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Legal Updates for Insurance Agents & Brokers

Absent Specific Request for Coverage That Might Apply to a Pandemic-Related Government Closure, Brokers Did Not Breach Their Duty

Presented by the Insurance Agents & Brokers Liability Practice Group

May 1, 2021

by Timothy G. Ventura

While nearly 1,500 cases have been filed nationwide stemming from business interruption insurance claims regarding the government shut down orders triggered by the pandemic, the vast majority of those cases involve only the insurers and policyholders as parties. Recently, the New York Supreme Court granted an insurance broker’s motion to dismiss in one of the few early cases where a broker/agent was also sued on professional negligence theories for allegedly failing to procure adequate coverage that would respond to pandemic-related business interruption claims.

The Court ruled that, in the absence of any specific inquiry or request for insurance coverage that might apply to a pandemic-related government closure, the brokers had not breached their duty to obtain requested coverage. Further, even if a “special relationship” existed, the plaintiff still failed to point to any other policy coverage available on the market before March 2020 that would have provided coverage for (business interruption) losses stemming from the pandemic (and, thus, the coverage availability/causation element could not be established). This is a strong decision in favor of insurance agents/brokers that can be cited in defense of potential future pandemic-related E&O suits to come.

In Soundview Cinemas Inc. v. Great Am. Ins. Grp., et. al., 2021 WL 561854 (N.Y. Sup. Ct. Feb. 8, 2021), the plaintiff purchased a commercial insurance policy for its movie theater from Great American Insurance Group through its insurance brokers. The policy provided business interruption coverage in the event of direct physical loss or physical damage to the property. Soundview’s principal and the insurance brokers had routinely worked together to purchase insurance over the course of 14 years.

Soundview was forced to close its theater after a COVID-19 government shutdown order. Soundview sued Great American for breach of contract. After Great American denied Soundview’s claim for insurance coverage due to the closure, Soundview asserted separate claims in the same suit against its own insurance broker, Five Star Coverage Corp. and Wilkinson, for negligence and breach of fiduciary duty.

Great American and the insurance brokers filed motions to dismiss. The court granted Great American’s motion, where it concurred with the majority view and found that closure due to the government shutdown order did not constitute a “direct physical loss of or damage to the property” that would trigger business income coverage under the policy. The court also dismissed the broker, finding that, in the absence of any specific inquiry by Soundview for insurance coverage that might apply to a pandemic-related government closure, the brokers had not breached their duty to obtain requested coverage. The court ruled that the brokers did, in fact, procure the policy requested by the plaintiff. Moreover, even if a “special relationship” (i.e., duty to advise) existed, the plaintiff still failed to reference other coverage available in the market at that time for such pandemic-related losses.

This case is an important reminder that, in addition to the typical liability analysis regarding standard of care (i.e., nature of duties owed/breach), the causation element can serve as another strong line of defense for agents/brokers in E&O matters.

 

The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note tgventura@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2021 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved.

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