Does an insurance broker have a special relationship with the insured that may create a liability for failing to advise or direct the client to obtain additional coverage? Answer: Yes (arguably under the facts of the case).
In Voss v. Netherlands Insurance Company, 2014 NY Slip Op 01259 (decided February 25, 2014), the question before the Court of Appeals was “whether a special relationship existed between the insureds and the insurance broker” such that “the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage[.]” Id. at 1-2.
The broker from CH Insurance Brokerage Services (fellow defendant and respondent in the appeal) began working with plaintiff Deborah Voss in the purchase of a property in 2004 and continued with the purchase of a second property in 2006. In the next two years, Voss’s insured companies suffered three casualties as a result of a roof failure; and the losses disrupted Voss’ business; however, the insurance claims were “capped” at $30,000 per occurrence; and, as a result, Voss did not fully recover the losses that were claimed to have occurred.
Voss sued CH Insurance Brokerage and asserted that on the one hand, “a special relationship existed with [the broker];” and that on the other, “[the] broker had negligently secured inadequate levels of business interruption insurance for all three losses[.]” Id. at 4.
The Supreme Court dismissed the complaint; the Appellate Division affirmed the dismissal on different ground; and the Court of Appeals reversed the Appellate Division and reinstated the complaint.
The Court of Appeals noted that:
As a general principle, insurance brokers “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” (American Bldg. Supply Corp. v Petrocelli Group, Inc., 19 NY3d 730, 735  [internal quotation marks and citation omitted]). Hence, in the ordinary broker-client setting, the client may prevail in a negligence action only where it can establish that it made a particular request to the broker and the requested coverage was not procured. Plaintiffs in this case do not allege that they specifically requested higher business interruption policy limits and have not proceeded against CHI under this common-law theory of liability. Rather, their claim hinges on the existence of a special relationship. Id. at 5.
But then with respect to special relationships wrote:
Where a special relationship develops between the broker and client, we have also indicated that the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage (see Hoffend & Sons, Inc. v Rose & Kiernan, Inc., 7 NY3d 152, 158 ; Murphy v Kuhn, 90 NY2d 266, 272-273 ). In Murphy, we recognized that “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” and that the question of whether such additional responsibilities should be “given legal effect is governed by the particular relationship between the parties and is best determined on a case-by-case basis” (Murphy, 90 NY2d at 272). We identified three exceptional situations that may give rise to a special relationship, thereby creating an additional duty of advisement:
“(1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) 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 on” Id. [citations omitted]).
And the Court of Appeals admonished that:
Under these circumstances, we conclude that the complaint cannot be dismissed on the basis that no special relationship arose between the parties. In doing so, we reiterate that special relationships in the insurance brokerage context are the exception, not the norm, and we emphasize that it remains to be determined whether a special relationship existed here. To prevail on their claim, plaintiffs bear the ultimate burden of proving that a special relationship did in fact arise and that they relied on CHI’s expertise in calculating the proper level of business interruption coverage during the relevant time frames. Id. at 6.