Question. Is an insurance broker liable for failure to procure adequate insurance coverage where the insured received the policy without complaint?
Answer. YES, but the ultimate answer depends on the specific facts at hand.
Supplier is a business which sells and furnishes building materials to general contractors. Supplier is located in the Bronx, where Supplier is the sole tenant of a building it subleased from Landlord, which had procured the property by entering into a lease agreement with the Building Owner. Pursuant to the lease agreement between Landlord and Building Owner, Landlord was, among other things, required to procure general liability insurance from a carrier licensed to do business in the State of New York in the minimum amount of $5,000,000 for bodily injury and property damage. The sublease agreement between Supplier and Landlord, both owned and managed by the same person, noted that the sublessee consented to all the terms of the lease agreement.
Prior to October, Old Insurance Broker, not a party to this appeal, was Supplier's insurance broker and procured a policy with the Old Insurance Company (Old Insurance Company), an excess line carrier not licensed in the State of New York. Landlord was named an additional insured under the policy. The policy did not comply with the requirements set forth by the lease agreements and was subsequently cancelled due to nonpayment of premiums. In October, Supplier hired New Insurance Broker to replace Old Insurance Broker as its insurance broker. New Insurance Broker arranged to reinstate the Old Insurance Company policy. Supplier claims that in its discussions with New Insurance Broker regarding a new policy, it specifically requested general liability coverage for its employees in case of injury, as required by the lease agreements. Supplier also alleged that it informed New Insurance Broker that only employees entered the premises, never customers, as no retail business was conducted at the Bronx location. Finally, Supplier claims that New Insurance Broker visited the premises and had assured Building Owner that the insurance deficiencies would be corrected when the policy was up for renewal.
New Insurance Broker then renewed the Old Insurance Company policy for the period of June through June. The policy was essentially the same as Supplier had previously received through Old Insurance Broker. The policy contained a cross liability exclusion clause that provided: "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." Supplier did not read the insurance policy upon receipt, nor did the broker.
In October of the new policy period, one of Supplier's employees was injured at the Bronx facility in the course of performing his duties. Old Insurance Company disclaimed coverage based upon the cross-liability exclusion. The Court agreed that Old Insurance Company had no duty to defend or indemnify based on the cross liability exclusion clause.
Supplier now claims its broker was negligent and breached the contract in connection with New Insurance Broker's procurement of insufficient insurance. Supplier claims that it informed New Insurance Broker it required coverage if any employee injured himself or herself and therefore made a specific request for such coverage to New Insurance Broker. The opposing argument is that Supplier's failure to read and understand the policy precludes recovery.
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. To set forth a case for negligence or breach of contract against an insurance broker, a Supplier must establish that a specific request was made to the broker for the coverage that was not provided in the policy. A general request for coverage will not satisfy the requirement of a specific request for a certain type of coverage.
Here, Supplier claims that it specifically requested "general liability for the employees... if anybody was to trip and fall and get injured in any way." Supplier also claims that New Insurance Broker was aware of Supplier's operations, i.e., that there were no retail sales to the public at the premises and that the only persons at the premises were Supplier's employees. New Insurance Broker, of course, maintains that the procured coverage satisfied Supplier's request. Issues of fact exist as to whether Supplier specifically requested coverage for its employees in case of accidental injury and New Insurance Broker, being aware of such request, failed to procure the requested coverage.
Here, however, the evidence arguably supports Supplier's claim. Since no one but employees ever entered the premises, the coverage New Insurance Broker obtained, which excluded coverage for injuries to employees, hardly made sense.
New Insurance Broker maintains, however, that Supplier's claim is barred by its receipt of the insurance policy without complaint.
That Supplier requested specific coverage and upon receipt of the policy did not read it and lodged no complaint, should not bar Supplier from pursuing its claim against the broker. While it is certainly the 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. The failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar, altogether, an action against a broker
Because there are issues of fact as to whether Supplier requested specific coverage for its employees and whether New Insurance Broker failed to secure a policy as requested it cannot be determined which party is right in this case. However, Supplier's failure to read and understand the policy should not be an absolute bar to recovery under the circumstances.