Second Department reviews the duty owed by insurance agents to their clients in a case brought by client after he payed 800k out of pocket to settle a lawsuit.

January 22, 2015

On 5/28/14 the Second Department Appellate Division issued a decision confirming a lower court’s ruling that a consumer of insurance services must show a “special relationship” between himself and the providers of those services before he can sue them for not getting him enough liability coverage.

Most consumers who go to a broker to get insurance coverage don’t need their agents to be special, but they had better have a “special relationship” with them if they ever want to sue them for not having enough liability coverage.

 

That is the takeaway from Lehneis v. Neill,  a case which arose after the plaintiff paid $800,000 out of pocket to settle a lawsuit stemming from a motor vehicle accident that his wife was involved in.  After settling that case, Mr. Lehneis sued an insurance agency and its sub-producer whom he had used for several years for various insurance needs.  He claimed that prior to his wife’s accident he had asked them to get him some umbrella insurance coverage but they neglected to do so.

 

Plaintiff claimed that he went to the sub-producer who had gotten him his homeowner’s coverage, and then to the agency that had referred him to the sub-producer, asking them both to get him “better coverage” in the form of an “umbrella policy.”  In response, plaintiff claimed, he was told that the coverage he had was the best he could get.  (There is mention in the lower court decision that plaintiff was difficult to get insurance for because of “his prior claims history.”)

 

The sub-producer claimed that she told plaintiff she did not have access to excess carriers, and further that she would typically tell her clients to contact their auto insurance carrier regarding any requests for umbrella coverage.  According to the lower court decision, the sub-producer customarily “did not mention to clients that there are excess markets, and that she would not tell new clients about every insurance product when soliciting their business.”

 

The agency claimed that they were not writing excess lines at the time plaintiff allegedly inquired about getting some excess coverage and that, in any event, whenever a client called them directly looking for a quote they would refer the caller back to the sub-producer for handling.

After pre-trial discovery was completed the defendants made motions to dismiss, claiming they breached no duty owed to the plaintiff.  The lower court granted the motions to dismiss. The appellate court affirmed, finding that the defendants had told plaintiff they could not get him the policy he requested and, moreover, there was no “special relationship” between the parties.

 

Quoting from case law on the subject of what an insurance agent owes to its clients, the appellate court set forth the legal basis for its decision:

“ ‘[I]nsurance 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'"  [citations omitted]. However, "[a]bsent a specific request for coverage not already in a client's policy, or the existence of a special relationship with the client, an insurance agent or broker has no continuing duty to advise, guide, or direct a client to obtain additional coverage" [citations omitted].

“A special relationship may exist where ‘[1] there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on'[citations omitted]. This notice may be established through evidence that the broker received compensation for its insurance advice apart from the payment of premiums, [2] that the client delegated his or her insurance decision making to the broker, or [3] that there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent [citations omitted].”  

 

So unless the casual consumer of insurance products can prove that his request for a specific product was ignored, or else prove the existence of a “special relationship” by showing one the above three elements, he will be unable to blame his broker for not getting him the coverage he may need.  And he may on the hook to pay a claim he thought he had coverage for.

 

Click on the first link below for the appellate decision.  The second link will bring you to the related lower court decision.

 

http://www.courts.state.ny.us/reporter/3dseries/2014/2014_03801.htm

 

http://www.nycourts.gov/reporter/pdfs/2012/2012_32202.pdf

 

By John Komar

 

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