- New York Courts Continue to Require a High Standard of Proof to Support Claims Against Insurance Brokers
- March 1, 2019
- Law Firm: - Office
A recent decision by the Appellate Division, Third Department again demonstrates the heavy burden of proof imposed upon a party seeking to assert a malpractice or breach of contract claim against an insurance broker. In Hefty v. Paul Seymour Insurance Agency, 163 A.D.3d 1376 (3rd Dept. 2018), the Appellate Division upheld the trial court’s dismissal of the plaintiffs’ claims against their insurance broker.
The facts of the case are fairly straight forward. In 2010, the plaintiffs purchased a property for $33,000 with the intention of renovating the home and retiring there. At that time, the plaintiffs purchased a homeowners insurance policy through its insurance broker with a replacement cost limit of $92,000. Following extensive renovations and investment of over $200,000 in the property, it was destroyed by a fire. Thereafter, the plaintiffs commenced a lawsuit against its insurance broker alleging that it was negligent in failing to secure higher coverage limits for the property.
As the court noted in its decision, as a general principal, insurance brokers have a common law duty to obtain requested coverage for their clients within a reasonable time or inform the client of its inability to do so. However, the broker has no continuing duty to advise, guide or direct a client to obtain additional coverage. Accordingly, in order to set forth a case of negligence or breach of contract against an insurance broker, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy obtained.
In support of their motion to dismiss the plaintiffs’ claims, the insurance broker submitted the deposition testimony of the plaintiffs, which included the fact that, after renovating the property, they had conversations with the broker during which they informed the broker of the improvements to the property and requested that someone be sent to the property to reassess its value. However, the plaintiffs acknowledged in their deposition testimony that at no point did they ever make a specific request for an increase in coverage. The court found that, at best, the evidence established that the plaintiffs expressed a general interest in increasing coverage on the property, which is insufficient as a matter of law to satisfy the requirement of a specific request for a certain type of coverage.
As its fallback argument, the plaintiffs contended that a special relationship existed between themselves and the broker giving rise to an additional duty of advisement. Courts have held that, even in the absence of a specific request, an insurance broker may be liable for failing to advise or direct the client to obtain additional coverage where a special relationship has developed between the broker and the client. Stressing that special relationships in the insurance brokerage context are the exception and not the norm, New York’s highest court has identified three exceptional situations that may give rise to a special relationship:
- The agent receives compensation for consultation apart from payment of the premiums;
- There was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or
- There is a course of dealing over an extended period of time that would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied upon.
In applying the special relationship test to the facts, the Appellate Court found that the plaintiffs failed to raise a triable issue of fact as to the existence of such a special relationship. In the first instance, it was uncontroverted that the broker did not receive compensation from the plaintiffs apart from the payment of premiums. Further, although the plaintiffs claim that they repeatedly requested a reassessment of the property, it is undisputed that the broker never undertook to perform one. The court further held that the plaintiffs’ own submissions confirmed that they did not rely upon the expertise of the broker in assessing their insurance needs. To the contrary, the court found that the evidence demonstrated that the plaintiffs were sophisticated consumers of insurance products who directly managed their insurance coverages. The level of the plaintiffs’ sophistication was demonstrated by the fact that they owned as many as ten properties and that they would secure appropriate insurance coverages for the properties as they deemed fit, which included rejecting their broker’s advice at times and intentionally procuring insurance in an amount less than was recommended by the broker.
With regard to the property at issue, the plaintiffs initial insured it for only 80 percent of the recommended coverage, based upon their belief that the broker’s recommendation was too high. They also disputed whether flood insurance was necessary for the property, eventually receiving a refund from the broker for such coverage.
Finally, the fact that the broker handled all of the plaintiffs’ insurance needs for over a decade alone was insufficient to raise an issue of fact as to whether a special relationship existed. The court again noted that the plaintiffs had a history of rejecting the broker’s professional recommendations and managing the specifics of their own insurance policies. As a result, the court found that the record established that nothing more than the standard consumer-insurance broker relationship existed between the parties and that the court below properly granted the broker summary judgment and dismissed the plaintiffs’ complaint.
Hefty is significant in that it demonstrates the high burden of proof a party has to meet when attempting to establish a viable claim against its insurance broker for malpractice, negligence or breach of contract in New York. Notably, even though the broker purportedly failed to visit the property to reassess it, despite multiple requests to do so, this alone was insufficient to establish a breach of duty by the broker.