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Legal Updates for Insurance Agents & Brokers

Insurance Broker Has No General Duty in Pennsylvania to Inspect Property Before Placing Insurance Coverage

Presented by the Insurance Agents & Brokers Liability Practice Group

August 11, 2021

The February 2, 2021, edition of Legal Updates for Insurance Agents & Brokers reported on the case of Gemini Insurance Co. v. Meyer Jabara Hotels, LLC, 231 A.3d 839 (Pa. Super. 2020), where the Pennsylvania Superior Court confirmed the general rule that an insurance broker does not have a duty to advise clients about their insurance needs absent a confidential relationship between the parties. The court in Meyer Jabara found no such special relationship existed where the insured was a sophisticated business entity, with its principal having both a law degree and an MBA; with a legal department to ensure that its insurance program conformed with needed coverage and; a detailed agreement identifying the scope of the broker’s responsibility.

Many claims against an insurance broker do not involve such sophisticated insureds or written agreements but, rather, small businesses who assert that their broker failed to inspect their property where a loss identifies an uninsured or underinsured interest. The Meyer Jabara case relied upon an earlier but still valid Superior Court decision, Wisinski v. Brown & Brown Ins. Co., 906 A.2d 571 (Pa. Super. 2006), which applied the principles of limited broker liability to this type of scenario.

The plaintiffs in Wisinski purchased a small military surplus store and informed their long-time insurance broker they wanted complete commercial and liability coverage for the business, which sat across the highway from the Susquehanna River with a stream that traversed the property. The broker did not inspect the property before placing insurance, which excluded coverage for a flood. Five years later, a flood caused extensive property and contents damage. The plaintiffs’ suit alleged the broker breached its duty to exercise reasonable care and skill, including to inspect the property to evaluate the risk of a flood.

The court in Wisinski rejected imposition of a duty on a broker to inspect business premises and advise clients based on that inspection. The court’s analysis weighed the possible social utility in inspecting a property before advising a client about its insurance needs against the client’s ability to do so and a broker’s lack of expertise on property inspection, along with the onerous consequences of imposing such duty that could include all of a broker’s actions in the ordinary business relationship with an insured.

The effect of the continued viability of Wisinski* in light of the reliance upon it in Meyer Jabara is that an insurance broker, outside of the narrow situations involving a confidential or special relationship, has no duty to its customer to inspect or analyze the risk to be insured, along with no duty to advise on their insurance needs, thus limiting the claims of negligence that can be brought in Pennsylvania against such insurance professionals.

*As this article was written, the Superior Court issued a non-precedential decision on July 29, 2021, citing to Wisinski, holding that a son who used his undue influence and power of attorney over his feeble mother to transfer a substantial portion of her assets to himself had a confidential relationship that he breached. In Re: Celilia F. Balogh, 2021 WL 320611..

 

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Firm Highlights

Result

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Thought Leadership

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Thought Leadership

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Result

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Thought Leadership

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