Michigan’s Common Law Considers an Independent Insurance Agent is an Agent of the Insured
Independent Agent Represents his Principal, the Insured
Barry Zalma
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When an independent-insurance agent (called a “broker” in most states) is ordinarily an agent of the insured, not the insurer, the Court of Appeals was asked to decide whether the Legislature abrogated this principle of Michigan’s common law when it amended the Insurance Code, MCL 500.100 et seq., in 2018.
In Ahmed Al-Hajjaj v. Hartford Accident And Indemnity Company, and Ahmed Odah Salem Alderawi, Safeco Insurance Company Of Illinois, Sam Saeidi, Golden Insurance Agency, LLC, And GOLDEN INSURANCE AGENCY OF OHIO, LLC, and PRime Transportation Service, LLC, and Batol Alyunisi, No. 359291, Court of Appeals of Michigan (January 26, 2023). The key question in the interlocutory appeal is whether our Legislature abrogated the principle of Michigan’s common law when it amended the Insurance Code, MCL 500.100 et seq., in 2018.
BACKGROUND
Ahmed Al-Hajjaj is the co-owner of Prime Transportation Service, LLC, and he sought insurance coverage for Prime’s vehicles from Golden Insurance Agency, LLC. Al-Hajjaj talked with Sam Saeidi, a principal and insurance agent of Golden. Golden is an independent-insurance agency that places policies for over ten different insurers, including Hartford Accident and Indemnity Company. Saeidi recommended that Al-Hajjaj purchase a policy for his company through Hartford, and Al-Hajjaj agreed to do so.
The policy application that Saeidi filled out with Al-Hajjaj listed “Prime LLC” as the company, as opposed to the full name, “Prime Transportation Service, LLC.” More critically, the application incorrectly indicated that the company was a physical-therapy office that did not transport patients, when in fact the company provided medical-transportation services for patients. Based on the application it received from Golden, Hartford issued an insurance policy to “Prime LLC.”
Al-Hajjaj was subsequently injured in a vehicle collision, and he sought personal injury protection benefits from Hartford. As part of its coverage investigation, Hartford discovered the errors in the application. The insurance company rescinded the policy based on what it characterized as material misrepresentations in the application, and Al-Hajjaj sued Hartford, Golden, and others.
Plaintiff argued that Golden, the insurance agent, was a contractual agent of Hartford, the insurer. Golden had a contract with Hartford that only gave the agency the authority to “solicit, quote and bind insurance” for certain lines of insurance offered by Hartford. The insurer could cancel any policy that Golden placed with the insurance company. As a limitation on the relationship, the agreement provided:
"2.2 Limitations. You [Golden] have the authority and power to act as our agent only to the extent expressly granted in this Agreement and no further authority or power is implied. You are an independent contractor and not an employee of ours for any purpose, and your right to represent other companies is not restricted by this Agreement. Any authority granted hereunder to solicit, quote or bind insurance products on our behalf is non-exclusive, unless we agree otherwise in writing."
Al-Hajjaj also argued that the Legislature abrogated Michigan’s common-law principle that an independent-insurance agent was an agent of the insured, not the insurer, for purposes of applying for and placing insurance policies. The trial court denied Hartford’s motion for summary disposition, concluding that the contractual relationship between Hartford and Golden meant that the latter was the agent of the former.
ANALYSIS
With respect to statutory interpretation the Court is required to give effect to the Legislature’s intent. The Legislature is presumed to intend the meaning clearly expressed, and this Court must give effect to the plain, ordinary, or generally accepted meaning of the Legislature’s terms.
There were two issues before the Court of Appeal:
1 whether the Legislature abrogated the common-law principle regarding independent-insurance agents; and, if not,
2 whether the contract between Hartford and Golden made the latter the agent of the former for purposes of any errors in the application.
ABROGATION OF THE COMMON LAW
The record confirmed that Golden is an independent-insurance agency, not a captive one. It offers to place policies from at least ten different insurance companies. It has long been the common law of Michigan that, when an insurance policy is facilitated by an independent insurance agent or broker, the independent insurance agent or broker is considered an agent of the insured rather than an agent of the insurer.
This principle makes sense in the context of an independent-insurance agent, who can offer a single customer an array of options from any of the insurers with which the agent has contracted. A customer can approach an independent-insurance agent and expect to comparison shop between all the available insurers, unlike when a customer goes to a captive-insurance agent, who has but one insurer to offer.
An independent-insurance agent who had to balance fiduciary duties of loyalty between competing insurers would effectively be frozen into inaction by a web of crossing and conflicting duties and interests. Instead, in recognition of the materially different circumstances faced by a customer who deals with an independent-insurance agent versus a captive-insurance agent, courts have concluded that an independent-insurance agent owes its primary fiduciary of loyalty to the customer.
Al-Hajjaj argues that this principle of common law was abrogated by our Legislature.
Prior to enactment of the new public act, MCL 500.1201(a) defined “agent” as “an insurance producer,” and, in turn, subdivision (e) defined “insurance producer” as “a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.”
Where Al-Hajjaj sought an insurance policy through Golden, an independent-insurance agent, and not through an agent-to-agent transaction, the independent agent only represents the insured.
THE HARTFORD/GOLDEN CONTRACT
Hartford and Golden entered into an agency agreement, which covered Saeidi as a principal of Golden. By all accounts, this was a standard contract between an insurance company and an independent-insurance agent. The contract authorized Golden to “solicit, quote and bind insurance” on behalf of Hartford, but the contract also materially limited Golden’s authority. Moreover, the contract recognized that Golden was an independent-insurance agent that had the right to select and place insurance policies with other insurers.
The Hartford/Golden contract established that the independent insurance agent or broker is considered an agent of the insured rather than an agent of the insurer. Here Golden owed its primary fiduciary duty of loyalty to Al-Hajjaj as its customer, rather than to Hartford as one of the ten insurers for which it placed policies.
Given the standard language used in the contract between the independent-insurance agent and insurer here, the trial court erred in concluding that the independent-insurance agent was the agent of the insurer in this instance and denying summary disposition on that basis. The Court of Appeals reversed and remanded for further proceedings consistent with its opinion.
Independent-insurance agents continue to owe their primary fiduciary duty of loyalty to their customers, i.e., the insureds, rather than the insurance companies whose policies they place. This common-law principle survived the Legislature’s amendments to the Insurance Code in 2018 PA 449. The trial court erred when it concluded that the contract between Hartford and Golden altered this principle.
ZALMA OPINION
An “independent insurance agent” in Michigan is similar to a “broker” in California who is defined as a person who transacts insurance with but not on behalf of an insurer and is, therefore, only concerned with its duty to the insured. A minor statutory change in definition did nothing to change the fact that the independent insurance agent’s obligation, in Michigan, is to the insured. The case will go to trial to determine who was responsible for the misrepresentation on the application that allowed the insurer to rescind.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library
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Barry Zalma, Esq., CFE is available at http://www.zalma.com and [email protected]; Go to videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://lnkd.in/gWVSBde
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