Why a Risk Manager in Louisiana Should be Licensed as an Agent

Risk Manager Can Be Liable For Failing to Provide Coverage Ordered

Insurance Risk Management companies help their client obtain insurance by negotiating on behalf of an insured with insurance agents and brokers. The insured uses a risk manager to take on an obligation to provide needed coverage that the insured does not feel competent or have the time to acquire directly. In Plata v. Triton Diving Services LLC, Slip Copy, 2015 WL 4129144 (E.D.La., 7/8/15) a risk manager was alleged to have failed to acquire appropriate coverage leaving the insured uninsured for an important and needed coverage. The insurer and agent were granted judgment by the court and the case was limited to the claim against the risk manager.


This action arises out of the alleged breach of business relationship and/or contract between the plaintiff, Shore, and the defendants, Risk Management Underwriters, Inc. (“Risk Management”), Midwest, and CRC Insurance Services, Inc. (“CRC”). Shore contracted with Risk Management to obtain insurance covering its business activities. Risk Management then contacted CRC and Midwest for assistance. Shore claims that it provided Risk Management and Midwest with a Master Service Agreement (“MSA”) between it and Conrad Industries, to which it provided employees for work in the marine industry. Shore also claims that it supplied Risk Management and Midwest with the following description of its work: “[Shore] supplies our employees to our clients to perform specific job tasks within the oil and marine industry. These tasks include welding, fitting, rigging, helpers, and burners to work on platforms, jackets, skids, modules, ships, tugs, boats, barges, etc …”

Defendants ultimately procured a Colony Insurance Company Commercial Policy. The policy included several dozen forms, including a Maritime Operations Exclusion and Watercraft Amendment. Shore claims that because of these exclusions, it was denied coverage for costs arising from defending a personal injury lawsuit by its employee, Hector Plata, who was injured while working at Conrad’s Shipyard. Rec. Shore also claims that since then, a second employee, Francisco Villareal, has filed suit for injuries sustained while working for Conrad, and Shore expects that Colony will likewise deny coverage, requiring Shore to shoulder further costs.

Shore commenced this action in state court alleging 1) breach of fiduciary duties and 2) negligent misrepresentation. The action was subsequently removed to this Court. The Court has since dismissed Shore’s claims against CRC.Midwest now moves the Court to dismiss Shore’s claims against it.


Midwest advances several arguments for why the Court should dismiss Shore’s claims against it. In its first motion, Midwest argues that Shore has failed to state a claim for breach of fiduciary duty and negligent representation under Louisiana law. In its second motion to dismiss as well as a supplemental memorandum, Midwest also argues that Shore’s claims are perempted.


Midwest argues that under Louisiana law, actions against insurance agents are perempted after one year. La. R.S. § 9:5606(A) provides: “No action for damages against any insurance agent, broker, solicitor, or other similar licensee under this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide insurance services shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered. However, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.”

However, the state of Louisiana defines as follows: “‘Insurance producer’ or ‘producer’ shall mean a person required to be licensed under the laws of this state to sell, solicit, or negotiate insurance, and includes all persons or business entities otherwise referred to in this Code as ‘insurance agent’ or ‘agent’, or ‘insurance broker’ or ‘broker’, or ‘insurance solicitor’ or ‘solicitor’, or ‘surplus lines broker’.” [La. R.S. 22:1542.]

A  plain reading of Louisiana statutory law leads the Court to conclude that unlicensed entities do not fall within the ambit of the statute. Furthermore, the Court is persuaded by the principle that when interpreting prescriptive and peremptive statutes, courts should construe in favor of maintaining enforcement of the action. Peremptive statutes are to be construed against prescription and peremption and in favor of the claim that is to be extinguished. Therefore, the Court finds that because Midwest was not licensed at the time that it provided services to Shore, actions against Midwest are not regulated by the statute.

Although actions against insurance agents in Louisiana are treated normally as tort actions Shore alleges that it engaged Risk Management which in turn engaged Midwest to assist it in procuring insurance for Shore which is more like a contract action. Shore further alleges that Midwest and Risk Management “made representations to Shore that they would procure proper insurance sufficient to provide coverage for the business risks specifically explained to them by Shore.” Finally, Shore claims that it provided Midwest with a specific description of its work which stated that Shore provided employees to clients to perform specific job tasks which could not be covered as a result of the exclusion.

Applying the standard of review for a motion to dismiss to these allegations, which requires the Court to take all well-pleaded allegations as true and to draw all reasonable inferences in favor of the plaintiff, the Court finds that Midwest did warrant a specific result. Specifically, under the facts alleged in the complaint, Midwest warranted that it would procure insurance to cover the full range of Shore’s particular business activities, after receiving Shore’s description of what these business activities entailed. Thus, the ten-year prescriptive period for breach of contract applies.


To prevail on a claim for breach of fiduciary duty, Shore must prove:

1) an undertaking or agreement by the insurance agent to procure insurance;

2) failure of the agent to use reasonable diligence in attempting to place the insurance and failure to notify the client promptly if he has failed to obtain the insurance; and

3) actions by the agent warranting the client’s assumption that the client was properly insured.  Midwest does not dispute that there was an agreement between Midwest and Shore for Midwest to procure insurance.

While an insurance agent is under no duty to “spontaneously identify” the client’s needs, it is required to “provide coverage for the client’s specific concerns.” The Fifth Circuit in Offshore Production Contractors, Inc. v. Republic Underwriters Ins. Co., 910 F.2d 224, 229–30 (5th Cir.1990), held that: “[A]n insurance agent is more than a ‘mere order taker’ for the insured … Where an agent is familiar with the insured’s business, has reason to know the risks against which an insured wants protection, and has experience with the types of coverage available in a particular market, we must construe an undertaking to procure insurance as an agreement by the agent to provide coverage for the client’s specific concerns.”

Following the Fifth Circuit’s guidance, the Court finds that Shore has sufficiently alleged a failure by Midwest to use reasonable diligence. According to Shore’s complaint and amended complaints, Shore provided Midwest with a specific description of the type of work in which it engaged. The description included an explicit reference to marine industry work and work aboard marine vessels. Contrary to Shore’s wishes, Midwest procured a policy with a “Maritime Operations Exclusion” and a “Watercraft Amendment,” which Shore alleges excluded coverage of many activities that Shore had notified Midwest its employees performed. Midwest failed to use reasonable diligence in procuring insurance coverage.


Midwest also argues that Shore has failed to state a claim for negligent misrepresentation. In order to recover for negligent misrepresentation, Shore must show 1) a legal duty to supply correct information; 2) breach; and 3) damages resulting from justifiable reliance on the misrepresentation.

The complaint now includes the allegation that defendants “ensured Shore that the subject policy contained maritime employers liability coverage, with an In Rem endorsement and the Watercraft exclusion deleted.” Midwest does not challenge the remaining elements of Shore’s negligent misrepresentation claim. Thus, the Court found that Shore has stated a claim of negligent misrepresentation and the claims must go to trial.


By concluding the action was a breach of contract action the court increased the statute of limitations from one year to ten years allowing the case to proceed against the risk manager. Clearly, by allowing the Maritime Operations Exclusion to be in the policy the risk manager was negligent and breached the contract. Since the Risk Manager was not a licensed agent the court held it to answer while letting the agent and insurer free because of the statute of limitations.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available.

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

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The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.


About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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