Aug 10, 2018

N.Y. court: Producer has no duty to increase coverage

The Supreme Court, Appellate Division Third Judicial Department issued an opinion reaffirming the long- standing, common-law principle that insurance producers do not have a continuing duty to advise, guide or direct a client to obtain additional coverage absent the presence of a special relationship. This decision keeps with decades of case law in the state.

In the case of Hefty v Paul Seymour Insurance Agency, Hefty (the plaintiff), purchased property for $33,000 with the intention of renovating the property. At that time, Hefty purchased a homeowner’s insurance policy through Seymour with a replacement cost limit of $92,000. Following extensive renovations–and investment of over $200,000 in the subject property–it was destroyed by a fire in 2013. Hefty thereafter commenced an action against Seymour, alleging that Seymour was negligent in failing to secure higher coverage limits for the property.

New York case law has long held to the common law principle that insurance brokers have a 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 support a case for a breach of the duty of care against a producer, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy.

The court found that while there were several conversations between Hefty and Seymour regarding the improvements made to the property, as well as the possible need to reassess the value of the property, Hefty never made a specific request to increase the coverage on the subject property.

Even though he did not request coverage, Hefty alleged that there was a special relationship with Seymour. New York case law has found that even in the absence of a specific request, an insurance broker may be liable for failing to advise or direct the client to obtain additional coverage where a special relationship has developed between the broker and the client. A special relationship can be found in three exception situations: 1. the producer receives 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 producer; or 3. there is a course of dealing over an extended period of time that would have put a objectively reasonable insurance producer on notice that his or her advice was specially relied on and being sought.

In this case, the court found that the three exceptional situations did not exist. Seymour never received compensation from the plaintiffs apart from the premium payments. Further, the court relied heavily on the fact that Hefty was a sophisticated consumer of insurance products and did not rely on the expertise of Seymour. Hefty owned as many as 10 properties and often would reject the advice of Seymour and secure less insurance than Seymour recommended.

Finally, the court found that a long relationship with a client (in this case, over 10 years) is not enough to establish that a special relationship exist, especially given Hefty’s history of rejecting Seymour’s professional recommendations and managing the specifics of their own insurance policies.

PIANY applauds the court for re-affirming the long-standing rule that while producers are required to obtain the coverage that their clients request in a timely manner, a producer does not have any additional duty to advise, guide or direct a client to purchase additional coverage.