Because of Evidence of a "Special Relationship" Between Insureds and Their Broker, Insureds' Suit Against Broker Should Not Have Been Dismissed, NY's Highest Court Holds New York’s highest court, the New York Court of Appeals, has ruled that sufficient evidence of a “special relationship” existed between insureds and their insurance broker such that a negligence lawsuit brought by the insureds against their broker should not have been dismissed at the summary judgment stage.

1. The Insurance Coverage Law Information Center
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BECAUSE OF EVIDENCE OF A “SPECIAL RELATIONSHIP” BETWEEN
INSUREDS AND THEIR BROKER, INSUREDS’ SUIT AGAINST BROKER
SHOULD NOT HAVE BEEN DISMISSED, NY’S HIGHEST COURT HOLDS
February 27, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal
New York’s highest court, the New York Court of Appeals, has ruled that sufficient evidence of a “special relationship”
existed between insureds and their insurance broker such that a negligence lawsuit brought by the insureds against their
broker should not have been dismissed at the summary judgment stage.
The Case
Deborah Voss and three business entities that she owned and controlled sued their insurance broker, CH Insurance
Brokerage Services Co., Inc. (“CHI”), alleging that they had suffered property damage and business interruption as a
result of water damage that had occurred following three separate roof breaches. The plaintiffs alleged that they had a
“special relationship” with CHI and that CHI had negligently secured inadequate levels of business interruption insurance
for the roof breaches.
Following discovery, CHI moved for summary judgment dismissing the complaint. The trial court granted its motion and
the dispute reached the N.Y. Court of Appeals.
The Decision of the New York Court of Appeals
The court reversed.
The court observed that, in the ordinary broker-client setting, the client may prevail in a negligence action only where
it could establish that it made a particular request for coverage to the broker and the requested coverage was not
procured. The court noted that the plaintiffs in this case had not alleged that they specifically had requested higher
business interruption policy limits and they had not proceeded against CHI under this common law theory of liability.
The court added, however, that where a special relationship developed between a broker and client, the broker “may be
liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage.” It
noted that, under New York law, there were three situations that could give rise to a special relationship, thereby creating
an additional duty of advisement:
1) the agent received compensation for consultation apart from payment of the premiums;
2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or
3) there was a course of dealing over an extended period of time that would have put objectively reasonable insurance
agents on notice that their advice was being sought and specially relied on.
Here, the court found, “there was some interaction regarding a question of [business interruption] coverage, with the
insured relying on the expertise of the agent.” The court noted that Ms. Voss had:
1) testified that she and a CHI representative had discussed business interruption insurance from the inception of their
business relationship;
2) asserted that the CHI representative had requested sales figures and other relevant data to calculate the proper level of
coverage;
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2. 3) contended that when the CHI representative later returned with a proposal that included $75,000 in business
interruption insurance, she had questioned that amount and he had assured her that it was adequate based on his
review of her business finances as well as the layout of the building; and
4) testified that the CHI representative repeatedly had pledged that CHI would review coverage annually and recommend
adjustments as her businesses grew.
Under these circumstances, the court held, the complaint could not be dismissed on the basis that no special relationship
arose between the parties.
The court concluded by observing that “special relationships in the insurance brokerage context” were the exception, not
the norm, and that it remained to be determined whether a special relationship actually existed in this case.
The case is Voss v. Netherlands Ins. Co. (N.Y. Feb. 25, 2014). Attorneys involved include: Dirk J. Oudemool, for appellants;
Thomas M. Witz, for respondent.
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