Independent Insurance Agents Remain Agents of the Insured Despite Legislative Amendments
By Richard M. Mitchell, Esq., CPCU
The Michigan legislature amended certain aspects of the Michigan Insurance Code through 2018 PA 449. The Michigan Court of Appeals has interpreted the meaning of certain of those amendments in the recent case of Al-Hajjaj v Hartford Accident and Indemnity Company (Jan 26, 2023 – for publication). The Court of Appeals has held that these amendments should be read very narrowly and do not, generally, change the common law principle that an independent insurance agent remains the agent of an insured rather than the insurer.
Facts and Analysis of the Case
In Al-Hajjaj, the Court of Appeals reversed the trial court’s denial of summary disposition. The trial court held that an independent insurance agent was the agent of the insurer, not the insured. Under the circumstances of the case before it, the Court of Appeals disagreed.
Plaintiff, Ahmed Al-Hajjaj was the co-owner of Prime Transportation Service LLC. He approached Golden Insurance Agency LLC to purchase insurance for the company. Golden was clearly an independent agency, placing policies for over 10 different carriers, including Hartford.
The policy application submitted to Hartford incorrectly identified the name of the insurance as “Prime LLC”, rather than by its full name. Furthermore, the application incorrectly indicated that the company was a physical therapy office that did not transport patients. In fact, the company provided medical transportation for patients. The parties disputed whether Al-Hajjaj or Golden completed the application. The Court of Appeals found that, for purposes of this appeal, that dispute was immaterial.
Al-Hajjaj was injured in an automobile accident and sought personal injury protection benefits from Hartford. Hartford investigated the claim and discovered the errors in the application. It then rescinded the policy claiming these were material misrepresentations, particularly the nature of the insured’s business. In the subsequent litigation, Hartford moved for summary disposition, arguing that the agency was the agent of the plaintiff. Therefore, any inaccuracies in the application should be imputed to the insured, regardless of whether the insured or the agent completed the application.
Plaintiff argued that the agency had a contract with Hartford that expressly granted certain powers to place coverage through the insurer. Plaintiff further argued that the Michigan legislature had abrogated the common law principle that an independent insurance agent was the agent of the insured, not the insurer when it amended Chapter 12 of the Insurance Code (Agents, Solicitors, Adjusters, and Counselors).
The Court of Appeals first addressed the abrogation argument. It began by citing the common law principle that “when an insurance policy is facilitated by an independent insurance or broker, the independent insurance agent or broker is considered an agent of insured, rather than an agent of the insurer.” Genesee Food Services Inc v Meadowbrook Inc., 279 Mich App 649 (2008). It then went on to note that the legislature added two new definitions to Chapter 12 in accordance with the amendments. These were as follows:
(b) “Agent of the insured” means an insurance producer who is not an appointed insurance producer of the insurer with which the insurance policy is placed. An agent of the insured is treated as representing the insured or the insured’s beneficiary and not the insurer.
(c) “Agent of the insurer” means an insurance producer who sells, solicits, or negotiates an application for insurance as a representative of the insurer and not the insured or the insured’s beneficiary.
The court noted that it could not “lightly infer that our legislature intended to abrogate or modify” a common law principle through enactment of new legislation. Any abrogation must “clearly indicate” a legislative intent to abrogate or modify common law. The court noted that a review of 2018 PA 449 arguably indicated a legislative intent to abrogate the common law, “but with respect to only a narrow circumstance not relevant here.”
The court noted that prior to the enactment of the amendments, section 12 of the Code defined an “agent” as an “independent insurance producer.” It defined an “independent insurance producer” as “a person required to be licensed under the laws of this state to sell, solicit, or negotiate insurance.” Reading these provisions together, the court found that the legislature intended to limit the scope of these definitions only to chapter 12. In doing so, it did not alter either of the definitions of insurance producer or insurance agent. Rather it added two new definitions.
The court noted that MCL 500.1211 included the following subsections:
- An agent of the insured may obtain coverage for a consumer through an “agent of the insurer” if all of the following apply:
- The agent of the insured is licensed to act as an insurance producer in accordance with this chapter.
- The agent of the insured has a relationship with the agent of the insurer under a written contract. The written contract under this subdivision must specify the extent of the agent of the insured’s authority to act and require the maintenance of an amount of professional liability insurance, commonly known as errors and omissions insurance.
- The coverage being obtained is not a health insurance policy or a health maintenance contract.
The court wrote “a close reading confirms that the circumstance described in subsection (2) is a narrow, specific one – namely where the consumer (insured) and insurance company (insurer) each have their own agent and these two agents in turn have a written contractual relationship with each other.” That circumstance did not apply in this case. Rather, any legislative intent to abrogate should be read very narrowly. In the instant case, the insured sought an insurance policy through an independent insurance agent and not through an agent to agent transaction. “Accordingly unless Golden and Hartford somehow contracted around the common law principle, the principle would apply here.”
The court then examined the contractual relationship between Golden and Hartford. It noted the contract recognized Golden was an independent insurance agent that had the right to select and place insurance policies with multiple insurers. The court found that such contract did not modify the common law principle with respect to Golden and Hartford.
In conclusion, this case which has been released for publication holds the legislative amendments to the Michigan Insurance Code are to be read quite narrowly. Absent an agent to agent transaction, the fundamental principle that an independent insurance agent is the agent of the insured, rather than the insurer remains unchanged outside of a set of very narrow circumstances.