When an insurance producer tells a client that he will check coverage limits every renewal to make sure they are sufficient, does that create a “special relationship” between the producer and the client? If so, does the producer then have additional legal obligations to take care of that client? According to the high court in one state, the answer may be “yes” to both questions.
Deborah Voss owned three businesses in upstate New York. In 2004, she obtained property and liability insurance for her businesses from a local insurance broker. At the time of the initial meeting, the broker requested her sales figures so that he could calculate an appropriate amount of business income insurance. He also told her that his agency would “reassess and revisit the coverage needs as her businesses grew.” He repeated this statement when he presented his proposal to her at a later meeting. She accepted his proposal and bought the policies.
Two years later, one of Voss’s businesses purchased a building that was double the size of her previously rented premises. All three businesses located there. She reported the purchase to her broker, but the next renewal of her property insurance policy contained the same limit for business income insurance that the previous two policies had.
The next year, the building developed a roof leak, causing significant water damage and forcing the businesses to close for a time. Voss hired a contractor to fix the roof, but a month later the roof leaked again, causing even more extensive damage and further business interruptions.
That spring, Voss’s property policy renewed with the business income limit reduced to $30,000. She questioned a representative from the insurance agency, who promised to look into it. However, the limit remained at $30,000; Voss, preoccupied with her damaged property, failed to follow up. A third roof leak occurred the next year, causing the businesses to shut down again. Voss, who had received payments of only $3,200 for the first loss and $30,000 for the second, sued the roofing contractor, the insurance company and the broker. The suit against the broker claimed that she and the broker had a “special relationship.” The broker, she claimed, had negligently failed to obtain sufficient amounts of business income insurance.
The broker moved to have the case dismissed. The trial and appellate courts agreed, and Voss appealed to the Court of Appeals, New York’s highest court.
This court ruled that a special relationship may have existed between Voss and the broker and a jury should determine the truth. The majority of the judges found that the interactions between Voss and the broker regarding business income coverage may have been enough to create a special relationship because Voss relied on the broker’s advice. The fact that Voss knew what the limits were was irrelevant because of the potential special relationship. However, they cautioned that special relationships between clients and brokers are the exception, not the rule, and it was still up to Voss to prove that such a relationship existed.
Three of the seven judges disagreed with the conclusion, saying that, though a special relationship may have existed at the beginning, it did not exist by the time the losses occurred. By then, Voss was seeking the broker’s advice but not receiving it. The judges wrote that the agency’s “gratuitous promise” at the beginning did not create a continuing obligation to provide advice.
What can insurance producers take from this case? Every state has its own standard for determining whether a broker has a special relationship with a client. Brokers should be aware of where their states draw the lines between ordinary and special relationships. They may, for good business reasons, decide to cross the line, but they should do so with full knowledge of what that implies for their legal liabilities. If they decide to avoid forming special relationships, they should steer clear of promises about monitoring and updating coverages and limits; document clients’ acceptance and rejection of recommended coverages and limits; and keep that documentation easily accessible.
Doing the best job possible for a client does not have to mean taking errors and omissions risks.
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