Harts v. Farmers Ins. Exchange

• Decision Date: 30 July 1999
• Docket Number: Docket No. 110683, Calendar No. 5.
• Citation: 461 Mich. 1,597 N.W.2d 47
• Parties: Gloria and Tyrone HARTS, Plaintiffs-Appellants, v. FARMERS INSURANCE EXCHANGE and Gregory Pietrzak, Defendants-Appellees.
• Court: Michigan Supreme Court

597 N.W.2d 47

461 Mich. 1

Gloria and Tyrone HARTS, Plaintiffs-Appellants, v. FARMERS INSURANCE EXCHANGE and Gregory Pietrzak, Defendants-Appellees.

Docket No. 110683, Calendar No. 5.

Supreme Court of Michigan.

Argued April 6, 1999.

Decided July 30, 1999.

James R. Rinck, Grand Rapids, for plaintiffs-appellants.

Wheeler, Upham, P.C. (by Gary A. Maximiuk and Jack L. Hoffman), Grand Rapids, for defendants-appellees.

Opinion

TAYLOR, J.

We granted leave in this case to determine whether a licensed insurance agent owes an affirmative duty to advise or counsel an insured about the adequacy or availability of coverage. We hold that, except under very limited circumstances not present in this case, an insurance agent owes no such duty to an insured. We therefore affirm the decision of the Court of Appeals, which affirmed the trial court's grant of summary disposition in favor of defendants.

I. FACTS AND PROCEEDINGS

In early 1993, plaintiffs, Tyrone and Gloria Harts owned a Chevrolet Cavalier that was covered by a policy of no-fault automobile insurance they had purchased from defendant Farmers Insurance Exchange, through defendant Gregory Pietrzak, a licensed insurance agent selling insurance exclusively for Farmers. The policy covering the Cavalier did not include optional uninsured motorist coverage.

While driving the Cavalier on February 15, 1993, Mrs. Harts was involved in an automobile accident with an uninsured vehicle. Mrs. Harts was injured, and plaintiffs' six-year-old son was killed. The Harts received from Farmers the personal injury protection benefits due them under the Cavalier policy. They also subsequently obtained a $2 million default judgment against the driver and owner of the uninsured vehicle. However, they have never collected any money on this judgment.

The Harts then filed suit against Mr. Pietrzak and Farmers. They contended that Mr. Pietrzak was negligent in selling them an insurance policy that was inadequate because it did not contain uninsured motorist coverage. They also contended that Farmers was vicariously liable for Mr. Pietrzak's negligence and actively negligent for its own failure to properly supervise Mr. Pietrzak.

The discovery phase of the case revealed the extent of the parties' prior dealings. Beginning in 1989, the Harts had insured a series of six vehicles, including the Cavalier, with Farmers, first with agent John Straub and then beginning in 1992 with Mr. Pietrzak. During the time that they had insured with Mr. Straub, they had purchased for one of their vehicles, a Buick Century, uninsured motorist coverage. This coverage, however, was canceled by Mrs. Harts when the policy on the Century was reinstated after it had lapsed for nonpayment.

On the applications for coverage with respect to vehicles other than the Century, including the application for the Cavalier that was signed by plaintiffs less than one month before the accident, plaintiffs did not select uninsured motorist coverage on the space provided on the application form. Moreover, the record reflects that, some three months before the accident, Farmers notified plaintiffs about the availability of uninsured motorist coverage. The availability of this coverage was made in a November 7, 1992, renewal notice for one of plaintiffs' vehicles. That notice specifically advised plaintiffs that uninsured motorist coverage was available and that they should contact their agent if interested.

While Mr. Harts had no recollection of any conversations with Mr. Pietrzak concerning the nature or extent of the coverage obtained on the Cavalier, Mr. Harts did recall an earlier conversation in which he discussed "full coverage" for the Century with Mr. Pietrzak. However, Mr. Harts did not at that time request uninsured motorist coverage on the Century even though the Harts had earlier had such coverage on this vehicle. Further, it is noteworthy that yet another conversation concerning "full coverage" occurred when the policy on the Century was transferred to an Aerostar, and again Mr. Harts made no request for uninsured motorist coverage.

Defendants moved for summary disposition pursuant to MCR 2.116(C)(10), contending that there was no special relationship between plaintiffs and Mr. Pietrzak as required by Bruner v. League General Ins. Co., 164 Mich.App. 28, 416 N.W.2d 318 (1987), and that therefore Mr. Pietrzak did not owe plaintiffs a duty to advise them about uninsured motorist coverage or the adequacy of their coverage.¹ Finding Bruner dispositive, the trial court granted the motion in favor of defendants. The Court of Appeals affirmed. This Court granted plaintiffs' application for leave to appeal. 459 Mich. 895, 589 N.W.2d 279 (1998).

II. STANDARD OF REVIEW

A motion pursuant to MCR 2.116(C)(10) tests the factual support of a plaintiff's claim and is subject to de novo review. Smith v. Globe Life Ins. Co., 460 Mich. 446, 597 N.W.2d 28 (1999). In reviewing a motion for summary disposition pursuant to MCR 2.116(C)(10), the court considers the pleadings, affidavits and other documentary evidence filed in the action or submitted by the parties, MCR 2.116(G)(5), in the light most favorable to the nonmoving party. Id. The motion is properly granted if the documentary evidence presented shows that there is no genuine issue with respect to any material fact and the moving party is therefore entitled to judgment as a matter of law. Id.

III. ANALYSIS

On appeal, plaintiffs acknowledge that no special relationship as required by Bruner exists in this case. However, they contend that this Court should reject Bruner's requirement of a special relationship and allow them to sue Mr. Pietrzak for his negligence in failing to offer them any advice or counsel concerning uninsured motorist coverage.² In short, they ask this Court to determine that a licensed insurance agent has a duty to offer advice or counsel concerning uninsured motorist coverage.

Whether a duty exists is a question of law that is solely for the court to decide. Murdock v. Higgins, 454 Mich. 46, 53, 559 N.W.2d 639 (1997). In considering this question of duty and its potential expansion, it is appropriate to first look at the common-law duties inherent in an insurer-agent-insured relationship and then to consider the extent to which this relationship has been affected by certain Michigan statutes that are relevant to the establishment of an agent's duty.

It is uncontested, indeed it is essential to the cause of action pleaded by plaintiffs, that Mr. Pietrzak was Farmers' agent. As such, under the common law, he had a duty to comply with the various fiduciary obligations he owed to Farmers and to act for its benefit. Hawkeye Casualty Co. v. Frisbee, 316 Mich. 540, 548, 25 N.W.2d 521 (1947); 1 Restatement Agency, 2d, § 13, p. 52; 2 Restatement Agency, 2d, § 387, p. 201. Moreover, because he was Farmers' agent, he had no common-law duty to advise plaintiffs. See Bruner, supra at 31-32, 416 N.W.2d 318; see also Nelson v. Davidson, 155 Wis.2d 674, 680-681, 456 N.W.2d 343 (1990); 4 Couch, Insurance, 3d, § 55:5, pp. 55-11 to 55-14. This general common-law rule is no doubt premised, at least in part, on the nature of the relationship of the parties. Schultz v. Consumers Power Co., 443 Mich. 445, 450, 506 N.W.2d 175 (1993). Specifically, the relationship between the insurer and insured is a contractual one. See House v. Billman, 340 Mich. 621, 626, 66 N.W.2d 213 (1954); Drouillard v. Metropolitan Life Ins. Co., 107 Mich.App. 608, 620-621, 310 N.W.2d 15 (1981). The relationship between the insurer and its agent is controlled by the principles of agency. Hawkeye Casualty Co. v. Frisbee, 316 Mich. 540, 548, 25 N.W.2d 521 (1947); Rorick v. State Mut. Rodded Fire Ins. Co., 263 Mich. 169, 171, 248 N.W. 584 (1933); Luellen v. New York Life Ins. Co., 201 Mich. 512, 518, 167 N.W. 950 (1918).

Sound policy reasons also support the general rule that insurance agents have no duty to advise the insured regarding the adequacy of insurance coverage. For instance, in Nelson v. Davidson, supra at 681-682, 456 N.W.2d 343, the Wisconsin Supreme Court noted that a contrary rule (1) "would remove any burden from the insured to take care of his or her own financial needs and expectations in entering the marketplace and choosing from the competitive products available," (2) could result in liability for a failure to advise a client "of every possible insurance option, or even an arguably better package of insurance offered by a competitor," and (3) could provide an insured with an opportunity to self-insure "after the loss by merely asserting they would have bought the additional coverage had it been offered."³

Thus, under the common law, an insurance agent whose principal is the insurance company owes no duty to advise a potential insured about any coverage. Such an agent's job is to merely present the product of his principal and take such orders as can be secured from those who want to purchase the coverage offered.⁴ Our Legislature also recognizes the limited nature of the agent's role. Those who offer insurance products have been regulated by statute in Michigan for at least 120 years,⁵ with insurance agents and insurance counselors being in fact subject to licensure before they can offer their services to the public.⁶ The most recent revisions to these regulatory statutes became effective in 1973.⁷ What is clear from these provisions is that the Legislature has long distinguished between insurance agents and insurance counselors,⁸ with agents being essentially order takers⁹ while it is insurance counselors who function primarily as advisors.¹⁰

However, as with most general rules, the general no-duty-to-advise rule, where the agent functions as simply an order taker for the insurance company, is subject to change when an event occurs that alters the nature of the relationship between the agent and the insured. This alteration of the ordinary relationship between an agent and...