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Consider this nightmare scenario:
You've been laying out a small fortune in insurance premiums for several years, and then, when tragedy strikes and you decide to file a claim, you are told that you don't have adequate insurance to defend or cover that claim.
What do you do then?
As reluctant as you may be to do so, one option you should consider is pursuing your insurance broker - assuming, that is, that they failed to procure the type of insurance you had hired them to get for you in the first instance.
The Different Ways an Insurance Broker Can Be Held Liable When They Fail to Secure the Requested Coverage
To that end, in Bruckmann, Rosser, Sherrill & Co., L.P. v Marsh USA, Inc., New York's Appellate Division, First Department the different theories of liability under which brokers can be sued for under New York law.
In this case, the plaintiff claimed that the broker should be held liable because they failed to notify the plaintiff that the insurer was going to reduce their liability limits, leaving plaintiff without adequate insurance to defend a particular claim.
What the Appellate Court Did
In reversing the trial court and reinstating the plaintiff's breach of contract claim, the Appellate Division held that a plaintiff is free to sue his insurance broker in either breach of contract or negligence (or both) if the broker failed to use due care in brokering an insurance agreement. (Although one of the judges on the Appellate Court dissented, and held that the negligence claim was properly dismissed, even he conceded that the breach of contract claim should stand.)
In that regard, the Court stated, in pertinent part, as follows:
"Under New York law, a party who has engaged a person to act as an insurance broker to procure adequate insurance is entitled to recover damages from the broker if the policy obtained does not cover a loss for which the broker contracted to provide insurance, and the insurance company refuses to cover the loss" (Long Is. Light. Co. v Steel Derrick Barge "FSC 99", 725 F2d 839, 841 [2d Cir 1984]; Landusky v Beirne, 80 App Div 272 , affd 178 NY 551 )...
"An insurance agent or broker can be held liable in negligence if he or she fails to exercise due care in an insurance brokerage transaction. Thus, a plaintiff may seek to hold a defendant broker liable under a theory of either negligence or breach of contract (Bedessee Imports, Inc. v Cook, Hall & Hyde, Inc., 45 AD3d 792, 793-794 ;see also Hersch v DeWitt Stern Group, Inc., 43 AD3d 644, 644-645 ; Katz v Tower Ins. Co. of N.Y., 34 AD3d 432 )."
An Important Caveat
On the other hand, the Court unanimously held that under normal circumstances (like this case) a breach of fiduciary duty claim against an insurance broker cannot survive because the broker does not have a continuing responsibility to advise his client to obtain additional insurance coverage, stating:
"[T]he law is reasonably settled . . . that insurance agents have a 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" (Murphy v Kuhn, 90 NY2d 266, 270 ). Thus, absent a special relationship, a claim for breach of fiduciary duty does not lie (see e.g. People v Liberty Mut. Ins. Co., 52 AD3d 378, 380 ; Sutton Park Dev. Corp. Trading Co. v Guerin & Guerin Agency, 297 AD2d 430, 431-432 )."