Two New York Appellate Division decisions relevant to the issue of insurance broker Errors and Omissions (E&O) of note have recently taken place.
Decision One
The first matter is an Appellate Division, Second Department decision (Ewart v. Allstate Ins. Co., 2023 BL 477206 (N.Y. App. Div., 2nd Dep’t, Nov. 29, 2023) affirming dismissal of a breach of contract action against an independent insurance agent for failing to procure landlord insurance coverage for the plaintiff before a fire damaged a property.
What is noteworthy here is how the decision analyzed the absence of a basis for pursuing breach of contract on the part of the plaintiff.
In this case, the agent apparently secured quotes for the plaintiff--and passed them on--prior to departing for vacation. While he was away, before any quote had been agreed upon and bound, a fire damaged the property. The court held that the failure to agree upon limits or price precluded a claim for breach of contract. The court also held it was the plaintiff’s failure to accept one of the quotes that was the cause of his loss, not any breach of duty on the part of the agent.
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The decision serves as a cautionary tale about the dangers of leaving unfinished business in place before heading off for vacation. Even though there was no liability found on the part of the agent, there were surely significant defense costs incurred before the case ultimately was decided on summary judgment.
Decision Two
The second matter is an Appellate Division, Fourth Department decision (Smith v. NGM Ins. Co., 2023 BL 477252 (N.Y. App. Div., 4th Dep’t Nov. 17, 2023) reversing a summary judgment award for an insurance agency alleged to have failed to procure requested supplemental spousal liability (“SSL”) coverage. What should be noted here is the fact the claim was brought not by the intended purchaser of the coverage – i.e., the agent’s client – but by his wife, who would have benefited from the coverage had it been in place.
The case law in New York State is well settled that generally an insurance agent/broker owes no duties to anyone other than his client, including members of the public who would have benefited from the coverage. Otherwise, every time there was a loss that was either uninsured or underinsured, any member of the public who arguably could have benefited in some way from the coverage could sue the agent/broker for negligence or breach of contract. (An example would be where a bar overserved a customer, the customer then got into a car accident while driving drunk, and the parties injured in the accident sued the bar’s insurance broker for not procuring liquor liability coverage, or higher limits.)
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There are very fact-specific cases where courts can find a duty owed to someone other than their client if it can be shown that the plaintiff was an intended beneficiary of the coverage that allegedly would have been in place but for the agent/broker’s breach of contract. In this case, the plaintiff was the wife of the agent’s client. The plaintiff and her husband claimed that upon being advised of the availability of SSL coverage, the husband provided one of the agent’s employees with a form signed by his wife requesting the coverage. Even though the plaintiff was not the agent’s client, the Appellate Division, Fourth Department concluded that enough had been alleged to state a claim for breach of contract against the agent based on her status as an intended third-party beneficiary of the coverage.