Insurance Agent Held Not Liable for Alleged Failure to Obtain Flood Insurance Coverage

In Rick Friedman Enterprises, LTD., v. Intermarket Insurance Agency, Inc. et al, 2017 NY Slip Op 30077(U) (New York County Sup. Ct. 2017), a New York County Supreme Court issued a favorable decision for an insurance broker defendant in which it limited its potential liability to only insurance coverage that was specifically requested by its client. While this decision may be the subject of an appeal and reversed, the decision reaffirms an important defense and case law in insurance agent errors and omission duty to advise cases.

As background, the corporate plaintiff, a business engaged in textile wholesaling, moved some of its inventory into a warehouse in early August 2011. It notified its insurance agent, Defendant Intermarket Insurance Agency, Inc. ("Intermarket"), of the inventory move and Intermarket obtained an amendment to plaintiff's existing business personal property policy to cover the inventory. In late August 2011, flooding from a hurricane damaged its inventory. Plaintiff submitted an insurance claim that was denied on the basis of a flood exclusion in its policy. It then commenced an action against, among others, Intermarket, claiming that it negligently failed to obtain coverage that would protect its inventory from flood damage or advise that it needed flood insurance. Intermarket moved for summary judgment, arguing that the only duty it owed to plaintiff was to obtain the coverage that was requested, a common defense in New York insurance broker and agent professional liability cases, given the favorable case law in this state.

In ruling in favor of the defendant insurance agency, the trial court recited the general principle in New York that an insurance agent's duty is limited to obtaining the requested coverage for its clients or informing the client of the inability to do so. In limited circumstances, an insurance agent can have an affirmative obligation to advise on coverage. According to the trial court, and relying on well-established case law, this duty only exists under three limited circumstances: (1) where the agent receives separate compensation for consultation; (2) where there was some interaction regarding a question of coverage and the insured relied on the expertise of the agent; or (3) where there was a course of dealing over an extended period of time, which would have put the agent on notice that its advice was being sought and relied on. This compares to case law in other states in which the courts often find an affirmative duty to advise and a more expansive role for an insurance broker akin to fiduciary obligations is imposed on professionals.

In an attempt to avoid the application of favorable case law for the defendant, plaintiff argued unsuccessfully that it had a longstanding relationship with Intermarket since 2001 and the latter two circumstances applied. However, the Court determined that the insurance agent defendant did not have any means to determine whether the new warehouse location sat within a flood zone and was not in a position to advise that flood insurance might be required in the event of a loss. Based on these determinations, the trial court held that plaintiff could not have been relying on Intermarket for its advice. Therefore, Intermarket had no duty to advise and the case was dismissed against Intermarket on summary judgment.

While we normally report on Appellate Division decisions, and we again caution that the decision may be reversed on appeal, this case is a good example of the potentially limited liability for insurance brokers in alleged negligent duty to advise cases. It is also encouraging from a defense perspective, as the trial court had no hesitation in granting summary judgment to the insurance broker, even though duty to advise insurance broker and agent malpractice cases can be fact intensive and difficult to resolve on summary judgment.