Iowa Supreme Court Rules that Insurance Agents Owe a Duty of Care to “Intended” Beneficiaries

by Michael Thrall | July 19, 2012

[The following summary was written by Michael Thrall, a shareholder in Nyemaster Goode’s Litigation Department.]

The Iowa Supreme Court has expanded the liability of a life insurance agent, holding that the agent owes a duty of care to an intended beneficiary of a life insurance policy that can be enforced through an action of negligence and\or negligent misrepresentation.

On July 6, 2012, in a 4-3 decision, the Iowa Supreme Court entered its opinion in Pitts v. Farm Bureau Life Insurance Company. Thomas Pitts was required under a child support obligation to maintain $35,000 of life insurance, payable to his daughter. To fulfill that obligation, Tom purchased a life insurance policy from Farm Bureau Life Insurance Company through its agent, Donald Schiffer. The policy provided that $35,000 of the life insurance would be payable to his daughter, with the balance to be paid to his new wife, Michele.

Shortly after the support obligations ended, Tom asked Agent Schiffer to change the beneficiary designation on the life insurance policy so that his daughter would no longer be the primary beneficiary and that the entire proceeds of the policy would be paid to Michele. The policy required any change in beneficiaries be in writing by submission of a written change of beneficiary form to Farm Bureau. It was undisputed that no written paperwork was submitted to effectuate the change of beneficiaries. Nevertheless, there was evidence Agent Schiffer assured both Tom and Michele on separate occasions that the change had been made.

After Tom passed away, Michele learned that the change had not been made. She did not receive all of the insurance proceeds and commenced an action against Agent Schiffer and Farm Bureau alleging negligence and negligent misrepresentation.

Almost 30 years ago, the Iowa Supreme Court held in Sandbulte v. Farm Bureau Mutual Insurance Company, that an insurance agent’s general duty was to use reasonable care, diligence and judgment in procuring the insurance requested by an insured, which could be expanded only when the agent holds him or herself out as an insurance specialist, consultant or counselor and receives compensation for consultation and advice apart from the premiums paid the insured. That changed, for a brief period, in 2010 when the Iowa Supreme Court overturned Sandbulte and held in Langwith v. American National General Insurance Company that “a more flexible method of determining the undertaking of an insurance agent is appropriate.” But just months later, the Legislature abrogated Langwith and codified the Sandbulte standard. See Iowa Code §522B.11(7) (2011).

But that, according to the majority, had no bearing on the issue in this case. In an opinion by Justice Zager, which was joined by Justices Wiggins, Appel, and Hecht, the Court held that the new Sandbulte statute addresses only “what duties an insurance agent owes to an insured, not who the agent can be liable to when those duties are breached.” The Court held a life insurance agent owes a duty of care to an intended beneficiary of the life insurance policy arising “out of their agency relationship as insurance agent, insured, and intended beneficiary.”

The Court did say, however, that the duty arises only in “limited circumstances.” “In order to limit the potential liability of insurers, avoid conflicts of interests, and not interfere with the insured-insurer relationship, we will require a plaintiff to show that he or she was the ‘direct, intended, and specifically identifiable beneficiary’ of the policy as well as the other elements of negligence.” Further, the court held that the plaintiff “must produce evidence from the written instrument itself that indicates the plaintiff is the intended beneficiary of the policy.” As there were genuine issues of material fact on these issues, the Court ruled that summary judgment was inappropriate.

The Court further held an agent could be liable to an intended beneficiary under a claim of negligent misrepresentation when that agent negligently misrepresents the identity of a beneficiary of a life insurance policy, although there were genuine issues of material fact in this case that prohibited summary judgment on the issue.

The dissent, authored by Justice Mansfield and joined by Chief Justice Cady and Justice Waterman, characterized the majority’s opinion as “an unwarranted expansion, not an application, of existing Iowa law.” The three justices would not have recognized a cause of action by an “intended beneficiary” and would have precluded such a claim under the economic loss rule and as inconsistent with the recent codification of Sandbulte.


Tags: ,


February 2024 Opinion Roundup

The Iowa Supreme Court entered opinions in eighteen cases during February 2024. You can read Rox Laird’s analysis of Singh v. McDermott, Selden v. DMACC, and Senator Roby Smith et al. v. Iowa District Court for Polk County. The remaining opinions from February are summarized here.


  • Iowa Supreme Court Oral Arguments
  • Iowa Supreme Court Opinion and/or Further Review Conference
  • Iowa Court of Appeals Oral Arguments
  • Holidays



On Brief: Iowa’s Appellate Blog is devoted to appellate litigation with a focus on the Iowa Supreme Court, the Iowa Court of Appeals, and the U.S. Court of Appeals for the Eighth Circuit.


Related Links