A building owner in New York suffered property damage when the building’s roof leaked while repairs were ongoing. After the insurance carrier denied coverage, the owner sued the roofing contractor, the carrier, and the insurance agency that obtained the policy.
The owner asked the agency to obtain a policy in 2015, requesting “equal to or better coverage” than their current policy provided. The court’s opinion described the building as the insured’s “facility,” so it was likely a commercial building. The agency obtained a policy from a well-known carrier. A renewal of that policy was in place the following year when the contractor performed roofing work at the facility.
During the month the contractor performed the work, water leaked into the building on “multiple occasions.” The court’s opinion stated that it was “undisputed” that rain formed ponds or pools on the roof because the roof drains were clogged. Also undisputed was the contention that the pooling water breached the roofing membrane’s seals and leaked into the building.
The property insurance policy contained a water exclusion. Among other things, it excluded coverage for damage resulting from “water or sewage that backs up or overflows or is otherwise discharged from … a drain.” However, it made an exception for damage caused by “the backup or overflow of water … from drains within a building if the backup or overflow is not otherwise directly or indirectly caused” by other provisions of the water exclusion, such as flooding or surface water.
The insured submitted claims that the carrier denied, citing the policy’s water exclusion. Specifically, they pointed to the clogged drains as the cause of the water infiltration. They argued that the exception applied only if the water started in the drain and came back out.
The court’s opinion did not state the loss amount. However, the case went through the appeals process so the amount must have been substantial.
The insured sued the contractor, the insurance carrier, and the agency. The agency, they claimed, negligently obtained inadequate insurance for them. The agency asked the trial court to dismiss the claims against them based on the law. The trial court agreed and dismissed the suit against the agency but not those against the contractor and the carrier. Everyone except the agency appealed the ruling.
The appellate court upheld the ruling in the agency’s favor. The agency had no duty to obtain any coverage that the insured did not specifically request. The insured’s request for “equal to or better coverage” than its current policy, the judges wrote, “was not a specific request that would have created a duty on the part of (the agency) to obtain any particular type of coverage for plaintiff.”
Separately, they permitted the cases against the contractor and carrier to go forward, rejecting the carrier’s interpretation of the exception to the water exclusion.
The agency appears to have done its job here. The insureds asked for a good policy and the agency found them one. Moreover, the insureds had plenty of time to review the policy and object to the water exclusion if they found it detrimental. They did not raise an objection. It appears that they named the agency in the lawsuit in an attempt to cast a wide net in the hope of finding at least one party liable.
It also appears that the agency had good documentation of its discussions with the insureds, as the insureds did not dispute that they asked for coverage equal to or as good as what they had. That documentation likely enabled both courts to find the insureds’ request to be generic.
The court rightly held that the agency was not responsible for the carrier’s policy interpretation. Other agencies should emulate this one’s loss prevention practices.
