Introduction

Recent legislation and Minnesota court decisions have changed how courts treat statements by insurance brokers and agents.  Historically, to determine if a policyholder or insurer was responsible for the statements and actions of the insurance brokers or agent you had to look to the principles of legal authority.  The possession of authority, whether actual or apparent, was a question of fact to be determined by the context surrounding the act and/or representation.[1]  However, that approach began to change in 2001 with the passage of legislation that makes any person performing acts that require a producer license an agent of the insurer and not the policyholder.[2]  The Minnesota Supreme Court[3] and Court of Appeals[4] have both addressed this change.

Western National Mutual Insurance Company v. Prospect Foundry

A recent case brought the change in law into clearer focus.  In Western Nat’l Mut. Ins. Co. v. Prospect Foundry, the parties had a dispute over whether the policyholder was entitled to a dividend (return of insurance premium) based upon their claims history.  At the heart of the case were representations allegedly made by the insurance agent to the policyholder on how certain claims would be handled.  At trial, the policyholder representative was allowed to testify about what the insurance agent told him over the hearsay objections of counsel for the insurer.

Minnesota Hearsay Rule

The issue for the trial court to decide in Prospect was whether the testimony of the policyholder about what the agent stated was hearsay. Minnesota adheres to the classic hearsay rule:

Hearsay is not admissible except as provided by these rules or by other rules prescribed by the Supreme Court or by the Legislature.[5]

‘Hearsay’ is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.[6]

Minnesota also recognizes the classic exceptions to hearsay, including:

Statements which are not hearsay. A statement is not hearsay if – . . . (2) Statements by a party-opponent.  The statement is offered against a party and is  . . . (C) a statement by a person authorized by the party to make a statement concerning the subject, or (D) a statement by the party’s agent or servant concerning a matter within the scope of the agency or employment,  made during the existence of the relationship . . .[7]

The Applicable Evidence at Trial

Expert testimony established that the agent had authority to communicate regarding the relevant policy on behalf of the carrier.  A representative from the carrier testified that one of the services the company provides is communication about claims, and all communication between Western and the policyholder flowed through the broker.[8]  The agency agreement between the broker and Western gave the broker the authority to provide “all usual and customary services of an insurance agent on all insurance contracts placed by the Agent.”[9]  The Court found that the statements about the claims were not hearsay because, as statements of Western’s authorized agent, they were statements by a party-opponent.[10]

Minnesota Agency Statute

At the heart of the court’s decision was Minnesota’s agency statute, Minnesota Statute § 60K49, Subd. 1., that states in relevant part:

Agent of insurer.  A person performing acts requiring a producer license under this chapter is at all times the agent of the insurer and not the insured.  (Emphasis added.) [11]

The “acts” referred to in the statute, are enumerated in Minnesota Statute §60K.32:

A person shall not sell, solicit, or negotiate insurance in this state for any class or classes of insurance unless the person is licensed for that line of authority under sections 60K.30 or 60K.56.  The license itself does not create any authority, actual, apparent, or inherent, in the holder to represent or commit an insurance carrier.  (Emphasis added.)[12]

Finally, “negotiate” is specifically defined in the statutes as well.  Minnesota Statute §60K.31, Subd. 12, reads:

Subd. 12 Negotiate.  “Negotiate” means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms, or conditions of the contract if the person engaged in that act either sells insurance or obtains insurance from insurer for purchasers.[13]

Because there was no dispute in the case that the broker sold and obtained insurance, and there was no dispute that the communication relating to claims was advice about the particular Western policies issued to Prospect concerning substantive benefits, the court held that the broker was the agent for Western for purposes of those communications.

The Minnesota Supreme Court’s Approach.

The Minnesota Supreme Court has also recognized the agency statute, and mentioned that the distinction between a broker and agent for certain communications has been eliminated by the statute.[14]

Conclusion.

Courts interpreting Minnesota’s agency statute have held that representations made by an insurance broker are representations of the insurer, regardless of the relationship between the broker and the prospective policyholder.  Therefore, it is important that both policyholders and insurers alike carefully monitor and document these communications because they can have a substantive effect on application of the underlying policies.

[1] Morrison v. Swenson, 142 N.W.2d 640, 644 (Minn. 1966) (citing to William R. Vance, Handbook on the Law of Insurance 2nd, Sec. 118, pg. 415 (1930); Eddy v. Republic Nat’l Life Ins. Co., 290 N.W.2d 174, 176 (Minn. 1980) (agents act on behalf of insurer, brokers act on behalf of prospective policyholder).

[2] Minnesota Statute § 60K49, Subd. 1.

[3] Graff v. Robert M. Swendra Agency, Inc., 800 N.W.2d 112, 118 n.5 (Minn. 2011) (“This distinction [between agent and broker], however, appears to have been superseded by statute.”).

[4] Western Nat’l Mut. Ins. Co. v. Prospect Foundry, 2018 WL 1787687, No. A17-0992 (Minn. Ct. App. April 16, 2019).

[5] Minnesota Rules of Evidence 802.

[6] Id., 801(c).

[7] Id. 801(d)(2)(C &D).

[8] Prospect at *5.

[9] Id.

[10] Id. at *6.

[11]  Minnesota Statute § 60K49, Subd. 1.

[12] Id. §60K.32

[13] Id.  §60K.31, Subd. 12

[14] Graff v. Robert M. Swendra Agency, Inc., 800 N.W.2d 112, 118 n.5 (Minn. 2011) (“This distinction [between agent and broker], however, appears to have been superseded by statute.”).