The New York Court of Appeals decided in the case of American Building Supply Corp. v. Petrocelli Group, Inc., No. 188, 2012 N.Y. Slip Op. 7849 (N.Y. Nov. 19, 2012), that an insured’s failure to read and understand its policy is not an absolute bar to recovery against a broker for the negligent failure to obtain specifically requested coverage. In a four to two decision, the Court of Appeals held that, where issues of fact exist as to a request of specific coverage, the insured can maintain an action for negligence and breach of contract against the broker for failure to procure adequate insurance coverage even though the insured received the insurance policy without complaint.
Plaintiff American Building Supply Corp. (“ABS”) hired defendant Petrocelli Group, Inc. and allegedly requested Petrocelli obtain general liability coverage for its employees in case of injury. ABS claimed that it informed Petrocelli that only employees entered the premises, never customers. Nevertheless, Petrocelli obtained, and ABS renewed, an insurance policy that specifically excluded injury to any “employee of any insured.” Subsequently, an ABS employee was injured at the facility and the insurer disclaimed based on the “employee” exclusion.
To establish its claim for negligence, ABS needed to establish that it specifically requested Petrocelli obtain coverage not provided in the policy. Petrocelli maintained, however, that ABS’s claim was barred by its receipt of the insurance policy without complaint.
The Court noted that an insurance agent has a common-law duty to obtain requested coverage for a client; however, there is no continuing duty to advise, guide or direct a client to obtain additional coverage. The Court stated that New York appellate courts have held that once an insured has received its policy, it is presumed to have read and understood the policy and cannot rely on the broker’s word that the policy covers what the insured requested. Conversely, other appellate courts have held that receipt and presumed reading of the policy does not bar an action for negligence against the broker.
Ultimately, the Court of Appeals held an insured should have a right to “look to the expertise of its broker with respect to insurance matters.” The failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar, altogether, an action against a broker. Moreover, the failure to read and understand the policy is not an absolute bar to recovery under the facts of this case.