New York’s Highest Court Strengthens Policyholder’s Rights and May Place Insurance Brokers at Risk
On November 19, 2012, the New York Court of Appeals – the highest court of the State of New York, apparently strengthened the rights of policyholders as against their insurance brokers. In American Building Supply Corp. v. Petrocelli Group, the plaintiffinsured was required by its lease to obtain general liability insurance in the minimum amount of $5,000,000 for bodily injury and property damage. The policy procured, however, contained the following exclusion: “This insurance does not apply to any actual or alleged ‘bodily injury’ property damage, ‘personal injury’ or ‘advertising injury’ to … A present, former, future or prospective partner, officer, director, stockholder or employee of any insured.” Neither the insured nor the insurance broker read the policy upon its delivery. When an employee was injured, the insurance company disclaimed coverage based on the above quoted exclusion. As a result, the insured sued its insurance broker for negligence and breach of contract in connection with the broker’s procurement of insufficient coverage.
The Court of Appeals recognized that “insurance agents have a common law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage.”
The Court also recognized the longstanding principle that an insured is presumed to have read its policy, a presumption that has historically precluded certain actions against brokers for failure to procure requested coverage. In Petrocelli, however, the Court went a step further and held that “[w]hile it is certainly a better practice for an insured to read its policy, an insured should have a right to ‘look to the expertise of its broker with respect to insurance matters.’” (Emphasis added) In finding there were issues of fact precluding dismissal, the court noted that the insured testified he specifically requested the coverage for employees, the broker visited the premises and was aware that the only people on the premises would be the insured’s employees, and “[s]ince no one but employees ever entered the premises, the coverage defendant obtained, which excluded coverage for injuries to employees, hardly made sense.”
In disagreeing with the majority’s ruling the dissent pointed out that the decision is likely to result in “he said-she said battles of what occurred during coverage discussions between the insured and broker.”
In light of this decision, brokers should be careful to obtain the type of coverage specifically requested by a client, or advise of the inability to do so because the onus is not simply on the insured to read the policy at the time of delivery.