E&O Report | Back To Basics
E&O Report | May 2026 | Volume 41, Number 5
This is going to be the first of two articles about some basics that we all need to remember. It is critical to prevent E&O claims. This article concerns the differences between an AGENT and a BROKER and the next article will be a refresher on the differences between a RETAIL BROKER, a WHOLESALE BROKER and an “MGA” in the procurement context.
Introduction
Growing up as a new teen in the early 1970s, I was a basketball fanatic. Those were the days of Walt Frazier, the Knicks glory days, and Dr. J when he was with the NY Nets. In the summer of 1972, I attended a basketball camp at Kutsher’s Sports Academy in Monticello, NY… despite being 5’5” with little basketball skills. (The proof being that the only award I got that summer was for swimming!)
One of the marketing tactics they used to get kids to attend was having the basketball stars of the day attend for a clinic. Walt Frazier was one. I asked him what do you do when things are not going well and your shot is off. He said, “You go back to the Basics”. You go back to the muscle memory of the mechanics of a jump shot all the way to the follow through. Basically a re-set to the proper way to shoot.
The Issue – Legally Correct vs Conventional Wisdom
Recently, I got a new potential Failure to Procure E&O case triggered by a lawyer’s letter for the Insured. After days of communications with the client and document review, they casually stated that they were the AGENT for the carrier! That should have been the first thing they told me as that changed my entire legal analysis and how I would defend the case.
Going back to basics, a BROKER is not the same thing under NY Law (statutes, rules, regulations and judge-made law), as an AGENT. It is not up for debate and there is no counter-argument.
However, that does not stop layman, (your insureds), judges, lawyers and even Brokers & Agents from thinking they are one and the same. They are not. Just because we have conventional wisdom that something is 100% correct and true, does not mean it is. For example, not all gelatin desserts are called “JELLO”. “Jello” is a registered trademark and brand name owned by Kraft Heinz and only their products are JELLO. Darth Vader never said “Luke, I am your father”. No one in the movie Casablanca ever said, “Play it Again Sam”. The Monopoly Man does not have a monocle and the Declaration of Independence was signed on August 2, 1776 not the 4th of July. You get the idea.
The Law
A. Overview
Simply, (a gross oversimplification to make the point), an Insurance Broker ONLY owes a Duty to the Insured to get the most insurance for the least amount of premium. (Technically the Broker assists the policyholder or potential policyholder and owes a simple duty to the insured to procure the coverage requested or advise the insured coverage cannot be obtained. Murphy v. Kuhn, 90 N.Y.2d 266 (1997).
An Agent ONLY owes a duty…(and a Fiduciary one at that, and one of undivided loyalty, to the Insurer to sell the least amount of insurance for the most amount of premium. It owes no duty to any third-party, not even the Insured, as its loyalty and legal duty, by common law, is based on its agent status and by agency contract is exclusively to the insurer.
B. NY Insurance Law Statutory Definitions
Under New York Insurance Law, (“NYIL”), “Article 21. Agents, Brokers, Adjusters, Consultants and Intermediaries”, §2101. Definitions” an “Insurance Agent” is defined and most clearly separated from an “Insurance Broker” as follows:
(a)[1] In this article, “insurance agent” means any authorized or acknowledged agent of an insurer, * * *, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, * * * contract, other than as a licensed insurance broker, * * *:
(Emphasis added)
Insurance Broker is defined as follows:
(c) In this article, “insurance broker” means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker, * * *:
From the definitions [2] alone, it is clear that the New York State Legislature and Department of Financial Services, chose to not only treat Broker and Agent differently, but expressly set forth to whom each owed its duty; Insurance Agent to the Insurer and the Broker to the Insured…and these are most certainly mutually exclusive.
C. Licensing and Penalties
In further support of the legislative and correct separation of Insurance Agent and Broker is the simple fact that each requires a separate and different license.
An Insurance Agent must be licensed as such pursuant to NYIL, “§2103. Insurance agents; licensing”. While an Insurance Broker can only act as such if licensed under NYIL “§2104”. Simply, but devastating to the position of Plaintiff here, is that an Insurance Agent cannot act as an Insurance Broker without that separate license nor can an Insurance Broker act as an Insurance Agent unless it has that separate license.
D. The Problem
A major foundational problem arises because like any representative of another, that representative can be properly called an “agent”. But that is the loosest use of the term. But, many people refer to their Broker as their AGENT which is technically correct. So there is case law that say that a “Broker” is the agent of the Insured.
While correct, that is a poor, almost laymen’s-like use of the term, akin to a surgeon asking the O.R. Nurse for the “sharp, cutty thing”; accurate but we expect more precision from our surgeons as we do judges and lawyers when it comes to language and charged legal terms.
First, that use of the word “agent” is not the same thing as the legal term “Agent” when talking about the “Insurance Agent” of a carrier. Many courts get this simple distinction wrong. Second, even the term “agent” as describing the relationship between the Broker and the Insured is a misnomer. The correct legal term would be Special or Limited Agent as opposed to General Agent as the Broker is the “agent” based on a legal fiction and limited to assisting in the procurement of insurance. Skutt, Inc., v. Goodwin, Ltd., 251 A.D. 84 (4th Dept. 1937); Dudley v. Perkins, 235 N.Y. 448 (1923). It has no other responsibility as an “agent” and thus cannot bind the Insured outside this temporally limited and narrow task to procure the coverage requested. So when the cases bandy about the term AGENT in holding Brokers’ liable to Insureds they are already wrong as that use of the term is synonymous with Broker and thus legally meaningless to support the holding.
E. Underscoring the Misunderstanding
The folly of court rulings that say and AGENT is a BROKER and vice versa is that suppose the Agent is not licensed as a Broker. Then that entity is now in violation of NYIL §2102. “Acting without a license”. So strict are the requirements that any activity within the functions covered by licensing, such as a telephone conversation, mail or e-mail, about insurance with an Insured by an unlicensed Broker during the solicitation, negotiation, or sale, violates the statue. (April 25, 2005 Opinion of the General Counsel of NYDFS [3]. Such violations can result in fines by the NYDFS in the many thousands of dollars or even revocation of other properly held licenses.
Conclusion
I am reminded of this phrase from Matthew 6:24 King James Bible , “No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.”
It is not just that several millennia ago that wisdom was acknowledged, that an agent cannot serve two masters. New York Courts do as well, “His duty is single, and he cannot serve two masters with antagonistic interests.” Rabinowitz v. Kaiser-Frazer Corp., 111 N.Y.S.2d 539 (Sup.Ct. Kings Co. 1952); Matter of Harbeck, 142 Misc. 57 (Sur. Ct. Kings Co. 1931) (“It is an axiom both of fact and ethics that a man cannot serve two masters.”)
When my client is an Actual Agent of the Insurer and is sued by the Policyholder, I immediately move to dismiss based on the above. When my client is a Broker and there is a claim or cross claim against it by the Insurer in the case, I immediately move to dismiss it.
Knowing what you are is critical to you and I, knowing what duties are owed and TO WHOM, is the basics of E&O law and defense. As always, when in doubt…. contact the BIG I or me directly. We are here to help.
Submitted by:
Howard S. Kronberg, Esq. | Kaufman Dolowich, LLP
[1] There is at “(b)” the related definition of an Independent Insurance Agent, predicated on the definition in “(a)” and which only concerns the fact that this type of agent can also represent more than one Insurer at a time as an agent.
[2] See also NYIL “§107. Definitions of terms of general use in this chapter” and 11 N.Y.C.R.R 34.1, “Section 34.1. Definitions.”
[3] http://www.dfs.ny.gov/insurance/ogco2005/rg050421.htm
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