The procurement of adequate insurance is important in any industry, and the construction industry is no different. However, insurance is different than many of the goods and services a construction contractor procures because insurance is not tangible good but, rather, a contractual promise to make good for losses that the contractor may incur. Often times, it is only after a liability has been incurred (and it’s too late) that a contractor will realize that the insurance it has procured was not sufficient. In such situations, the contractor often tries to look to the insurance broker who did not procure the adequate coverage to make things right after the fact and cover the loss for the contractor (often, with the broker’s own insurance policy). In the recent case of Gibraltar Contracting, Inc. v Northeast Brokerage, Inc., an appellate court reminds us that such claims against insurance brokers are limited to situations where the broker fails to procure coverage that was specifically requested by the Contractor, but not procured by the Broker.
In 2013, Gibraltar Contracting, which was then in the business of performing exterior masonry work on building facades, procured insurance coverage through Northeast Brokerage. These insurance policies were sufficient to cover Gibraltar’s work from scaffolds and at elevation. In 2015, the nature of Gibraltar’s business changed to primarily interior work, and it would no longer need to use suspended exterior scaffolding. However, in connection with its interior work, Gibraltar would continue to occasionally use baker’s and pipe scaffolding.
In response to Gibraltar’s changed insurance needs, Northeast submitted a proposal to Gibraltar containing a height exclusion. Such exclusion would preclude insurance coverage for the use of baker’s and pipe scaffolding. Gibraltar had a conversation with its broker at Northeast in which it clarified that the height exclusion needed to apply only to exterior work (which Gibraltar no longer did), and Gibraltar understood that it would still be covered for such interior work. Four months after the issuance of the policy (but before the accident at issue), Gibraltar received the policy documents, which contained the full height exclusion. The effect of this exclusion was that all work from a scaffold was without coverage.
Ultimately, one of Gibraltar’s workers was injured while working from an interior scaffold, and the worker sued the upstream contractor. When the upstream contractor’s claim was tendered to Gibraltar and its insurance carrier for coverage, the carrier issued a disclaimer based on the height exclusion. Gibraltar ultimately sued its broker for negligently procuring insurance containing the height exclusion when it knew, or should have known, that such an exclusion (to the extent of Gibraltar’s interior work) would leave it exposed to potential liability. Northeast moved to dismiss the claim, arguing that as the policy was issued to Gibraltar before the accident, there was no issue left for a jury.
The trial court denied the motion, and the appellate court affirmed the denial. Even though well settled law provides that an insurance broker can only be held liable for negligently failing to procure insurance where there was a specific request for the insurance that was not provided, both courts found that there was conflicting evidence—including a recorded telephone conversation—as to whether Gibraltar made such a specific request for the elimination of the interior height exclusion. Accordingly, the trial court held, and the appellate court affirmed, that this evidence had to be sorted out by a jury. As to Gibraltar’s failure to review its policy in advance of the accident, both courts relied on well settled case law in holding that such failure, at most, was a question of comparative negligence for the jury, and not a basis for dismissal.
Insurance brokers, unlike attorneys and accountants, are not considered “professionals” in the eyes of the law. As a result, they can only be sued for failing to follow specific directions. Accordingly, in order to pursue a “failure to procure” claim against an insurance broker, the contractor must have explicitly requested coverage to adequately cover its specific operations, which was not procured by the broker. In that regard, and because brokers are often directed to save as much money as possible (which is often accomplished by eliminating coverages which the broker does not believe are necessary), it is important to use the services of a broker who understands what comprises the contractor’s operations, and what coverage will be needed—and to document the specific requests for adequate coverage.
As a practical matter, while not considered “professionals” in the eyes of the law, the “product” of the insurance broker is often written in a language resembling legalese. Therefore, as a precaution, contractors would be well advised to have their insurance policies reviewed by experienced construction counsel to determine if they provide adequate coverage for their specific operations. Also, before entering into any significant contract, a Contractor should provide the insurance provisions or insurance rider of the proposed contract to its risk manager or broker, with a cover letter, to ascertain that insurance coverage in place will cover the contractual requirements.