Voss v Netherlands Ins. Co., 22 NY3d 728, 96 AD3d 1543 (February 25, 2014)
If there is a loss and the insurance does not cover it, many people tend to blame the insurance broker. In New York, the broker is protected by the “special relationship” rule. What makes this case standout is the four to three decision in what should have been an easy win for the broker. The case was sent back for trial.
The property damage and the consequent business interruption was sustained as a result of water damage that occurred following three separate roof breaches in 2007 and 2008.
“Following discovery, CHI moved for summary judgment dismissing the complaint. CHI advanced three arguments in favor of dismissal. First, CHI asserted that no special relationship was created and, in the absence of a specific request by the insureds for coverage that went unfulfilled, CHI could not be held liable for failing to recommend or obtain higher limits. Second, it contended that the negligence claim failed based on Voss’s admission that she had received the policies and was fully aware of the $75,000 policy limit that applied to the first two losses and the $30,000 policy limit in effect at the time of the third loss. Third, CHI claimed that, even if a special relationship existed, any breach of its duty to plaintiffs was not the proximate cause of their injuries. Instead, plaintiffs’ damages occurred because Netherlands failed to timely pay the policy limits.
Supreme Court granted CHI’s motion and dismissed the complaint, agreeing with each of CHI’s contentions. The Appellate Division, with one Justice dissenting, affirmed (96 AD3d 1543 [4th Dept 2012]). The majority disagreed with Supreme Court on the special relationship issue, finding that CHI had failed to meet its burden of demonstrating the absence of a special relationship. Nevertheless, the majority concurred with the other two rationales and upheld Supreme Court’s dismissal. The dissent agreed with the majority that a question of fact existed on the special relationship issue but sided with plaintiffs on the other two questions. The dissent reasoned that, assuming a special relationship existed, it was irrelevant whether plaintiffs were aware of the policy limits and that the proximate cause issue could not be decided as a matter of law on this record.”
There are 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.”
The dissent made this point:
“There are sound policy reasons for the narrow view that Murphy and our other cases take of an insurance agent’s duty to its client. Agents are not insurance companies and do not earn premium income. They earn, ordinarily, relatively modest commissions for bringing insurers and insureds together. It is natural for a client that has suffered a loss not covered by its insurance to blame its insurance agent; and if lawsuits by clients against their agents are welcomed by the courts, the consequence may be to make the agent into a kind of backup insurer, a result neither sensible nor fair.”