A New York City property owner was sued after a child living in the property was exposed to lead paint. When their pollution liability insurance carrier denied coverage for the loss, they sued their insurance agent.
The agency obtained two policies relevant to this loss. The first was a “Location Pollution Legal Liability” policy, effective from December 22, 2010 to January 22, 2016. The same carrier issued another one effective from January 22, 2019 to January 22, 2022. The court opinions do not state this, but it seems likely that the insured moved coverage to another carrier during the intervening three years.
In early 2014, the New York State Health Department sent the insured a notice of violation, informing them that lead paint was present in a unit within their residential property. According to the insureds, they notified the agency of this in February, provided a copy of the notice, and instructed them to notify the carrier. The insureds claimed that the agency confirmed that they would give the carrier notice, but they never actually did.
Tenants sued the insureds in 2017 for injuries a child suffered from lead paint exposure inside their property. The court opinions did not state the amount of damages the tenants sought. However, given the victim’s age and the well-known negative effects lead has on child development, the requested damages were likely in the high six figures or more.
For reasons the court opinions did not explain, the insureds did not learn of this suit until 2020. Upon learning of it, they gave notice to the carrier who promptly denied coverage. They denied it under the earlier policy because they were not notified of the Health Department’s 2014 notice or the incident leading to the lawsuit. They further denied coverage under the second policy because it contained a “known pollution” exclusion.
The insureds sued the carrier and filed a separate action against the agency for negligence in failing to report the notice of violation to the carrier. The agency asked the trial court to dismiss the suit, and the judge did so. She held that the suit was premature because the insureds had not yet been found liable for the lead exposure and their lawsuit against the carrier was unresolved. She also ruled that the agency had no legal duty to notify the carrier of the loss. The insureds appealed.
In November 2025, the appellate court revived the lawsuit. The judges ruled that it was not premature because the insureds had borne the costs of filing it. “The costs (the insureds have) incurred in litigating the coverage action,” they wrote, “constitute a ‘pocketbook injury’ allegedly caused by (the agency’s) negligence. … Even if (the insureds prevail) in that case, (they) likely could not recover (their) litigation costs from (their) insurer ….”
They also said, “Under New York law, the Complaint adequately alleges that (the agency) owed (the insureds) a duty to give the lead-paint notice to the insurer based on (the insured’s) instruction to convey the notice and (the agency’s) representations that it would do so.”
The court rendered this decision in early November 2025. As of this writing, the dispute has not been resolved.
In most states, an agency does not have a legal duty to report a loss on an insured’s behalf. However, an agency may voluntarily assume that duty, as this one did. In that event, the agency may be found liable for the insured’s loss if it fails to report the loss to the insurer. Many agencies offer to report losses for their insureds in the course of providing superior customer service. Agencies that do so should have written procedures in place for handling reported losses. Otherwise, a loss might not be reported to the insurer on time, resulting in a lawsuit like this one.
