PLAINTIFF’S HUSBAND, THE INSURED, WAS DRIVING WHEN PLAINTIFF WAS SERIOUSLY INJURED IN A TRAFFIC ACCIDENT; PLAINTIFF MAY BE ABLE TO SHOW HER HUSBAND HAD REQUESTED COVERAGE ON HER BEHALF AND, BECAUSE THE INSURER (ALLEGEDLY) NEGLIGENTLY FAILED TO PROVIDE THE COVERAGE, THE INSURER IS OBLIGATED TO COVER HER LOSS, DESPITE HER STATUS AS A NONCLIENT (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined that the injured plaintiff might be able to show her husband (the insured) requested supplemental spousal liability (SSL) coverage on her behalf and that she was harmed by the insurer’s failure to provide it, despite her status as a nonclient. Plaintiff’s husband was driving and plaintiff was a passenger when she was seriously injured in a traffic accident:

“An insurance agent ordinarily does not owe a duty of care to a nonclient; however, where an agent’s negligence results in an insured being without coverage, the agent may be liable for damages sustained by an injured third party if the third party was the intended beneficiary of the insurance contract and ‘the bond between [the agent and the third party is] so close as to be the functional equivalent of contractual privity’ . . . The functional equivalent of privity may be found . . . where the defendants are aware that their representations are ‘to be used for a particular purpose,’ there was ‘reliance by a known party or parties in furtherance of that purpose’ and there is ‘some conduct by the defendants linking them to the party or parties and evincing [the] defendant[s’] understanding of their reliance’ ” … .

“[A] third party may sue as a beneficiary on a contract made for [its] benefit. However, an intent to benefit the third party must be shown, and, absent such intent, the third party is merely an incidental beneficiary with no right to enforce the particular contracts” … . Thus, “[p]arties asserting third-party beneficiary rights under a contract must establish (1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for [their] benefit and (3) that the benefit to [them] is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate [them] if the benefit is lost” … . Smith v NGM Ins. Co., 2023 NY Slip Op 05815, Fourth Dept 11-17-23

Practice Point: An insurer may be liable for negligently failing to provide requested coverage for a nonclient. Here, the insured, plaintiff’s husband, allegedly requested supplemental spousal liability (SSL) coverage on behalf of his wife, the injured plaintiff. The insurer, which allegedly failed to provide the requested coverage, may be liable for her loss.