agent ‘experts’ assume special duties

For more than two decades, California courts have recognized that one of the three ways an insurance agent broadens the generally narrow duties owed to insured is by "holding out" himself as an expert.

What that phrase means, precisely, and what steps a court undertakes to determine if an agent assumes special duties by holding out as an expert, have never been entirely clear.

Last month, however, the Court of Appeal provided clarity to the longstanding, if dimly illuminated, principle. In David Murray v. UPS Capital, 2020 DJDAR 10120 (Sept. 11, 2020), the court applied a multi-facture analysis and concluded that a presumption of expertise exists when an agent specializes in a particular type of insurance.

In this case, plaintiff David Murray bought $40,000 worth of used computer equipment in California, and arranged for it to be shipped to Texas. UPS's website indicated that liability was limited to $100 on packages with no declared value, but increased if the customer declared a value of up to $50,000 per package, and paid an additional charge. UPS advised Murray not to declare a higher value, but to contact its sister company, UPS Capital, to purchase insurance coverage.

Murray did just that. On the application, he requested "house policy coverage," paid $350 and described the shipment as used computers valued at $37,000. That same day, Tokio Marine America Insurance Company issued a Marine Certificate of Insurance, which Murray believed protected the shipment from any loss or damage.

The equipment was damaged in transit, and Murray filed a claim. Tokio denied coverage, taking the position the policy only covered catastrophic losses, such as when a vehicle transporting packages is completely destroyed.

Murray sued UPS Capital for negligence, among other claims, alleging it owed him a special duty to explain how technical language in his policy limited coverage, and to disclose other insurance products available that would have provided broader coverage. Murray alleged UPS Capital breached this duty by failing to do either.

UPS Capital filed a motion for summary judgment, which pointed out the first page of the application warned Murray that "[u]sed items will not be insured All-Risk," and that it emailed Murray after receiving his application quoting the policy language that it based its denial upon. UPS Capital noted Murray submitted his application, paid the premium and received the certificate of coverage from Tokio all on the same day. The certificate, UPS Capital continued, clearly limited coverage, and the application and its email should have drawn Murray's attention to these limitations. Murray, however, never asked UPS Capital how the policy defined "All-Risk" or made any inquiry into coverage whatsoever.

On the basis of these facts, UPS Capital argued it had not assumed a special duty, and that the general duty of care it owed Murray did not obligate it to make sure he had "adequate coverage to protect against all eventualities."

In his opposition, Murray argued UPS Capital assumed a special duty by holding itself out as an expert, in part, by specializing in inland marine insurance. That special duty obligated it to explain policy terms that could limit coverage.

The trial court granted UPS Capital's motion and dismissed Murray's lawsuit. In doing so, it remarked that California law was well settled: Insurance agents generally owe a limited duty to exercise reasonable care, diligence and judgment in procuring insurance requested by an insured. Travelers Property Casualty Co. of America v. Superior Court, 215 Cal. App. 4th 561, 578-79 (2013). The court acknowledged the three exceptions to that rule outlined in Travelers and Fitzpatrick v. Hayes, 57 Cal. App. 4th 916 (1997), including duties triggered by "holding out" as an expert. But, it concluded specializing in marine insurance was not enough to create that inference.

On appeal, the 4th District pointed out it found no published cases on the issue of whether insurance agents who sell only one kind of insurance implicitly hold themselves out as experts and automatically assume additional duties. The court declined to institute such a rule across the board, but concluded public policy supports the creation of an inference of expertise when evidence of specialization exists. The undisputed evidence of UPS Capital's specialization, in addition to Murray's other evidence, created a triable issue of fact that could show UPS Capital assumed a special duty to explain policy provisions and advise Murray of more comprehensive policies.

In reaching this decision, the court parsed through existing case law. It found that Travelers merely affirmed settled law about the scope of agency and exceptions that may broaden those duties, but shed no light on what it means to hold out as an expert. And it acknowledged the holdings in Fitzpatrick and Jones v. Grewe, 189 Cal. App. 3d 950 (1987), that a lengthy pre-existing relationship with an insured, superior knowledge, evidence the agent reviewed the policy, or even brochures advertising an agent as well trained, may not, on their own, expand an agent's traditionally narrow duties.

In Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc., 177 Cal. App. 4th 624, 628 (2009), however, the court found a toehold to apply a broader analysis. In Williams, the court found an agent had held herself out as an expert, and assumed special duties, based on nine factors. Chief among them were the insured's request that the agent select appropriate coverage, the agent's involvement in completing the application, the agent's knowledge of the insured's business, the insured's belief the agent was the "go-to" person for its insurance needs, and the agent's representation that coverage had been specifically designed for the insured.

Williams, along with Kurtz, Richards, Wilson & Co. v. Insurance Communicators, 12 Cal. App. 4th 1249 (1993), relied upon by the Williams court, make clear the scope of inquiry must examine the full nature of the parties' interactions.

Outside the context of insurance cases, the phrase "holding out" contains multiple meanings, which, the Murray court found, align with the multi-factor approach taken in Williams, and public policy. As the insurance industry has evolved to offer increasingly specialized products (selling, for instance, $10 million policy insuring actress America Ferrera's smile) agents, too, have become more specialized. Evidence of specialization, the court concluded, "at a minimum creates a presumption" agents anticipates clients will rely on their acknowledged expertise, and supports imposition of special duties.

Applying this multi-factor approach, the court found Murray had raised a triable issue of fact that UPS Capital had held out itself out as an expert. It offered only one type of policy to one-time shippers such as Murray. It was a subsidiary of UPS, a globally recognized shipping company, and it sold only Tokio policies, which the court found were "anything but understandable."

Murray presented other evidence, too. A UPS agent had referred him to UPS Capital, suggesting UPS Capital was the "go-to" agent for inland marine shipping. UPS Capital selected the policy for Murray, helped him complete the application and UPS shipping forms, and advised him it was not necessary to purchase additional insurance for his computer equipment.

All of these factors, the court found, suggested UPS Capital held out itself as an expert, and in so doing, created a special duty to explain the limitations of the coverage Murray purchased. 