Litigation Risk

Case Explores ‘Duty to Advise’

The relationship between a broker and insured is determined by its nature, not by length of time.
By: | April 8, 2015

A legal case in Indiana is highlighting when an insurance broker has a “special relationship” that requires the firm to advise an insured about coverage.

In a unanimous decision by the state’s high court, the case between Indiana Restorative Dentistry (IRD) and The Laven Insurance Agency and ProAssurance Indemnity Co. Inc. was returned to a trial court for a determination of whether there was a “special relationship that created a duty to advise.”

The dispute arose after an October 2009 fire destroyed the dental office, causing $704,394 in damage and lost contents. IRD’s insurance policy, which included coverage for office contents, had a limit of $204,371, leaving a shortfall of about $500,000.

The court also noted that in more than 30 years, the state has only found a special relationship between an agent and an insured in one case.

IRD sued Laven, saying the 30-year-plus “special relationship” between the organizations meant it should have advised the dental firm of inadequate coverage; breach of contract for failing to obtain full coverage for the loss; and alleging that ProAssurance was “vicariously liable” for Laven’s omissions.


The trial court concluded, among other issues, that Lavin had no duty to advise because the parties had “an arms-length relationship,” which included a yearly questionnaire on insurance needs when coverage was set to renew.

The Indiana Supreme Court reversed that decision and remanded the case to the lower court for a hearing into the nature of the relationship.

It noted that a special relationship is determined by its nature, not by its length.

In determining the nature of the relationship, the Indiana Supreme Court said evidence is needed that the broker exercised a level of discretion about the insured’s needs; that it counseled the insured on specialized insurance coverage; and that it held itself out as a highly skilled insurance expert coupled with the insured’s reliance upon the expertise.

The court also noted that in more than 30 years, the state has only found a special relationship between an agent and an insured in one case.

In the IRD/Laven case, the court ruled there were “conflicting reasonable inferences” about the nature of the relationship. It noted the brokerage’s touting of its specialization with dental offices, its endorsement by the Indiana Dental Association, and marketing materials that proclaimed “expertise,” as well as the fact that the policy protected specialized equipment.

“The designated evidence here paints an inconclusive picture regarding the nature of Laven’s and IRD’s relationship,” according to the March 12 opinion written by Justice Loretta H. Rush. “Thus, genuine issues of material fact remain regarding the existence of a special relationship, and consequently a duty to advise.”

The late Anne Freedman is former managing editor of Risk & Insurance. Comments or questions about this article can be addressed to [email protected]

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The R&I Editorial Team can be reached at [email protected]