New York Court of Appeals Confirms Broker May Be Liable for Failing to Properly Advise an Insured to Obtain Additional Coverage
In a recent decision, the New York Court of Appeals refused to dismiss a lawsuit by an insured against its insurance broker on the grounds that a special relationship potentially existed between the parties. Voss v. Netherlands Ins. Co., No. 11 (February 25, 2014).
Deborah Voss (“Voss”) owned several businesses in Liverpool, New York and used CH Insurance Brokerage Services (“CHI”) as her insurance broker to purchase property insurance, professional liability coverage and business interruption insurance for her businesses. CHI and Voss began their relationship in 2004 when CHI recommended Voss obtain a comprehensive policy that afforded $75,000 in coverage for business interruption losses.
In 2006, Voss purchased a new building that was double the square footage of her prior space and moved all three of her businesses into this one building. As part of the move, Voss again discussed her insurance needs with CHI and the policy was ultimately renewed with the $75,000 in business interruption coverage. Shortly thereafter, the property experienced multiple problems with the roof and Voss temporarily closed the businesses. In the midst of the problems in 2007, Voss met with CHI to discuss the renewal of her policy. The policy was renewed but her business interruption limits were lowered to $30,000.
In 2008, Voss sued CHI for its failure to advise her as to the proper limits of the business interruption coverage. CHI moved for summary judgment contending that no special relationship existed between the parties, and in the absence of a specific request by Voss for coverage, CHI could not be liable for failing to recommend or obtain higher limits. The trial court granted CHI’s motion for summary judgment and the Appellate Division affirmed holding that, although a triable question of fact was raised as to whether a special relationship existed, it was irrelevant because any breach by CHI was not a proximate cause of Voss’ loss, which arose from the insurer’s late payment of the claims and Voss’ awareness of the policy limits.
The Court of Appeals reversed. The Court first acknowledged the general rule in New York is that insurance brokers “have a common-law duty to obtain requested coverage for their clients and they have no continuing duty to advise, guide or direct a client to obtain additional coverage.” However, it went on to explain that when a special relationship exists between the broker and client, there can be a liability even without a special request for coverage. The three situations where a special relationship may exist are where: (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 especially relied upon by the client.
Applying that standard, the Court found that CHI failed to establish it was entitled to summary judgment because it did not submit sufficient evidence demonstrating the absence of a special relationship. Moreover, the Court held that Voss raised a triable issue of fact-based upon her alleged reliance upon CHI’s expertise with respect to business interruption insurance, and contrary to the determinations of the Appellate Division, proximate cause was not negated by the fact that Voss was aware of the policy limits of that the insurer was late in paying the claims.
To read the Opinion on Voss v. Netherlands Ins. Co. click here