The broker's motion for summary judgment, seeking to dismiss negligence claims for failure to obtain adequate coverage, was denied by the court in Voss v. The Netherlands Ins. Co., 2014 N.Y. LEXIS 384 (N.Y. Ct. App. Feb. 25, 2014).
The insured met with a representative of CH Insurance Brokerage Services Co., Inc. (CHI) to discuss coverage for the premises and her two companies. At CHI's request, the insured shared information on sales figures for calculating business interruption coverage. The broker represented that CHI would reassess and revisit the coverage needs as her business grew.
CHI recommended $75,000 per incident in coverage for business interruption losses. The insured questioned whether the $75,000 limit was adequate, but the broker assured her that it was sufficient. The insured then accepted the recommendation. Subsequently, the insured's business grew, but CHI renewed the policy with the same $75,000 business interruption limit.
A loss occurred at the business premises when multiple leaks in the roof caused dripping water. The damage disrupted business operations. A new roof was put on the building, but it subsequently failed. Again, the insured's businesses were required to close for various periods of time. The insured was ultimately paid $3,197 for the first loss and $30,000 for the second loss.
In the next renewal of the policy, the business interruption limit was decreased to $30,000. The roof then failed for a third time, causing significant damage to the premises and further disrupting the insured's businesses. The insured sued CHI, the insurer, and the roofing contractor. The insured alleged that a special relationship existed with CHI and that CHI had negligently secured inadequate levels of business interruption insurance for all three losses.
CHI moved for summary judgment, arguing that no special relationship was created. CHI's motion was granted and the complaint was dismissed.
The Court of Appeals reversed. Generally, the insured could prevail in a negligence action where a particular request was made to the broker and the requested coverage was not procured. Here, however, the insured alleged there was a special relationship with the broker. If a special relationship existed, the broker could be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage. A duty of advisement could be created through a course of dealing over an extended period of time which would have put an objectively reasonable insurance agent on notice that their advise was being sought and specially relied on.
Here, there was evidence suggesting some interaction regarding a question of business interruption coverage, with the insured relying on the expertise of the agent. Therefore, the complaint could not be dismissed on the basis that no special relationship arose between the parties.
