This month's topic was the serendipity of two events happening on the same day. I am currently defending a “Wholesale Broker", (“Broker") being sued by the Insurer for Breach of the “Producer Agreement". It is alleged that the Broker failed to provide notice timely to the insurer of the personal injury lawsuit against the Insured. Notice that the Broker got the day of the lawsuit from the Retail Broker. The Insurer claims that the Broker caused it to have waived exclusions to deny coverage to the Insured because the disclaimer was late under NYIL §3420(d). (Exclusions not timely asserted are waived.)

I was in the process of drafting a Motion to Dismiss when I decided to take a walk to clear my head. I ran into my neighbor who was telling me about the band he plays in on the weekends and how they do heavy metal versions of pop songs. He mentioned their new cover was Billy Joel's “Scenes from an Italian Restaurant". I mentioned to him something that I always thought was interesting about the song but that a lot of people missed. The song starts out with these lines: “A Bottle of White, a Bottle of Red"... clearly referencing wine as an indicating of the celebratory early days of the budding relationship of Brenda & Eddy, the subjects of the song. But at the end of the song, after we take the journey of their marriage, the disintegration of their relationship and lives, the refrain that ties back to the beginning of the song back is slightly different. Now it says: “Bottle of Reds, Bottle of Whites". Note the pluralization. My understanding is that he was saying that Brenda and Eddy were resorting to taking pills to deal with their emotions as to their failed relationship. That makes sense as the next lyric is “Whatever kind of MOOD you're in tonight." My neighbor had noticed that too.

It made me think about the precision of words, its importance and how THAT WAS THE CORE of my new case.

As I have written in past E&O reports, precision in understanding and using language is the key to both our worlds. I have used this example to underscore the point in the past. Imagine you are on the operating table getting woozy from the anesthesia. You hear your surgeon asking the Nurse for the “sharp, cutty thing" rather than the precise description of “give me the #3 scalpel handle with the #5 blade". You would rip off your mask, jump off the table and run for the hills…. and rightly so.

In my new case, the ONLY reason my client was being sued is because neither the Insurer nor its lawyers know the difference between an AGENT and a BROKER. This is a common problem with many E&O cases by Insurers and Insureds alike.

Specific to my case, know that under NY Law, notice to an AGENT is notice to the Principal, the Insurer here. So, if the Agent got notice of the personal injury lawsuit against the Insured on 6/1/25 and the Agent waited until 8/1/25 to forward it to the Insurer, even if the insurer, (as they did), issued a disclaimer the next day citing the exclusion, the disclaimer is invalid and the Insurer has to provide coverage: defense and indemnification when it would not have had to. In my case that is exactly what is alleged to have happened.

My client was then sued by the Insurer for Breach of Notice provision in the Producer Agreement exposing it to the defense costs, indemnification to the policy limits etc.

The problem is, (and this is the basis for my dismissal motion), my client is NOT an Agent. It is a Broker…with a Producer Agreement not an Agent Agreement and with no binding authority. In fact my client is not even registered with ALiS as the agent of this insurer.

Yet that significant factual and legal difference is lost on counsel and the carrier's claims adjuster. Troubling I have seen emails from my client which sloppily uses the term AGENT to describe themselves. That is not surprising as many in the industry do not either and refer to themselves as one or the other interchangeably…and incorrectly.

Sadly, and what causes the biggest headaches, for defending E&O claims on this issue is that most judges and courts do not understand that there is a legal difference between an Agent and a Broker, (a stark, significant legal and statutory difference), let alone nuanced issues.

Here is the primer.

An Agent is not a Broker and a Broker is not an Agent. They have different duties to different parties under case law and statute. They are differently defined and separately licensed.

An “Insurance Broker" assists the policyholder or potential policyholder, (a/k/a the “Insured") and owes a simple duty to the insured to procure the coverage requested or advise the insured coverage cannot be obtained. An “Insurance Agent" is the actual representative of the insurance company, (a/k/a “Insurer" or “Carrier"), who seeks to sell the product of this one company. It owes no duty to any third-party as its loyalty and legal duty, by common law, is based on its agent status and by Agency Contract is exclusively to the insurer.

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 “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, * * *: While an Insurance Broker is defined as “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,"

First, a major foundational problem arises since case law does properly recognize that like any representative of another, that representative can be properly called an “agent"[1]. Thus 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 and does not mean 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. 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.

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". And add to it that one cane be fined by the DFS for acting as the other without the correct license. NYIL §2102. “Acting without a license."

An insurance Broker has a narrow and simple duty at common law and only to its customer. Procure the coverage requested or advise the customer that the coverage cannot be placed. That is it; nothing more. An actual agent owes a higher duty to its principal. More simply put, an Agent has “a duty of loyalty and an obligation to act in the best interests of the principal" Finally, and specifically as to an Agent whose job it is to sell its principal's product, (which is exactly what an insurance policy is after all), “…the principal is entitled to rely on the agent's judgment and integrity. An agent has an “implied good faith obligation [to] use his best efforts to promote the principal's product"

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.")

Finally, a “Producer" is basically a meaningless catchall term defined under NYIL §2101 “Definitions" “(k)" “In this article, "insurance producer" means an insurance agent, title insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.". Thus, to determine what duties a “Producer" has to another, one must first determine if the Producer is an Agent or a Broker.

This is the takeaway. While my client may have a Producer Agreement with the Insurer, it is NOT an AGENT of the insurer as a matter of that contract and law. It was nothing more than a Broker who had access to that market…a/k/a Wholesale Broker. Therefore, notice to my client was not notice to the Insurer. Which means their disclaimer was timely and it owes no coverage obligation to its Insured. Even if my client breached the notice provisions of the Producer Agreement…. SO WHAT…. as long as the disclaimer was timely, (and it was), then the Insurer's coverage denial stands. A technical breach of a contract only has “Nominal" damages and courts have ruled that AT MOST, that = $1.00. (Yes, you read that right.)

But this entire suit could have been avoided, (and the chance that a judge will make bad law in treating a Producing Broker as the same as an Actual Agent), if everyone on the other side understood the difference. That applies to my client who should have specifically made sue the Producer Agreement said that it was not the Agent of the Insurer as I have seen stated explicitly in other such agreements.

In the end, understanding and making sure that the legal differences between you being an Agent and a Broker are preserved are critical. Also, making sure that you do not refer to yourself as an Agent when you are NOT…. or a Broker, when you are not is also critical to avoid E&O claims.