Voss v. The Netherlands Ins. Company (New York Court of Appeals Feb. 25, 2014)

It is well settled in New York that there is no “special relationship” between an insurance broker or agent and its client. The New York Court of Appeals, which is the state’s highest court, has held based on this rule that an insurance broker ordinarily has an obligation to obtain requested coverage for clients within a reasonable time or inform the client that the coverage cannot be obtained, but as a general rule the broker has no continuing duty to advise, guide or direct a client to obtain additional coverage. However, when a special relationship exists, the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage. The courts will examine the specific factual allegations on a case-by-case basis to determine whether insurance agents and brokers, by their conduct or by express or implied contract, have assumed or acquired duties in addition to those fixed at common law. The Court may find a special relationship in any one of the three following exceptional situations: (1) the broker is paid for consultation; (2) there is interaction concerning a coverage question with the insured relied on the broker’s expertise; or (3) there is a course of dealing over an extended time period which would have put an objectively reasonable broker on notice that his or her advice was being sought and specifically relied on.

The Court of Appeals was called upon to address these issues this year in the Voss case in reviewing the trial and intermediate appellate court’s rulings granting a broker’s motion for summary judgment dismissing a negligence claim because there was no special relationship. The plaintiff-insured sustained business interruption as a result of water damage following three separate breaches of the roof of commercial premises. Initially, the broker met with plaintiff to discuss coverage and plaintiff accepted the broker’s recommendations. Plaintiff’s business expanded and occupied additional premises. Nevertheless, the same coverage was renewed. When water damage began to be experienced, plaintiff spoke with the broker about whether the existing business interruption coverage was adequate, but the broker failed to address the issue further and additional losses were sustained. The coverage was not adequate to compensate plaintiff for her losses.

The Court held that on those facts there was a fact question precluding summary judgment as to whether the broker was negligent in securing inadequate levels of business interruption insurance. Given that there was some interaction regarding business interruption insurance and plaintiff was relying on the broker’s expertise, a special relationship might have been formed. As a result, the case was returned to the trial court for trial.

Notably, the Court reiterated that special relationships in the insurance brokerage context are the exception, not the norm, and emphasized that plaintiff bore the burden at trial of proving that a special relationship was formed. Notwithstanding those statements, this decision underscores the care with which brokers and agents must proceed in dealing with client inquiries concerning the adequacy of coverage and similar matters. If the insured can muster allegations and any proof to support a claim that advice was sought under circumstances where the insured’s reliance should have been apparent, the case will likely be expensive and potentially a liability case. A jury question is likely to be presented as to whether a special relationship was formed. As we know, any claim that cannot be resolved at the summary judgment stage entails greater expense to defend and will exposes the defendant to the whims of jurors. It is reasonable to anticipate that those jurors will be unsympathetic to an insurance broker which is being portrayed as having neglected the needs of the client.