Image: FreeDigitalPhotos.net/Stuart Miles
One of the most unpleasant things you could discover in the aftermath of a loss, or upon learning of a potential insurance claim, is that your insurance broker either didn't purchase the right coverage, or failed to secure adequate coverage to cover the loss or claim.
If that is the case, you may have a potential claim against the insurance broker - at least under New York law.
In fact, in this scenario, you have two (2) potential legal theories for pursuing your insurance broker: (1) breach of contract; or, (2) tort.
To that end, New York's courts have summarized this rule as follows:
"Generally, an insurance agent or broker has a common-law duty to obtain requested coverage for a client within a reasonable amount of time, or to inform the client of the inability to do so (see Murphy v Kuhn, 90 NY2d 266, 270; Verbert v Garcia, 63 AD3d 1149; Loevner v Sullivan & Strauss Agency, Inc., 35 AD3d 392, 393).
"Liability for failure to comply with this obligation may be based on either breach of contract or tort (see Jual Constr. Ltd. v A.C. Edwards, Inc., 74 AD3d 1150; Bedessee Imports, Inc. v Cook, Hall & Hyde, Inc., 45 AD3d 792; Mickey's Rides-N-More, Inc. v Anthony Viscuso Brokerage, Inc., 17 AD3d 328)."
How to Prove a Case Against Your Insurance Broker
Fortunately, New York's courts have provided guidance on this issue as well, although the rule does appear (perhaps deliberately) somewhat vague:
"An insured must show that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction (see Jual Constr. Ltd. v A.C. Edwards, Inc., 74 AD3d at 1150; Bedessee Imports, Inc. v Cook, Hall & Hyde, Inc., 45 AD3d at 793-794; Mickey's Rides-N-More, Inc. v Anthony Viscuso Brokerage, Inc., 17 AD3d at 329)."
Why Insurance Brokers Have Reason for Concern
A decision by one of New York's appellate courts that was rendered just a few years ago is guaranteed to rankle insurance brokers throughout New York - and to put them on notice - that they had better dot their "i"s and cross their "t"s when receiving requests to procure insurance. Otherwise, they run the risk that a court will entertain a lawsuit against them if the coverage they ultimately procured was either the wrong kind of insurance, or didn't afford adequate coverage.
And this is precisely what happened in Gagliardi v. Preferred Mut. Ins. Co.
In this case, there was a fire at the plaintiff's premises which severely damaged three structures at the property; unfortunately, however, there was insufficient coverage to cover the plaintiff for their losses. In seeking to dismiss the plaintiff's complaint that charged them with failing to heed their specific instructions as to which insurance (and how much) to procure on their behalf, the brokerage claimed that the nature of the coverage was apparent on the policies' declaration pages, and therefore, the plaintiff was negligent in failing to notice it and rectify the situation on their own.
The appellate court disagreed, stating as follows:
"Where an insured makes an explicit request for a specific amount of coverage, the mere fact that the insured had ample time, yet failed to read the policy to discern the actual liability limit under the policy, is not a superseding cause precluding liability as a matter of law (see Reilly v Progressive Ins. Co., 288 AD2d 365; Kyes v Northbrook Prop. & Cas. Ins. Co., 278 AD2d 736; Mets Donuts v Dairyland Ins. Co., 166 AD2d 508)."
(Parenthetically, this decision makes another point clear as well: it behooves insureds to memorialize in writing to their brokers the precise coverage that they want.)