An insurance broker transacts insurance with, but not on behalfof, an insurer. In doing so, the broker generally promises only toobtain the insurance requested by the insured. However, when thereis a special relationship between the insureds and their insurancebroker, the duty owed to the insured can be expanded. New York andmost states recognize that there are policy reasons for the narrowview of an insurance broker's duty to its client. Brokers are notinsurance companies and do not earn premium income. They earn,ordinarily, relatively modest commissions for bringing insurers andinsureds together. It is natural for a client that has suffered aloss not covered by its insurance to blame its insurance agent; andif lawsuits by clients against their agents are welcomed by thecourts, the consequence may be to make the agent into a kind ofback-up insurer.

In Voss v. Netherlands Ins. Co., 2014-01259 (N.Y.02/25/2014), the highest court in New York was asked to resolve aninsurance dispute that arose out of property damage and theconsequent business interruption sustained by plaintiff-insureds asa result of water damage that occurred following three separateroof breaches. The water damage occurred in a commercial buildingowned by plaintiffs.

Plaintiffs began the relationship with CH Insurance BrokerageServices Co., Inc. (CHI) in 2004. At that time plaintiffs operatedtwo modeling agencies in Liverpool. Voss met with a representativeof CHI, Joe Convertino, Jr., to discuss insurance coverage for thepremises and her two companies. At the initial meeting, theydiscussed property insurance, professional liability coverage andbusiness interruption insurance. Convertino asked Voss to disclosesales figures and other pertinent information so he could calculatean appropriate level of business interruption coverage for hercompanies. According to Voss, Convertino also represented that CHIwould reassess and revisit the coverage needs as her businessesgrew.

At a follow-up meeting, Convertino recommended a comprehensivepolicy with defendant The Netherlands Insurance Co. that afforded,as relevant here, $75,000 per incident in coverage for businessinterruption losses. When Voss questioned whether the $75,000 limitwas adequate, Convertino allegedly assured her that it wouldsuffice based on the condition of the building and the size of herbusinesses. According to Voss, Convertino also averred that hecalculated the level of coverage at a threshold level andreemphasized that, each year, CHI “would take it up as the businessevolved.” As a result, Voss accepted Convertino's recommendationsand paid the premium for the Netherlands policy.

Plaintiffs later purchased a new building that had two storiesand contained more than twice the square footage of the previouslocation. After Voss discussed the move and the new businessarrangements with Convertino, CHI renewed the Netherlands policywith the same $75,000 business interruption limit for the newlocation and entities.

In 2007, Voss arrived at work and discoveredmultiple leaks in the roof with dripping water. The damagedisrupted her business operations and a roofing contractor,defendant D.R. Casey Construction Corp., was retained to replacethe roof. The following month the new roof failed, resulting in farmore extensive water damage to both floors of the premises. Allthree businesses were required to close for various periods oftime.

Netherlands treated these two roof breaches as separateoccurrences under the business interruption policy (for a maximumpotential of $150,000 in coverage) but, according to Voss, delayedmaking any payments. Plaintiffs ultimately recouped only $3,197 forthe first loss and $30,000 for the second loss.

In the midst of dealing with the roofing issues, Voss met withanother CHI representative, Carrie Allen, to discuss the renewal ofthe Netherlands policy. When Voss received a proposal indicatingthat the business interruption coverage would be reduced from$75,000 to $30,000, she questioned Allen about the reduction andAllen's response was that she “would take a look at it.” Voss didnot follow up, however, because she was preoccupied with thebuilding's extensive property damage. When the Netherlands policywas renewed in April 2007, it reflected a per-occurrence limit of$30,000 in business interruption coverage.

In February 2008, the roof failed a third time, causingsignificant damage to the premises and further disruptingplaintiff's businesses. Plaintiffs alleged that a specialrelationship existed with CHI and that CHI had negligently securedinadequate levels of business interruption insurance for all threelosses. CHI responded with a motion for summary judgment.

The trial court granted CHI's motion and dismissed thecomplaint. The Appellate Division, with one justice dissenting,affirmed. The majority disagreed with the trial court on thespecial relationship issue, finding that CHI had failed to meet itsburden of demonstrating the absence of a special relationship.

As a general principle, insurance brokers have a common-law dutyto obtain requested coverage for their clients within a reasonabletime or inform the client of the inability to do so; however, theyhave no continuing duty to advise, guide or direct a client toobtain additional coverage. Hence, in the ordinarybroker-client setting, the client may prevail in a negligenceaction only where it can establish that it made a particularrequest to the broker and the requested coverage was not procured.Plaintiff's claim hinges on the existence of a specialrelationship.

Where a special relationship develops between the broker andclient, New York holds that the broker may be liable, even in theabsence of a specific request, for failing to advise or direct theclient to obtain additional coverage. New York considers threeexceptional situations that may give rise to a specialrelationship, thereby creating an additional duty of advisement:(1) the agent receives compensation for consultation apart frompayment of the premiums; (2) there was some interaction regarding aquestion of coverage, with the insured relying on the expertise ofthe agent; or (3) there is a course of dealing over an extendedperiod of time which would have put objectively reasonableinsurance agents on notice that their advice was being sought andspecially relied on by the insured.

Viewed in the light most favorable to plaintiffs, the evidencesuggests that there was some interaction regarding a question ofbusiness interruption coverage, with the insured relying on theexpertise of the agent. Under these circumstances, the highestcourt in New York concluded that the complaint cannot be dismissedon the basis that no special relationship arose between theparties. In doing so the court noted that special relationships inthe insurance brokerage context are the exception, not the norm,and emphasized that it remains to be determined whether a specialrelationship existed here. Under the circumstances of this case,the broker failed to meet its burden, justifying summary judgmentand dismissal of the complaint. The order of the appellate divisionwas reversed, with costs, and the motion of defendant CH InsuranceBrokerage Services Co., Inc. for summary judgment was denied.

The issues raised have not been resolved. The parties must nowtry the case before a judge or jury and if the judge or jury findsthat a special relationship existed and the failure to fulfill thepromises made as part of that special relationship – making surethat the plaintiffs had adequate business interruption insurance –a judgment will be rendered in favor of the plaintiffs. If not, thecase will be dismissed.