NY Appellate Court Permits Claim Against Insurance Agency for Failure to Procure Coverage for Rodeo Business

Generally, an insurance agent has no common-law duty to advise a customer about the proper coverage to purchase or to recommend a customer purchase additional coverage that was not requested, unless there is a "special relationship" between an insurance agent and customer (it should be noted that the New York courts have rarely found that a special relationship exists).

In a recent decision, the Appellate Division, Third Department considered this issue in the context of a claim by a rodeo businessman against his insurance agency for failing to purchase appropriate liability coverage for the business. Finch v. Steve Cardell Agency, 2016 N.Y. Slip. Op. 01231, ___ A.D.3d ___ (3d Dep't, February 18, 2016). The appellate court reversed a decision in favor of the agency and held that the case could not be summarily dismissed, and there were issues of fact for a trial as to whether the agency was liable.

In Finch, the insurance agency had procured plaintiff's automobile coverage and special liability coverage for his rodeo events for several years. The plaintiff asked for liability coverage for rodeos in Pennsylvania, but the insurer through which the agency usually obtained such coverage refused to cover this event because it was in Pennsylvania. The agency found what it thought was equivalent coverage but failed to notice an exclusion in the policy for injuries or damages caused by animals and an exclusion regarding any liability arising out of the use of an "auto," which included "loading and unloading operations."

During the Pennsylvania rodeo, four of plaintiff's bulls escaped while being moved and seriously injured several bystanders. The plaintiff sought a defense and indemnification under the above liability policy, but the insurer declined coverage, relying on the above-stated exclusions. The plaintiff then sued the agency, claiming it negligently selected the liability coverage, given the animal exclusion. The trial court dismissed the claim, concluding the plaintiff could not establish that his losses were caused by this alleged negligence because the auto exclusion would have precluded coverage, in any event. On appeal, the Third Department reversed, ruling that there were issues of fact about whether the auto exclusion precluded coverage.

As for the agency's potential liability for insurance malpractice, the Court held that the evidence was sufficient to create an issue of fact for a jury to decide whether the parties had a "special relationship," such that the agency could be liable for negligently selecting the wrong coverage for the rodeo (and for any losses that caused plaintiff). The Court relied in part on the fact the parties had done business since 2006, and the agency had procured liability coverage relative to the plaintiff's rodeo participation for several years before the Pennsylvania incident. Further, it was undisputed that the plaintiff looked to the agency to recommend and purchase the appropriate coverage concerning the rodeos, as evidenced by the fact the agency never sent plaintiff a copy of the actual policies or provided him any information about their terms.

This decision highlights the importance of insurance agents ensuring that the scope of their services are clearly communicated to their customers, and that appropriate care and skill is sued in performing them. In this regard, insurance agencies should consider giving their customers written notice before each purchase of coverage that the agency is not providing advice concerning the type or amounts of coverage a customer should purchase, unless it has first specifically agreed to do so in writing. When insurance agencies do agree to provide such advice, they must ensure that employees or representatives with the requisite experience and knowledge select the coverage and exercise due diligence in doing so.