Washington Case Law Update: In Absence of a Special Relationship, Insurer Owes No Duty to Advise on Adequacy of Coverage

Washington Case Law Update: In Absence of a Special Relationship, Insurer Owes No Duty to Advise on Adequacy of Coverage
From the desk of Kyle D. Riley: Following motor vehicle accidents, especially accidents that result in severe injuries, claims against the at-fault insured may exceed policy limits.  In that case, can the at-fault insured file a third-party complaint against their insurer on the grounds that the insurer owed them a duty to counsel or advise on the adequacy of coverage and policy limits? Read on to find out.
Claims Pointer: In this case arising out of an injured pedestrian, the Washington Court of Appeals considered whether the driver’s insurer owed a duty to advise, review, or counsel the driver on the adequacy of insurance coverage.  The court held that because there was no evidence of a “special relationship” between the insurer’s agents and the driver, the insurer and its agent owed no duty to advise, review, or counsel the driver on adequacy of coverage.  This case serves as a reminder of the fact that conversations between insureds and agents could expose the insurer and its agents to liability.
Norris v. Farmers Insurance Co., 76236-2-I, Washington Court of Appeals Div. I (March 19, 2018) (unpublished).
Jeffrey and Terri Norris (collectively “Norris”) where driving their vehicle when they struck and injured a pedestrian, Junfang He.  Junfang He filed suit, alleging damages exceeding the liability limits in Norris’ insurance policy with Farmers Insurance Group (“Farmers”).  Farmers extended a settlement offer for policy limits, but Junfang He declined the offer.  Norris filed a third-party complaint against Farmers, alleging that Farmers was negligent in advising and counseling Norris on their policy limits.  Farmers asked the trial court to dismiss the complaint, on the grounds that it owed no duty to Norris and that there was no special relationship that may have created a duty.  Following review, the the trial court dismissed the third-party complaint, and Norris appealed.
The Washington Court of Appeals reviewed the trial court’s decision to determine if Norris had a viable negligence claim against Farmers.  The court began with a brief explanation of a negligence claim, explaining that to bring a negligence claim, the plaintiff must establish duty, breach, causation, and damages.  In this case, the dispute was centered on whether Farmers owed a duty to Norris.  The court noted that whether a duty exists is not a question of fact for the jury to determine, but instead, “a question of law for the court.”  The court also noted that in the context of insurance, the insurance company and its agents are under no duty to explain, review or counsel their insured on whether coverage is sufficient unless a “special relationship” exists between the insured and the agent.
The court considered whether a special relationship existed between Norris and Farmers.  According to the court, a special relationship will exist in either of two scenarios. First, is where the agent holds themselves out as an insurance specialist and is compensated specifically for consulting or advising on coverage.  Under the second scenario, a special relationship may arise when (1) there is a long-standing relationship between the insured and agent, (2) there was a conversation or interaction regarding an insured’s question about coverage, and (3) the insured relied on the agent’s answer and expertise to their detriment.  In contrast, courts will find that no special relationship exists if the insured never consulted with the agent regarding adequacy of coverage, or if the agent never offered advice on the adequacy of coverage.
Norris relied on non-insurance case law to argue that Farmers voluntarily assumed a duty to advise them on the adequacy of coverage.  In light of well-established case law on the “special relationship” for insurance coverage, the court refused to consider the non-insurance law cited by Norris.
Norris argued that a special relationship arose from the latter scenario: (1) a long-standing relationship existed between Norris and agents for Farmers, (2) there were interactions between Farmers’ agents and Norris concerning coverage, and (3) Norris relied on the expertise of the agents to their detriment.  The Washington Court of Appeals looked to the trial court’s record.  The court found a declaration submitted by Farmers, which noted that Norris (1) never even discussed coverage limits, (2) never asked agents about recommending higher or lower limits, and (3) never asked about whether an excess or umbrella coverage was an option.  The only communication Norris had with the agents was for adding or removing vehicles from the policy or discussing a claim.  In addition, deposition testimony revealed that Norris acknowledged that they never discussed policy limits and admitted that they never asked questions about the adequacy of coverage.
Although there was evidence of a long-term relationship between Norris, Farmers and their agents, Norris failed to offer evidence of conversations and interactions about the adequacy of coverage.  In light of the fact that Norris failed to offer any evidence of consulting with a Farmers agent on the adequacy of coverage and failed to offer evidence of an agent providing coverage adequacy advice, the court held that Norris failed to establish a special relationship with the agents.  Accordingly, the Washington Court of Appeals upheld the trial court’s dismissal of Norris’ third-party complaint against Norris.
NOTE: This opinion has not been published.  It is provided to demonstrate how the court approaches the issues involved in the case.  It cannot be cited as authority to a court of law.
View full opinion at https://www.courts.wa.gov/opinions/pdf/762362.PDF
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.
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