Broker may be liable for failure to procure adequate coverage

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Decisions: Insurance

December 18, 2012

Broker may be liable for failure to procure adequate coverage 

The New York Court of Appeals held that an insurance broker may be liable for failing to procure adequate liability coverage for a client.

American Building Supply Corp. purchased an insurance policy from Burlington Insurance Co. In its discussions with broker Petrocelli Group, Inc., American Building allegedly requested general liability coverage for its employees in case of injury. After an employee was injured at an American Building facility, Burlington Insurance denied the resulting claim on the basis that the policy contained an exclusion for bodily injury. An appellate court ruled in the insurer’s favor.

American Building sued Petrocelli Group, alleging negligence and breach of contract for the broker’s procurement of insufficient insurance. The trial court denied the defendant’s motion for summary judgment. An appellate court reversed, finding that the plaintiff’s failure to read and understand the policy precluded recovery.

Reversing the appellate court, the state high court noted that to state a negligence or breach of contract claim against an insurance broker, a plaintiff must establish that a specific request was made to the broker for coverage that was not then included in the policy. Here, the court concluded, a fact question exists as to whether the plaintiff specifically requested coverage for its employees in case of accidental injury and whether the defendant failed to procure the requested coverage.

The court rejected the defense argument that the plaintiff’s claims were barred by its alleged failure to read the policy. Citing case law, the court found that some state appellate courts have held that the receipt of a policy does not bar a subsequent negligence action against a broker. An insured, the court said, should have the right to rely on a broker’s expertise regarding insurance matters, noting that at most, failure to read a policy should give rise to comparative negligence.

Citation: Am. Bldg. Supply Corp. v. Petrocelli Group, Inc., 2012 WL 5833969 (N.Y. Nov. 19, 2012).

Plaintiff counsel: Stuart S. Zisholtz, Mineola, N.Y.

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