A successful lawsuit against a New York insurance broker may pave the way for future court leniency when it comes to client-agent lawsuits, said dissenters in a case decided this week before the New York Supreme Court.
A majority of judges concluded that CH Insurance Brokerage Service could be liable for a client’s lack of business interruption coverage because of a “special relationship” with the plaintiff. Previously, a lower court refused to hear the lawsuit on the basis that CH Insurance did not have a special relationship with the client, who suffered losses from three roof breaches in its commercial building.
Generally, clients can only sue their insurance agent if a special relationship has been established with the broker. This is created when an agent is paid separately for a consultation and the client relies on the agent’s knowledge to either accept or reject that coverage.
In the New York Case, CH Insurance told business owner Deborah Voss that it would revisit her overage needs as her business grew. Accordingly, CH Insurance reduced Voss’s initial $75,000 in business interruption coverage to $30,000—something she questioned.
Voss later came up short in the roof breach event.
“The evidence suggests that 'there was some interaction regarding a question of [business interruption] coverage, with the insured relying on the expertise of the agent,” the majority wrote in its decision. “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.”
Judges Robert Smith, Susan Read and Eugene Pigott disagreed, however, alleging that the decision opened the door to lawsuits against agents based on “gratuitous promises” to clients “where no consultation takes place.”
“If lawsuits by clients against their agents are welcomed by the courts, the consequence may be to make the agent into a kind of back-up insurer, a result neither sensible nor fair,” Smith wrote on behalf of the minority opinion. “In this case, I think the majority has taken an unjustifiable step in that direction, and I therefore dissent.”
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