On February 25, 2014, the Court of Appeals issued a decision in Voss v. Netherlands Insurance Co., 2014 NY Slip Op. 01259, finding that a question of fact on the existence of a “special relationship” between insureds and their insurance broker precluded dismissal of a negligence claim against the broker for failure to advise the insureds to obtain additional business interruption coverage.
The individual plaintiff in Voss used defendant’s brokerage services in 2004 to obtain coverage for her plaintiff businesses. The brokerage provided advice on the appropriate amount of coverage and allegedly represented that it “would reassess and revisit the coverage needs as her business grew.” Despite that representation, the plaintiffs were never advised to increase the policy limit, and the coverage proved inadequate when the businesses suffered losses in 2007 and 2008, by which point the business had grown. The plaintiffs’ lawsuit alleged that the broker negligently secured inadequate levels of business interruption insurance.
Ordinarily, insurance brokers have a limited 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.” An exception exists where “a special relationship exists between the broker and client,” which may develop where “(1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.” The defendant in Voss moved for summary judgment on the ground that no special relationship existed that would trigger a heightened duty to advise the plaintiffs to obtain additional coverage that the plaintiffs had not requested.
The majority decision by Judge Graffeo (joined by Chief Judge Lippman and Judges Rivera and Abdus-Salaam) found that summary judgment was improper since the broker “did not satisfy its initial burden of establishing a material issue of fact as to the existence of a special relationship”:
To the contrary, viewed in the light most favorable to plaintiffs, the evidence suggests that there was some interaction regarding a question of business interruption coverage, with the insured relying on the expertise of the agent. Voss testified that she and Convertino discussed business interruption insurance from the inception of their business relationship. She asserts that he requested sales figures and other relevant data in order to calculate the proper level of coverage. When Convertino later returned with a proposal that included $75,000 in business interruption insurance, Voss avers that she questioned that amount and that Convertino assured her that it was adequate based on his review of her business finances as well as the layout of the building. Moreover, although the $75,000 per occurrence limit was originally placed in 2004, before plaintiffs . . . expanded their businesses to include a restaurant and catering operation, Voss testified that Convertino repeatedly pledged that CHI would review coverage annually and recommend adjustments as her businesses grew.
The court found that under these circumstances, “the complaint cannot be dismissed on the basis that no special relationship arose between the parties.” However, the court remarked that “special relationships in the insurance brokerage context are the exception, not the norm, and . . . that it remains to be determined whether a special relationship existed here. To prevail on their claim, plaintiffs bear the ultimate burden of proving that a special relationship did in fact arise and that they relied on CHI’s expertise in calculating the proper level of business interruption coverage during the relevant time frames.”
A dissenting opinion, written by Judge Smith and joined by Judges Read and Pigott, argued that summary judgment should have been granted because the special relationship between the insured and the insurance broker “had ceased to exist by the time of the events in questions.” Although conceding that the broker “should not get a high mark for client service,” Judge Smith concluded that the broker’s initial provision of advice on the level of insurance coverage and “expression of willingness to do so in the future”—which was never acted on—did not create a “continuing duty” to advise the plaintiffs in the future. Judge Smith also noted the policy reasons that support taking a “narrow view” of an insurance agent’s duty to the client:
Agents are not insurance companies and do not earn premium income. They earn ordinarily, relatively modest commissions for bringing insurers and insureds together. It is natural for a client that has suffered a loss not covered by its insurance to blame its insurance agent; and if lawsuits by clients against their agents are welcomed by the courts, the consequence may be to make the agent into a kind of back-up insurer, a result neither sensible nor fair.
Although it leaves unchanged the underlying law on the scope of an insurance broker’s duty to the client, this decision may have the effect of encouraging litigation against brokers by making it easier for the insured to plead a negligence claim by alleging that the broker had initially promised to “reassess” the client’s insurance needs in the future.