By Lisa Bentley
Lisa Bentley, a founding partner at Aguilar Bentley LLC, practices insurance and other commercial litigation in New York and New Jersey.
Two years ago, the New York Court of Appeals issued its seminal decision in Voss v. The Netherlands Insurance Company, which put some teeth into the concept of a “special relationship” between an insurance broker[1] and an insured. The Voss court held that a broker could be subject to liability for negligence or other tort claims where such liability would be unattainable in the typical broker-insured relationship.[2] Since the Voss decision, courts in New York have considered the “special relationship” concept enunciated in Voss a number of times. This article examines the state of the law on the “special relationship” between brokers and their clients following the two-year anniversary of Voss.
New York Common Law on the Insured-Broker Relationship and the Dawn of the “Special Relationship”
Under New York law, insurance brokers have a common-law duty to obtain coverage that their clients request within a reasonable time, or inform their clients that they are unable to do so. However, brokers do not have a continuing duty to advise or guide or direct their clients to obtain additional coverage. This means that in the typical case, an insured may have a claim against its broker for negligence if the insured specifically instructs the broker to obtain, for example, $1 million in coverage for fire, and the broker fails to do so. But it is highly questionable whether an insured would have a claim in the absence of a specific request – even if the insured had been working with the same broker for decades and even if the broker (according to the insured) should have known that $100,000 in fire coverage was clearly inadequate.
In the 1997 case, Murphy v. Kuhn,[3] the idea that in limited circumstances, brokers could assume certain legal duties beyond those existing at common law was first annunciated by the New York Court of Appeals. The case arose out of an automobile accident for which there was insufficient coverage. Bringing suit against his insurance agent, the plaintiff argued that although he had never specifically requested defendants increase liability limits on the policy at issue, the agent had entered into a special relationship of trust and confidence with the client following a long and continued course of business, which generated a special reliance by the insured and a general duty to advise on the part of the agent. The court held that even assuming a special relationship was a cognizable concept, the relationship between the agent and client at issue was insufficient to warrant survival of the agent’s motion for summary judgment. However, the court went on to note that “[e]xceptional and particularized situations may arise in which insurance agents, through their conduct or by express or implied contract with customers and clients, may assume or acquire duties in addition to those fixed at common law.” It held that “whether such additional responsibilities should be recognized and given legal effect is governed by the particular relationship on a case-by-case basis.” Hence, a special relationship may exist in exceptional circumstances, but the agent-client relationship in Murphy was not exceptional such that agent duties would extend beyond the common law.
Voss v. The Netherlands Insurance Company
The Court of Appeals returned to “special relationships” approximately 17 years later in Voss. Like Murphy v. Kuhn, the case involved a lawsuit by an insured against an agent after it was revealed that there was insufficient coverage following submission of a claim; summary judgment had been granted to the agent by the lower court. In Voss, the defendant broker had obtained insurance for the plaintiff insured in 2004 that provided for $75,000 in business interruption coverage. The plaintiff questioned whether this amount was sufficient, and allegedly was told by the broker that it was, and that the broker would review her coverage annually. In 2006, the plaintiff obtained a larger property, discussed this with the broker, and the broker renewed the policy with the same $75,000 limit. In 2007, the new building sustained a roof leak, followed by a partial collapse of the roof, for which the plaintiff received approximately $33,000 in insurance proceeds. After the partial collapse, a proposed renewal of the insurance reduced the coverage limit to $30,000; plaintiff questioned this once – with her broker promising to look into it – but never followed up. In 2008, there was another partial roof collapse for which there was inadequate coverage.
The Voss court referenced its own prior holding in Murphy, in which it had referred to three situations where a special relationship was found to exist in other jurisdictions. In Voss, the court now made it clear that these three situations were potentially applicable in New York:
- Where the agent receives compensation for consultation apart from payment of the premiums;
- Where there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or
- Where 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 upon.
The court held that the defendant failed to satisfy its burden of showing the absence of a material issue of fact as to the existence of a special relationship. Instead, the court concluded that the evidence revealed “some interaction regarding a question of [business interruption] coverage, with the insured relying on the expertise of the agent.” In other words, the Voss court was describing the second of the situations first described in Murphy. The court noted the fact that the plaintiff had discussed business interruption coverage from the inception of their relationship, that the broker’s initial proposal of $75,000 in coverage was initially questioned but the broker assured the plaintiff it was adequate, and that the broker had repeatedly pledged to review plaintiff’s coverage needs annually.
The “Special Relationship” Cases Since Voss
In the two years since the Voss decision, a number of reported cases have considered the “special relationship” issue in the context of an insured’s suit against its broker. While there has not been a dramatic embrace of the “special relationship” between a broker and client, there is a sense that the possibility of a special relationship is something a New York court will consider.
In Kritzer v. Ventura Ins. Brokerage, Inc., the New York Supreme Court, New York County, denied a broker’s motion to dismiss a negligence claim brought by an insured after the broker allegedly failed to obtain sufficient coverage for the insured’s six-carat diamond ring.[4] There, plaintiffs alleged that their broker had assured them that their policy included “blanket coverage” of up to $150,000 for jewelry. However, after the ring was lost, it was revealed that the plaintiffs’ policy provided coverage of only $50,000 for any item not scheduled. In denying the motion to dismiss, the court noted that the complaint alleged: (i) defendant knew of plaintiffs’ particular concern regarding coverage for the ring; (ii) defendant assured them of coverage up to $150,000 even if an item was not specifically scheduled; (iii) defendant knew the diamond ring was valued at over $50,000. Accordingly, the court determined that even absent a specific request, the allegations suggest a reliance on defendant’s expertise, which “may create a special relationship between plaintiffs and defendant, imposing on it an enhanced duty to advise plaintiffs adequately regarding coverage to meet their needs.”
In another case addressing a motion to dismiss, a New York federal court came out the other way, granting a motion to dismiss by a broker, holding that the plaintiff insured failed to make any allegations warranting a finding of a special relationship. In Long Beach Road Holdings, LLC v. Foremost Ins. Co., the insurer issued a Standard Flood Insurance Policy, along with Declarations, to plaintiff in the amount of $450,000 immediately before Hurricane Sandy, but because plaintiff’s mortgage transaction on the property was delayed until shortly after the hurricane, the policy declarations were amended such that coverage began following the hurricane.[5] After the hurricane damaged plaintiff’s property, plaintiff brought suit, claiming that its broker was negligent because, among other things, it did not advise the insured that the start-date of the policy in the certificate of insurance was incorrect. In granting the broker’s motion to dismiss, the court contrasted the case with Voss, holding that there were no allegations in the complaint warranting a finding of anything other than a standard consumer-agent insurance relationship.
In Kaufman v. BWD Group LLC, the Appellate Division, First Department, upheld summary judgment in favor of a broker following a fire and the insured’s discovery of inadequate coverage for her personal property.[6] The court reasoned that – despite the fact that the broker had purchased insurance for the insured for 20 years – there was no material issue of fact as to the existence of a “special relationship,” because the evidence showed that the insured herself chose the coverage and did not rely on the broker for advice as to the appropriate amount.
Just two weeks ago, the Appellate Division, Third Department, in Finch v. Steve Cardell Agency, determined that the defendant broker was not entitled to summary judgment where an error led it to place a policy for a rodeo that excluded from coverage injuries or damage caused by animals.[7] The broker had been placing insurance for the plaintiff for approximately six years when it placed a policy for a rodeo event during which bulls escaped from a holding pen and injured bystanders. The court relied upon the third situation described in Voss—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 – to hold that there were triable issues of fact as to whether the parties had a special relationship. In support of its holding, the court pointed to: (i) the parties’ six-year relationship; (ii) plaintiff’s testimony that he knew little about insurance, relied upon defendant to obtain appropriate coverage,and had never seen any of the rodeo policies that defendant procured for him; and (iii) defendant’s testimony that the animal exclusion in the policy was overlooked in error.
Conclusion
Following the Court of Appeals’ decision in Voss, a “special relationship” between an insured and a broker can provide a basis for an insured to pursue a tort claim against a broker outside of the situation where an insured specifically requests coverage that the broker fails to procure. But the cases decided in the two years since Voss also suggest that establishing the existence of a special relationship remains the exception rather than the rule. While a New York court may be more inclined to take heed of and consider the possibility of a special relationship post-Voss, there has hardly been a seismic shift in the way that courts handle broker negligence. Nearly every court addressing a “special relationship” has taken great care to emphasize that the doctrine provides only a narrow exception to the common law rule. And, although the possibility of a special relationship has operated in a few cases to bar brokers’ motions to dismiss or motions for summary judgment, there is yet to be a reported case in which a New York court has affirmatively found that a special relationship exists, resulting in a favorable judgment for the insured.
Reprinted with permission from the April 4, 2016 edition of the New York Law Journal© 2016 ALM Media Properties, LLC. All rights reserved.
Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 –reprints@alm.com.
[1] While it has at times been said that a “broker” represents an insured and an “agent” represents an insurer, this article uses the terms “broker” and “agent” interchangeably.
[2] 22 N.Y.3d 728 (N.Y. 2014)
[3] 90 N.Y.2d 266 (N.Y. 1997).
[4] 2015 WL 8073858 (Sup. Ct. N.Y. Cty. Mar. 4, 2015).
[5] 75 F.Supp.3d 575, 588-591 (E.D.N.Y. 2015).
[6]127 A.D.3d 433 (1st Dep’t 2015).
[7] 2016 WL 634597 (3d Dep’t Feb. 18, 2016).