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A New York trial court has ruled that a negligence lawsuitbrought by commercial property owners against an insurance brokerfor losses caused by Superstorm Sandy mayproceed.

Related: 6 steps to maximize business insurance recoveriesbefore the next weather event

The case

The plaintiffs were a group of associated partnerships,corporations, limited liability companies, and one individual thatcollectively maintained ownership interests in more than a dozencommercial properties in Brooklyn, N.Y.

According to the plaintiffs, in 2002, Alliance Brokerage Corp.,a retail insurance brokerage firm contracted with, among others,Travelers Excess and Surplus Lines Company to act as a broker ofcommercial insurance policies to be underwritten by Travelers.Alliance obtained a blanket insurance policy from Travelers thatcovered various risks of loss (other than flood damage) to theplaintiffs' commercial properties.

The plaintiffs asserted that in 2007 Alliance offered theplaintiffs the opportunity to expand their coverage to cover flood damage to the insuredproperties. According to the plaintiffs, they instructedAlliance to obtain flood coverage for the insured properties, whichwas added to the Travelers policy. However, the plaintiffsasserted, the Travelers policy insured them for flood damage onlyfor their Brooklyn commercial properties that were not locatedwithin one or more of the specified flood zones. Because theinsured properties were within the specified flood zones, theTravelers policy did not insure any of the insured properties forflood damage.

Thereafter, the plaintiffs annually renewed the Travelers policywithout changing the scope of their flood coverage for the insuredproperties.

In October 2011 — approximately one year before Superstorm Sandy— the plaintiffs asked that Alliance advise them in writing "if anyof the[ir] Brooklyn commercial properties have the flood coverage."They claimed that Alliance said that "[a]ll of the commercialproperties have … a $1 million limit for flood …"

The following year, the plaintiffs again renewed the Travelerspolicy without changing the scope of their flood coverage for theinsured properties.

When the flood from Superstorm Sandy in October 2012 damagedeach of the insured properties, Travelers denied flood coverage,citing the zone-based exclusion in its policy.

In January 2014, the plaintiffs sued Alliance, claimingnegligence, breach of fiduciary duty and misrepresentation.

Both parties moved for summary judgment.

Related: N.Y. real estate management firm denied $3M inSandy insurance coverage

The trial court's decision

The trial court denied the motions. In its decision, the trialcourt explained that insurance brokers had a common-law duty toobtain requested coverage for their clients within a reasonabletime, or to inform their clients of the inability to do so. Abroker may be held liable for negligence in failing to procure therequested insurance, the trial court said, when the insured showedthat the broker "failed to discharge the duties imposed by theagreement to obtain insurance, either by proof that it breached theagreement or because it failed to exercise due care in thetransaction."

The trial court added that the plaintiffs' admitted failure toread their Travelers policy was "not a superseding cause"precluding Alliance's liability as a matter of law, explainingthat, in the absence of any showing that an insured was aware ofthe discrepancy between the coverage it claimed to have requestedand that actually obtained by the insurance broker, the insured had"a right to rely upon the [broker's] presumed obedience to his orher instructions."

The case is 386 3rd Ave. Partners Ltd. Partnership v.Alliance Brokerage Corp.

Related: Is FEMA's Superstorm Sandy review processworking?

Steven A. Meyerowitz, Esq., is the directorof FC&S Legal, the editor-in-chief of the InsuranceCoverage Law Report, and the founder and president of MeyerowitzCommunications Inc. Email him at [email protected].