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THE NEGLIGENCE CAUSE OF ACTION AGAINST PLAINTIFFS’ INSURANCE BROKERS SHOULD NOT HAVE BEEN DISMISSED; PLAINTIFFS ALLEGED THE BROKERS FAILED TO PROCURE ADEQUATE COVERAGE AND FAILED TO INFORM PLAINTIFFS OF THE DEFINITIONS AND TERMS OF THE POLICY (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the plaintiffs-insureds’ negligence cause of action against their insurance brokers should not have been dismissed:

Supreme Court improperly dismissed plaintiffs’ causes of action for negligence against Thompson Flanagan and WIA, the brokers. Plaintiffs sufficiently pleaded a cause of action for negligence against the brokers which was distinct and not duplicative of their breach of contract claim. “‘The law is reasonably settled . . . that 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'” … . Thus, “‘a party who has engaged a person to act as an insurance broker to procure adequate insurance is entitled to recover damages [for breach of contract] from the broker if the policy obtained does not cover a loss for which the broker contracted to provide insurance, and the insurance company refuses to cover the loss'” … .. Additionally, “[a]n insurance agent or broker can be held liable in negligence if he or she fails to exercise due care in an insurance brokerage transaction” and “[t]hus, a plaintiff may seek to hold a defendant broker liable under a theory of either negligence or breach of contract” … . Here, in addition to alleging both brokers breached a contract to procure adequate insurance coverage, plaintiffs also assert that they failed to inform them of the definitions and terms of the policy. The latter allegations implicate a duty and potential breach by the brokers independent from the contract … . Florence Capital Advisors, LLC v Thompson Flanagan & Co., LLC, 2023 NY Slip Op 01358, First Dept 3-16-23

Practice Point: Here the plaintiffs-insureds stated a cause of action sounding in negligence against their insurance brokers for failure to procure adequate insurance and failing to inform plaintiffs of the definitions and terms of the policy. The negligence allegations alleged a duty independent from the contract.

 

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