Fee Payment Arrangements – A Trap for the Unwary

While attending the IIAG’s Fall Conference a couple of weeks ago (I will cover what you missed in later posts), I had an interesting conversation with some agents about the duties owed their customers by insurance agents.  I pointed out that under Georgia law, an insurance agent is considered a mere “order taker” as far as their duties to the customer are concerned, unless and until the agent does or says something that creates a duty on their part to the customer beyond just providing the customer with the insurance coverage they request.  I have written a few blog posts on how this can happen.

The question was then asked if accepting the payment of a fee from the customer would change the relationship between agent and customer.  My response was that it would change the relationship.  In fact, it would change the relationship significantly, as by doing so, the agent would then owe a duty to the customer to perform the services for which the payment was made in accordance with the current industry standards for the performance of those services.  In addition, if the agent had touted their experience or expertise in performing those services to convince the customer to pay a fee for them, the agent would be held to an even higher standard in his or her performance of them.

If the agent’s only compensation for the performance of the services in question came from the customer, the traditional relationship between the agent and customer would be reversed.  Instead of an “order taker”, the agent would become the customer’s adviser and may in some instances owe a fiduciary duty to the customer to protect their interests above all others.  Such a duty is the highest possible under the law.

Although the above seems obvious when you think about it, it was something that I had never considered before.  That may be true of some agents.  The Georgia Insurance Code requires an agent to have a counselor’s license before they can receive any compensation from their customer and that the agent/counselor get the customer’s advance approval for their performance of services that are specified in writing.  This requirement presents a great opportunity for the agent/counselor to carefully define what they will do and how they will do it, thereby limiting their exposure to claims by the customer to just those services and their performance as described.   Any limitations on what will be done or how it will be done should be set forth in a written agreement with the customer, and that agreement should include a description of what the customer must do to enable the agent/counselor to properly perform their specified services.  At a minimum, this should include the provision of complete and accurate information about the subject of those services.

Every agent/counselor should take advantage of this opportunity to mange the expectations of their customer about the final outcome of the services to be performed.  As noted in earlier posts, there should be no promises of “complete coverage for all risks” or satisfaction guaranteed.