In a recent decision, the New York Court of Appeals expanded a Policyholder’s ability to hold a broker liable for negligence. The court confirmed its recognition that under certain circumstances a duty exists whereby an insurance broker is liable for its failure to advise clients of the need to procure additional or sufficient coverage. The decision represents a subtle but significant shift in New York law towards creating a fiduciary duty by insurance brokers to their clients.
The case, Voss v. Netherlands Insurance Company and CH Insurance Brokerage Services,1 addresses the issue of the existence of a “special relationship” between broker and client.
In this case, business owner, Deborah Voss obtained $75,000 of comprehensive business interruption coverage from CH Insurance Brokerage. In her deposition testimony, Ms. Voss stated she was advised by CH Insurance this was the correct amount of coverage, based on an analysis conducted by the broker. She also alleged she was told by CH Insurance they would “review the coverage annually.”
Voss subsequently moved her business to another location and, after again consulting with CHI, renewed her policy at the same amount of $75,000. Shortly thereafter the business experienced multiple roof leaks, which led to a temporary shut down of operations. As a result, CHI lowered Voss’ business interruption limits to $30,000. Voss met with the broker to discuss whether this new coverage was appropriate and was told that they would “look into it” but made no recommendations or changes to the new policy limits.
After another loss, Voss filed suit citing a failure by CHI to advise her of the correct limits of the business interruption coverage. CHI moved for summary judgment alleging that no “special relationship” existed between CHI and Voss, and in the absence of a specific request by Voss, CHI owed no duty to advise. In addition, CHI argued Voss was aware of the policy limits CHI had initiated, therefore no duty was owed. The motion was granted and affirmed by the lower courts and reversed on appeal.
The Court of Appeals acknowledged the New York common law rule that a broker is under no duty to “advise, guide or direct a client to obtain additional coverage absent a special relationship.”2 However the court found that a triable issue of fact existed on the question of whether a special relationship existed between CHI and Voss.3 In addition the court concluded that the fact that Voss new of the policy limits was irrelevant since the issue was whether Voss relied on CHI’s advise.
This decision is significant because the court has ruled that the question of whether or not a “special relationship” exists between an insurance broker and its client can no longer be decided as a matter of law – it must now be decided by a jury.
Policyholders now have a way to recover against brokers who have failed to procure sufficient and proper insurance coverage. Now instead of merely filing a motion for summary judgment to dispose of a negligence action, brokers will be forced to contemplate trial or a settlement.
Ultimately, this decision benefits the many victims of Hurricane Sandy denied coverage by their carriers. It provides an additional venue for recovery in the event of inadequate or improper coverage and encourages insurance brokers to make sure that their customers are advised of all appropriate options and provided with sufficient coverage.
1 Voss v. Netherlands Ins. Co., 2014 N.Y. Slip Op. 01259 (N.Y. Ct. App. Feb. 25, 2014).
2 See, American Building Supply Corp. v. Petrocelli, 19 NY 3d 730 (Ct. App. 2012).
3 A discussion of the elements of a “special relationship” can be found in my previous blog post, “Special Relationship” – Insurance Broker Negligence in New York, Part 3.