As a general matter of NY law, an insurance broker has a duty to either obtain the coverage that a customer specifically requested within a reasonable time or inform the customer of its inability to do so. This standard of care is often challenged by disgruntled insureds after a loss when, after a carrier successfully disclaims coverage, the insured is left without a recovery. In such cases, the insured often asserts a claim against its broker and alleges that the broker failed to properly advise as to the type of coverage most appropriate for the risk. NY’s Second Department has just rejected such an attack.
In Core-Mark International v. Swett & Crawford, the plaintiff alleged that its insurance brokers procured a scheduled loss property insurance policy rather than the general limits blanket policy that was needed and specifically requested. As a result, when the inevitable loss occurred, Core-Mark was not fully compensated for its damages by the policy. Core-Mark asserted negligence and breach of fiduciary duty causes of action against Swett & Crawford. The Court found that while a negligence action could be asserted, Swett & Crawford did not breach any fiduciary duty in procuring the improper insurance policy. The Court reasoned that under the particular facts before it, because (a) Swett & Crawford had not received compensation for any consulting services and (b) no course of conduct between Core-Mark and Swett existed which would put an objectively reasonable broker on notice that its advice was being sought and relied upon, a professional/fiduciary duty did not exist. The Court thus dismissed the breach of fiduciary duty claim. However, given the Court’s reasoning — which required proof of only (a) or (b), it is easy to imagine a fact pattern where the result could have been far different and a new duty of care precedent could have been established. Brokers beware!
Special thanks to Chris O’Leary for his contributions to this post. If you have any questions, please contact Bob Cosgrove at firstname.lastname@example.org.