Policyholders finding themselves without insurance coverage will often question whether their insurance broker is responsible. It is a logical question in light of the fact that the broker consults with the client regarding types of coverage, policy limits and available insurance in the market, and places the coverage. However, claims against brokers can be difficult in many jurisdictions based on the legal standards for asserting a claim for such negligence. New York is one state that until now has towed a fairly strict line with respect to such claims.
New York’s highest court issued an opinion last month that provides new legal ammunition to policyholders looking to assert claims against their insurance brokers. The case can be instructive to insureds and brokers in other jurisdictions as well. In Voss v. The Netherlands Ins. Co., 2013 WL 696528 (New York, Feb. 25, 2014), the court tackled the question of a broker’s liability related to business interruption coverage. In the case Deborah Voss owned several businesses in New York City. She used CH Insurance Brokerage Services to place property coverage. During the initial placement of coverage in 2004 Voss asked her broker if the business interruption coverage of $75,000 was enough. The broker’s producer, Joe Convertino, obtained sales figures and other information from Voss and ultimately informed her that it was sufficient coverage.
Voss subsequently purchased a new building that was double the square footage of her prior space and moved all three businesses into this one building. As part of the move, Voss again discussed her insurance needs with Convertino at CH Insurance Brokerage and the policy was ultimately renewed with the $75,000 in business interruption coverage. Not long afterward the property experienced multiple problems with leaking through the roof that lead to damage and temporarily closing the businesses. In the midst of the problems Voss met with another producer at CH Insurance Brokerage who ultimately lowered the business interruption limits to $30,000.
Voss sued CH Insurance Brokerage for its failure to advise her as to the proper limits of the business interruption coverage. The general rule in New York is that insurance brokers “have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage.” Under this standard the client can only prevail against a broker if she made a special request related to coverage and it was not procured. However, where a “special relationship” exists between the broker and client there can be liability even without a special request for coverage. The three situations that have been identified by the New York courts are: (1) the broker receives compensation for services beyond commission; (2) there is a question regarding coverage with the client relying on the expertise of the broker; and (3) there is a course of dealing over time that puts the broker on notice that their advice is being specially relied upon by the client.
In this instance the court determined that the evidence suggested that Voss was relying upon the expertise of the broker with respect to business interruption coverage. Voss testified in a deposition as to her reliance on CH Insurance Brokerage’s personnel for information on the appropriate limits of business interruption. The court did note that its reversal of the dismissal by the trial court still was an exception to the norm but that the trier of fact needed to determine if a special relationship existed between Voss and CH Insurance Brokerage. Thus, the case is headed back to the trial court.
There are a couple of lessons to be learned here. First, policyholders need to understand that claims against their insurance brokers can be difficult to prove. Both policyholders and brokers are wise to document the scope of the relationship and ongoing interactions when placing coverage. Other recent cases signal a trending toward allowing the determination over the scope of the relationship to go to a jury in determine whether the broker assumed duties beyond merely placing coverage. Policyholders must remain vigilant in protecting themselves as to the necessary insurance needed and the proper scope of such coverage.