Filed Under:Claims, Catastrophe & Restoration

Suit against insurance broker over Superstorm Sandy losses can continue says N.Y. court

Claims for losses from Superstorm Sandy, which occurred in October 2012, continue, and many are only now reaching the courts. (Photo: Shutterstock)
Claims for losses from Superstorm Sandy, which occurred in October 2012, continue, and many are only now reaching the courts. (Photo: Shutterstock)

This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A New York trial court has ruled that a negligence lawsuit brought by commercial property owners against an insurance broker for losses caused by Superstorm Sandy may proceed.

 

Related: 6 steps to maximize business insurance recoveries before the next weather event

The case

The plaintiffs were a group of associated partnerships, corporations, limited liability companies, and one individual that collectively maintained ownership interests in more than a dozen commercial properties in Brooklyn, N.Y.

According to the plaintiffs, in 2002, Alliance Brokerage Corp., a retail insurance brokerage firm contracted with, among others, Travelers Excess and Surplus Lines Company to act as a broker of commercial insurance policies to be underwritten by Travelers. Alliance obtained a blanket insurance policy from Travelers that covered various risks of loss (other than flood damage) to the plaintiffs’ commercial properties.

The plaintiffs asserted that in 2007 Alliance offered the plaintiffs the opportunity to expand their coverage to cover flood damage to the insured properties. According to the plaintiffs, they instructed Alliance to obtain flood coverage for the insured properties, which was added to the Travelers policy. However, the plaintiffs asserted, the Travelers policy insured them for flood damage only for their Brooklyn commercial properties that were not located within one or more of the specified flood zones. Because the insured properties were within the specified flood zones, the Travelers policy did not insure any of the insured properties for flood damage.

Thereafter, the plaintiffs annually renewed the Travelers policy without changing the scope of their flood coverage for the insured properties.

In October 2011 — approximately one year before Superstorm Sandy — the plaintiffs asked that Alliance advise them in writing “if any of the[ir] Brooklyn commercial properties have the flood coverage.” They claimed that Alliance said that “[a]ll of the commercial properties have ... a $1 million limit for flood ...”

The following year, the plaintiffs again renewed the Travelers policy without changing the scope of their flood coverage for the insured properties.

When the flood from Superstorm Sandy in October 2012 damaged each of the insured properties, Travelers denied flood coverage, citing the zone-based exclusion in its policy.

In January 2014, the plaintiffs sued Alliance, claiming negligence, breach of fiduciary duty and misrepresentation.

Both parties moved for summary judgment.

Related: N.Y. real estate management firm denied $3M in Sandy insurance coverage

The trial court's decision

The trial court denied the motions. In its decision, the trial court explained that insurance brokers had a common-law duty to obtain requested coverage for their clients within a reasonable time, or to inform their clients of the inability to do so. A broker may be held liable for negligence in failing to procure the requested insurance, the trial court said, when the insured showed that the broker “failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction.”

The trial court added that the plaintiffs’ admitted failure to read their Travelers policy was “not a superseding cause” precluding Alliance's liability as a matter of law, explaining that, in the absence of any showing that an insured was aware of the discrepancy between the coverage it claimed to have requested and that actually obtained by the insurance broker, the insured had “a right to rely upon the [broker's] presumed obedience to his or her instructions.”

The case is 386 3rd Ave. Partners Ltd. Partnership v. Alliance Brokerage Corp.

Related: Is FEMA’s Superstorm Sandy review process working?

Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.

Related

7 tips to speed business insurance recoveries from Hurricane Harvey

Many businesses may have losses from Hurricane Harvey, even if they weren't in the storm's path. With these seven tips,...

Featured Video

Most Recent Videos

Video Library ››

Top Story

5 emerging underwriting strategies

Amid the current culture of innovation in insurance, underwriting is one of the areas to see the most change.

Top Story

Mitigating against the No. 1 natural disaster in the U.S.

Be proactive in mitigating losses from winter flooding by understanding the risk and types of coverage to protect against it.

More Resources

Comments

eNewsletter Sign Up

Claims Connection eNewsletter

Breaking news on disasters, fraud, legal trends, technology, and CE initiatives for the P&C claim professional – FREE. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.