Insurance Broker Liability to Policyholders for Denied...
Transcript of Insurance Broker Liability to Policyholders for Denied...
Insurance Broker Liability to Policyholders for
Denied Claims Latest Case Law Developments Navigating the Evolving Scope and Breadth of a Brokers Duties and Obligations
Todayrsquos faculty features
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
The audio portion of the conference may be accessed via the telephone or by using your computers
speakers Please refer to the instructions emailed to registrants for additional information If you
have any questions please contact Customer Service at 1-800-926-7926 ext 10
WEDNESDAY MAY 13 2015
Presenting a live 90-minute webinar with interactive QampA
Robert D Chesler Shareholder Anderson Kill Newark NJ
Christopher J St Jeanos Partner Willkie Farr amp Gallagher New York
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FOR LIVE EVENT ONLY
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FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program please
complete the following steps
bull Click on the ^ symbol next to ldquoConference Materialsrdquo in the middle of the left-
hand column on your screen
bull Click on the tab labeled ldquoHandoutsrdquo that appears and there you will see a
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FOR LIVE EVENT ONLY
STRAFFORD LIVE WEBINAR
May 13 2015 100 pm - 230 pm Eastern Time
Presenter
Robert D Chesler Esq (973) 642-5864 rcheslerandersonkillcom
Insurance Broker Liability to Policyholders for Defined Claims Latest Case Law Developments
6 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Disclaimer
The views expressed by the participants in this program are not those of the participantsrsquo employers their clients or any other organization The opinions expressed do not constitute legal advice or risk management advice The views discussed are for educational purposes only and provided only for use during this session
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
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Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
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Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
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Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
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BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
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FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
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Number of occurrences
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Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
Tips for Optimal Quality
Sound Quality
If you are listening via your computer speakers please note that the quality
of your sound will vary depending on the speed and quality of your internet
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If the sound quality is not satisfactory you may listen via the phone dial
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press the F11 key again
FOR LIVE EVENT ONLY
Continuing Education Credits
For CLE purposes please let us know how many people are listening at your
location by completing each of the following steps
bull In the chat box type (1) your company name and (2) the number of
attendees at your location
bull Click the SEND button beside the box
In order for us to process your CLE you must confirm your participation by
completing and submitting an Official Record of Attendance (CLE Form) to
Strafford within 10 days following the program
The CLE form is included in your dial in instructions email and in a thank you
email that you will receive at the end of this program
Strafford will send your CLE credit confirmation within approximately 30 days of
receiving the completed CLE form
For additional information about CLE credit processing call us at 1-800-926-7926
ext 35
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program please
complete the following steps
bull Click on the ^ symbol next to ldquoConference Materialsrdquo in the middle of the left-
hand column on your screen
bull Click on the tab labeled ldquoHandoutsrdquo that appears and there you will see a
PDF of the slides for todays program
bull Double click on the PDF and a separate page will open
bull Print the slides by clicking on the printer icon
FOR LIVE EVENT ONLY
STRAFFORD LIVE WEBINAR
May 13 2015 100 pm - 230 pm Eastern Time
Presenter
Robert D Chesler Esq (973) 642-5864 rcheslerandersonkillcom
Insurance Broker Liability to Policyholders for Defined Claims Latest Case Law Developments
6 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Disclaimer
The views expressed by the participants in this program are not those of the participantsrsquo employers their clients or any other organization The opinions expressed do not constitute legal advice or risk management advice The views discussed are for educational purposes only and provided only for use during this session
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
Continuing Education Credits
For CLE purposes please let us know how many people are listening at your
location by completing each of the following steps
bull In the chat box type (1) your company name and (2) the number of
attendees at your location
bull Click the SEND button beside the box
In order for us to process your CLE you must confirm your participation by
completing and submitting an Official Record of Attendance (CLE Form) to
Strafford within 10 days following the program
The CLE form is included in your dial in instructions email and in a thank you
email that you will receive at the end of this program
Strafford will send your CLE credit confirmation within approximately 30 days of
receiving the completed CLE form
For additional information about CLE credit processing call us at 1-800-926-7926
ext 35
FOR LIVE EVENT ONLY
Program Materials
If you have not printed the conference materials for this program please
complete the following steps
bull Click on the ^ symbol next to ldquoConference Materialsrdquo in the middle of the left-
hand column on your screen
bull Click on the tab labeled ldquoHandoutsrdquo that appears and there you will see a
PDF of the slides for todays program
bull Double click on the PDF and a separate page will open
bull Print the slides by clicking on the printer icon
FOR LIVE EVENT ONLY
STRAFFORD LIVE WEBINAR
May 13 2015 100 pm - 230 pm Eastern Time
Presenter
Robert D Chesler Esq (973) 642-5864 rcheslerandersonkillcom
Insurance Broker Liability to Policyholders for Defined Claims Latest Case Law Developments
6 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Disclaimer
The views expressed by the participants in this program are not those of the participantsrsquo employers their clients or any other organization The opinions expressed do not constitute legal advice or risk management advice The views discussed are for educational purposes only and provided only for use during this session
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
Program Materials
If you have not printed the conference materials for this program please
complete the following steps
bull Click on the ^ symbol next to ldquoConference Materialsrdquo in the middle of the left-
hand column on your screen
bull Click on the tab labeled ldquoHandoutsrdquo that appears and there you will see a
PDF of the slides for todays program
bull Double click on the PDF and a separate page will open
bull Print the slides by clicking on the printer icon
FOR LIVE EVENT ONLY
STRAFFORD LIVE WEBINAR
May 13 2015 100 pm - 230 pm Eastern Time
Presenter
Robert D Chesler Esq (973) 642-5864 rcheslerandersonkillcom
Insurance Broker Liability to Policyholders for Defined Claims Latest Case Law Developments
6 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Disclaimer
The views expressed by the participants in this program are not those of the participantsrsquo employers their clients or any other organization The opinions expressed do not constitute legal advice or risk management advice The views discussed are for educational purposes only and provided only for use during this session
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
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InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
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Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
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In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
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Number of occurrences
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Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
STRAFFORD LIVE WEBINAR
May 13 2015 100 pm - 230 pm Eastern Time
Presenter
Robert D Chesler Esq (973) 642-5864 rcheslerandersonkillcom
Insurance Broker Liability to Policyholders for Defined Claims Latest Case Law Developments
6 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Disclaimer
The views expressed by the participants in this program are not those of the participantsrsquo employers their clients or any other organization The opinions expressed do not constitute legal advice or risk management advice The views discussed are for educational purposes only and provided only for use during this session
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
6 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Disclaimer
The views expressed by the participants in this program are not those of the participantsrsquo employers their clients or any other organization The opinions expressed do not constitute legal advice or risk management advice The views discussed are for educational purposes only and provided only for use during this session
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
7 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
1 The inherent Tensions in the Relationship Between the Broker the Insured the Insurance Coverage Lawyer and the Insurance Claims Handler
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
8 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
2 Circumstances Creating Perils for Brokers in the Context of Coverage Disputes
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
9 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
3 Issues that are Emerging in Regards to the Role of the Broker in Coverage Disputes
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
10 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Overview
4 How Brokers Insureds and Insurers Should React to Todays Realities
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
11 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
BASIC DUTIES OF INSURANCE BROKERS
Exercise good faith and reasonable skill care and diligence in procuring insurance requested in accordance with clients instructions
Obtain coverage which is not materially deficient
Obtain the coverage undertaken to be supplied at the requested limits
Obtain requested coverage for client within a reasonable time or inform client of the inability to do so
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
12 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Basic Principle
ndash insurance brokers are not personal financial counselors and risk managers or guarantors of their clients liabilities Generally therefore brokers have no duty to advise as to specific types of coverages limits or additional or optional coverages to purchase in the absence of special circumstances or a special relationshipldquo
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
13 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
FIDUCIARY DUTIES
Reason ndash Insureds are in a better position to know their personal assets
and abilities to protect themselves and appetites for risk more so than brokers
ndash Making brokers generally responsible for identifying possible deficiencies in coverages requested would subject brokers to liability for failing to advise regarding every possible option
ndash If such fiduciary obligations beyond the duty to procure the requested coverage were found to apply absent a special relationship insureds could choose not to purchase increased or optional coverages available and then sue the broker for failing to offer such coverages and end up obtaining the coverage anyway via the brokers EampO coverage
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
14 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
WHEN BROKERS ARE DEEMED TO BE FIDUCIARIES WITH OBLIGATIONS BEYOND MERELY PROCURING COVERAGE
There is a continuum between the broker as order taker and broker as risk manager Much of the current litigation concerns where on that continuum a specific relationship lies ndash Factors considered in determining whether there are special
circumstances or a special relationship exists sufficient to create a greater fiduciary duty of care
ndash the receipt of compensation above the customary commissions on premium paid for expert advice or additional services
ndash the brokers counseling of the insured concerning a coverage issue ndash the brokers declaration that he is a highly skilled insurance expert
coupled with the insureds reliance upon the brokers expertise ndash the brokers exercise of broad discretion in servicing the insureds needs ndash a course of dealing over an extended period of time which can be said to
have put an objectively reasonable broker on notice that his advice is being specially relied on
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
15 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
HOW BROKERS HAVE EXPANDED PERCEPTIONS OF WHAT THEY DO AND WHAT THEIR RESPONSIBILITIES INCLUDE
With an always competitive marketplace complicated still further by insureds now able to investigate and place even relatively sophisticated coverages over the Internet brokers are feeling increased pressure to market themselves as experts who provide ever greater more specialized services ndash A glance at some broker websites (past and present) reveals promises to
bull Provide a range of experience in specific industries to offer you exactly the coverages you need
bull provide tailor-made risk management solutions based on expert advice bull provide strategic decision risk analysis identify new and emerging exposures review
insurer solvency bull design comprehensive and complete programs for both insurance and risk management bull provide performance beyond the required in all we do bull create the best products and services for your needs bull negotiate with insurers to secure the most favorable terms for you
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
16 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
The Changing Legal Perception Of Brokers
Courts are increasingly expressing the view that an insured can be expected to rely upon the broker as an expert See Baseball Office of the Commr v Marsh amp McLennan 742 NYS2d 40 42 (NY App Div 1st Dept 2002)
An insured has a right to look to the expertise of its broker with respect to insurance matters And it is no answer for the broker to argue as an insurer might that the insured has an obligation to read the policy It is precisely to perform this service as well as others that the insured pays a commission to the broker
See Drelles v Manufacturers Life Ins Co 881 A2d 822 840-41 (Pa Super July 5 2005) (citations omitted)
[A]n insured has the right to rely on the representations made by an insurance agent because of the agents expertise in a `complicated subject In view of the trust placed in insurance agents it is `not unreasonable for consumers `to rely upon the representations of the expert rather than on the contents of the insurance policy itself or to `pass when the time comes to read the policy
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
17 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
What Are Brokers DutiesResponsibilitiesExposures With Regard To Information On Policy Application
Is broker responsible for completeness truth and accuracy of policy application
Are there circumstances where broker can be found responsible for material misrepresentations or omissions on policy application
ndash Liability to Policyholder
ndash Liability to Insurance Company
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
18 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
InsuredsCoverage Counsel
Recognize the realities of their dealings with brokers ndash Must assume possibility exists that broker is acting to
hide mistake or otherwise in self interest
ndash Must be on the lookout for broker malpractice
ndash Must take steps to avoid destroying attorney-client privilege by including broker in coveragelitigation strategy
ndash Must be skeptical of solutions compromises horse-trading proposed by broker to resolve coverage disputes
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
19 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Aden v Fortsh
A comparative negligence defense is not available to an insurance producer claiming the client failed to read their policy
Insureds are entitled to rely upon and believe that an insurance broker has fulfilled his undertaking to provide the coverage agreed upon and that the policy sent to them represents accomplishment of that undertaking
Broker is Fiduciary
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
20 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
New York
Murphy v Kuhn Insurance Broker as Order Taker
American Bldg Supply Corp v Petrocelli Policyholder doesnrsquot have to read policy
Voss special relationship
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
21 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Risk Manager v Order taker
Functions of a Risk Manager ndash Identify Risk ndash Analyze Risk ndash Frequency and Severity ndash Control Risk ndash Finance Risk ndash Risk Administration
RMrsquos Definition of Risk chance of loss uncertainty concerning loss possibility of various outcomes from a given set of circumstances difference between expect losses and actual losses Functions of an Order Taker ldquohellipso you just want me to get you the cheapest auto policy I can find with the minimum state required limitsrdquo
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
22 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In drafting policy ndash operating like a risk manager recommending policy limits
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
23 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
In claims-handling ndash acting like a lawyer
Broker wants to provide broad services
Claim advocates
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
24 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Number of occurrences
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
25 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Notice ndash what is a lsquoclaimrsquo
Is there prejudice
Claims-made
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
26 1047311v1 copy 2015 Anderson Kill PC All Rights Reserved
Thank You
Robert D Chesler Esq (973) 642-5864
rcheslerandersonkillcom
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
INSURANCE BROKER LIABILITY TO POLICYHOLDERS
Christopher J St Jeanos | May 13 2015
Navigating the evolving scope and
breadth of a brokerrsquos duties and obligations
Copyright copy 2015 by Willkie Farr amp Gallagher LLP All Rights Reserved
These course materials may not be reproduced or disseminated in any form without the express permission of Willkie Farr amp Gallagher LLP
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
Christopher J St Jeanos
28
Christopher J St Jeanos is a partner in the
Litigation Department of Willkie Farr amp Gallagher
LLP in New York and a member of the Firmrsquos
Insurance and Reinsurance Practice Group For
more than twenty years he has represented
insurance brokers including the largest insurance
and reinsurance brokers in the world in various
state federal and international matters
A complete biography for Mr St Jeanos may be found at
wwwwillkiecomprofessionalssst-jeanos-christopher-j cstjeanoswillkiecom
212-728-8730
wwwwillkiecom
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
DISCLAIMER
29
The views expressed by the participants in this program are not those
of the participantsrsquo employers their clients or any other organization
The opinions expressed do not constitute legal advice or risk
management advice The views discussed are for educational
purposes only and provided only for use during this session
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
OVERVIEW
30
bull What is the difference if any between Insurance Brokers and Agents
bull To whom does each owe duties
bull What are the general duties owed by an Insurance Broker
bull In what ways have policyholders sought to expand the scope of those duties
and have they been successful
bull What should an Insurance Broker do to minimize its exposure to claims
relating to a failure to procure insurance coverage
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
INSURANCE BROKER v INSURANCE AGENT
31
bull Distinctions between BrokerAgent often set forth in state law ndash statutes and case law
bull Insurance Agent ndash generally an agent of insurer but can owe duties to Insured
bull Insurance Broker ndash an intermediary and generally an agent of clientpolicyholder
Nugget Oil Inc v Universal Sec Ins Co 584 So 2d 1068 1071 (Fla Dist Ct App 1991) (defining an insurance broker as ldquoone who acts as a middleman between the insured and the insurer who is not employed by any special insurance companyrdquo)
3D Couch on Insurance sect451 (Rev Ed 2011) (ldquoA broker represents the insured by acting as a middleman between the insured and the insurer soliciting insurance from the public under no employment from any special company helliprdquo)
bull Potential for dual agency
bull Generally no duty to Insurer
ApplicationsUtmost Good Faith
bull Generally no duty to third parties (certificates of insurance)
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
CLAIMS BY POLICYHOLDERS
AGAINST INSURANCE BROKERS
32
bull Classic examples of ldquofailure to procurerdquo claim against insurance broker
Insurer denies coverage ndash insured simultaneously sues insurer and broker
Lack of coverage determined in arbitration or litigation ndash subsequent case against insurance broker
bull Pros and Cons for policyholder coverage counsel and broker
bull Generally straightforward questions involved
Was coverage requested
Was coverage available
If so would insured have purchased it
If so would the coverage have applied (broker in insurerrsquos shoes)
bull Duty to read a defense
bull More difficult scenario is when requested coverage was obtained but insured asserts that insurance broker should have obtained additional type of coverage or additional limits ndash best to discuss that in connection with an actual dispute
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
EFFORT TO EXPAND BROKER DUTIES
33
bull Tiara Condominium Association Inc
42-story Ocean-Front Condominium
Tower on Singer Island FL
$50 million Windstorm policy with
Citizens ndash ldquoinsurer of last resortrdquo
September 2004 ndash Hit by Hurricanes
Frances amp Jeanne
Claimed more than $140 million of
hurricane-related losses
Sought two limits of coverage ndash $100
million ndash and additional damages
Settled for $89 million
Court later determined that two full
limits ($100 million) were available
under the Citizens Policy
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
RETENTION OF A LARGE
SOPHISTICATED ldquoEXPERTrdquo BROKER
34
bull Tiara sues Marsh USA Inc after coverage determination made
Became broker two-years prior to placement
RFP with local and national brokers
Tiara claimed to select Marsh based on its size and expertise particularly with
windstorm insurance
Written engagement of services letter spelling out agreement ndash two key elements
ldquoTo this end we would like to confirm that Marsh will serve as your insurance risk
management and risk financing advisor and insurance broker helliprdquo
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
Tiara asserted claims for breach of contract negligence and breach of fiduciary duty
and sought the difference between the $100 million available under the Citizens Policy
and the $140 million of claimed hurricane-related losses
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
BROKER SATISFIED THE TERMS
OF ITS WRITTEN AGREEMENT
35
bull Court dismissed the claim for breach of contract
ldquo[T]here is no evidence [the insurance broker] in fact breached its
contract hellip because [the broker] did in fact obtain a policy for Tiara that
met Tiararsquos specifications helliprdquo (District Court Order on Summary
Judgment)
ldquoWe agree hellip that there are no contractual provisions hellip that extended
[the brokerrsquos responsibility beyond that which was stated in the written
agreement Thus we affirm the grant of summary judgment in favor of
[the broker] on Tiararsquos breach of contract claimrdquo (Eleventh Circuit
Affirmance)
bull But that was not the end of the inquiryhellip
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
COMMON LAW MAY REQUIRE MORE THAN
WHAT IS SET FORTH IN A CONTRACT
36
bull Court next considered generalcommon law duties that an insurance broker owes even in the absence of a written contract or in addition to the duties set forth in the contract
bull As a general proposition an insurance brokerrsquos only common law duty is to use reasonable care skill and diligence to procure the specific coverage requested by the policyholder or confirm that the coverage cannot be obtained
Murphy v Kuhn 682 NE2d 972 974 (NY 1997) (finding that brokers ldquohave a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do sordquo)
Tornado Techs Inc v Quality Control Inspection Inc 977 NE2d 122 127 (Ohio Ct App 2012) (ldquoWe conclude that [brokerrsquos] exercise of good faith and reasonable diligence was satisfied in obtaining the insurance as requested by [insured] over the years helliprdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 922 (Cal Ct App 1997) (ldquoinsurance agent or broker has a general duty lsquoto use reasonable care diligence and judgment in procuring the insurance requested by insuredrsquo helliprdquo)
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
TIARA CLAIMED BROKER
HAD A DUTY TO DO MORE
37
bull There was no claim that broker ldquofailed to procurerdquo the type and amount of coverage specifically requested by Tiara
Tiara hired professional property appraiser to conduct appraisal of condominium tower and adjacent structures in 2002 ndash Appraised Replacement Cost Value was $54 million
Tiara contacted appraiser in advance of 2004 placement to ask about updated appraisal
Informed that updated appraisal would likely show Appraised Replacement Cost Value had increased to $59 million
Tiara did not obtain formal updated appraisal continued to rely on 2002 appraisal
Tiara deducted from 2002 appraisal certain property (ac units appliances) that no longer had to be insured by Condo Associations under Florida law
Tiara purchased a standard windstorm policy from Citizens ndash ldquoinsurer of last resortrdquo ndash with a limit of $50 million
bull Instead Tiara claimed the broker had a duty to advise it to use an updated appraisal and to buy more than Appraised Replacement Cost Value because of demolition and disposal costs that might be incurred after a hurricane
bull Asserted that if the broker had done its job as required by the common law Tiara would have purchased a policy with limits of at least $75 million and would have had two limits or $150 million of coverage available ndash more than enough to fully rebuild
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
GENERAL DUTIES IMPOSED
ON BROKERS ARE LIMITED
38
bull Court disagreed - Relying on law from Florida and around the country court held that brokerrsquos general duty does not include a duty to advise an insured with respect to the types or amounts of insurance to purchase ndash that determination is left to the insured
Emerson Elec Co v Marsh amp McLennan Cos 362 SW3d 7 13 (Mo 2012) (neither insurance agents nor insurance brokers have a general duty to advise the insured on the insuredrsquos insurance needs or on the availability of particular coverage)
Sadler v Loomis Co 776 A2d 25 40 (Md Ct Spec App 2001) (agreeing with other jurisdictions that ldquothe insured is generally considered best able to balance the factors relating to potential economic loss against the expense of purchasing additional insurance the likelihood that a particular risk will materialize and the insuredrsquos own comfort level with the risks versus the cost of greater protectionrdquo)
Peter v Schumacher Enter Inc 22 P3d 481 486 (Alaska 2001) (finding that because ldquoquestion of adequacy of coverage is necessarily a matter of opinionrdquo the insured is better suited to determine the amount of policy limits he or she wants)
Appleman on Insurance Law amp Practice Archive sect876 (2013) (ldquoan insurance agent has no general duty to advise an applicant or insured regarding coverage deficiencies or needsrdquo)
bull ldquoInsurance agents or brokers are not personal financial counselors and risk managers approaching guarantor statusrdquo Murphy v Kuhn 682 NE2d 972 976 (NY 1997)
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
REQUESTS FOR ldquoFULLrdquo OR ldquoBESTrdquo
COVERAGE NOT ENOUGH
39
bull Does a general request for ldquofull coveragerdquo or ldquobest policyrdquo broaden the
insurance brokerrsquos obligations to the insured and give rise to duty to advise
bull Case law suggests the answer is no
Herdendorf v GEICO Ins Co 77 AD3d 1461 1463 (NY App Div 2010) (ldquo[A]
general request for coverage does not trigger a duty to recommend coverage for
every scenariordquo)
Ethridge v Assoc Mut Ins 288 SE2d 58 59-60 (Ga Ct App 1981) (finding that
the plaintiff failed to demonstrate that its insurance broker acted negligently in
procuring a motorboat insurance policy despite the fact that insured asked broker
to obtain ldquofull coveragerdquo for the boat to hold otherwise ldquowould place upon an
[insurance broker] the duty of intuitive foresight hellip so that the policy might provide
lsquofull coveragersquo under any and all circumstancesrdquo)
Flowers v Wells 602 SW2d 179 181 (Ky Ct App 1980) (ldquoWe cannot conceive
that a request for lsquofull coveragersquo would include all or even any optional coverages
unless specifically requestedrdquo)
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
FIDUCIARY DUTY
40
bull Can a fiduciary relationship arise between an insured and its broker and does that relationship give rise to a duty to advise on the adequacy of coverage types or limits
bull Some jurisdictions impose a fiduciary duty on insurance brokers some do not
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990 (Ill App Ct 2013) (stating that ldquo[t]he relationship between an insured and his broker or producer acting as insuredrsquos agent is a fiduciary onerdquo)
President v Jenkins 357 NJ Super 288 308 (NJ Super Ct App Div 2003) (ldquoWithout question insurance brokers and agents owe a fiduciary duty of care to insuredsrdquo) (internal citations omitted)
Kotlar v Hartford Fire Ins Co 83 Cal App 4th 1116 1123 (Cal Ct App 2000) (noting that insurance agents are generally not fiduciaries but instead owe only a duty of reasonable care skill and diligence in dealing with clients)
bull But even in those jurisdictions in which a broker owes a fiduciary duty courts generally do not find that a fiduciary duty requires the broker to advise on the adequacy of coverage
Garrick v Mesirow Financial Holdings Inc 994 NE2d 986 990-91 (Ill App Ct 2013) (a brokerrsquos fiduciary duty to the insured is to exercise reasonable skill and diligence in procuring the requested coverage and to avoid misleading the insured)
Phillips v State Farm Mut Auto Ins Co 497 SE2d 325 327 (NC Ct App 1998) (finding that insurance agents owe fiduciary duties to their clients but this duty does not obligate them to procure a policy for an insured that has not been requested)
bull Again this is not the end of the inquiry hellip
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
ldquoSPECIAL RELATIONSHIPrdquo ndash THE EVOLUTION
OF EFFORTS TO EXPAND BROKER DUTIES
41
bull Courts have held that in certain circumstances an insurance broker can assume
obligations beyond those set forth in a contract and beyond the standard duty to
use reasonable care ndash often referred to as a ldquospecial relationshiprdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (ldquolsquo[P]articularized
situations may arise in which insurance agents through their conduct or by
express or implied contract with customers and clients may assume or
acquire duties in addition to those fixed at common law helliprdquo)
Core-Mark Intrsquol v Swett amp Crawford Inc 898 NYS2d 206 207 (NY App
Div 2010) (ldquo[E]xceptional circumstances may arise in which insurance agents
through their conduct may assume duties in addition to those fixed at
common lawhelliprdquo)
Collins v Farm Bureau General Ins Co No 314522 2014 WL 2600580 at
4 (Mich Ct App June 10 2014) (ldquoWhen a special relationship exists an
agent [has] a duty to advise the insured regarding the adequacy of insurance
coveragerdquo)
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
ldquoSPECIAL RELATIONSHIPrdquo
REMAINS A NARROW EXCEPTION
42
bull The ldquospecial relationshiprdquo exception has been narrowly construed and generally courts only find the potential existence of a special relationship when there are certain ldquoplus factorsrdquo
Voss v Netherlands Ins Co 8 NE3d 823 828 (NY 2014) (identifying three situations where a special relationship may arise ldquo(1) the agent receives compensation for consultation apart from payment of the premiums (2) there was some interaction regarding a question of coverage with the insured relying on the expertise of the agent or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied onrdquo)
Fitzpatrick v Hayes 57 Cal App 4th 916 927 (Cal Ct App 1997) (special relationship can arise when ldquo(a) the broker misrepresents the nature extent or scope of the coverage being offered or provided (b) there is a request or inquiry by the insured for a particular type or extent of coverage or (c) the agent assumes an additional duty by either express agreement or by lsquoholding himself outrsquo as having expertise in a given field of insurance being sought by the insuredrdquo)
McClammy v Cole 158 Wash App 769 774 (Wash Ct App 2010) (ldquoA special relationship exists if (1) the agent holds himself out as an insurance specialist and receives additional compensation for consulting and advice or (2) there is a long-standing relationship some type of interaction on the question of coverage and the insured relied on the agents expertise to the insureds detrimentrdquo ) (citing Lipscomb v Farmers Ins Co 142 Wash App 20 28 (Wash Ct App 2010))
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
IT CANrsquoT BE ldquoSPECIALrdquo IF ITrsquoS ldquoSTANDARDrdquo
43
bull Courts also have made clear that for the ldquospecial relationshiprdquo exception to
apply there must have been something more than a standard relationship
between the insured and the insurance broker
Indiana Restorative Dentistry PC v Laven Ins Agency Inc 999 NE
2d 922 929 (Ind Ct App 2013) (ldquosomething more than the standard
insurer-insured relationship is required to create a special relationshiprdquo)
Van Den Heuvel v A1 Credit Corp 961 F Supp 2d 1064 1080 (ED
Wis 2013) (ldquo[s]pecial circumstances exist[] when something more than a
standard insured-insur[ance broker] relationship existsrdquo)
Sadler v Loomis Co 776 A2d 25 35 (Md Ct Spec App 2001) (ldquoA
special relationship in the context of insurance requires more than the
ordinary insur[ance broker]-insured relationshiprdquo)
Murphy v Kuhn 682 NE2d 972 975 (NY 1997) (ldquothe record in [this]
case presents only the standard consumer-agent insurance placement
relationshiprdquo)
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
IT CANrsquoT BE ldquoSPECIALrdquo IF EVERYONE DOES IT
44
bull But what is ldquostandardrdquo in todayrsquos world And if all brokers perform such services can they really be special The ldquoorder takerrdquo paradigmhellip
Agents typically represent a single insurer and compete based on the insurerrsquos product
Insurance Brokers as intermediaryrsquos unaffiliated with any single insurer typically compete with each other based on the services they offer
In an effort to differentiate themselves from the competition insurance brokers ndash especially large brokers ndash often tout expertise their ability to provide risk management advice and agree to provide a long list of additional services
Thus almost all insurance brokers and especially large commercial brokers are not mere ldquoorder takersrdquo and instead provide a substantial number of services in addition to procuring quotes from insurers
bull But decisions from various courts have made clear that a ldquospecial relationshiprdquo is not created simply because the insurance broker is a large sophisticated commercial broker that may provide advice in addition to standard broking services
Sewell v Great N Co 535 F3d 1166 1171 (10th Cir 2008) (no special relationship even when insurance broker rendered advice)
Bruckmann Rosser Sherrill amp Co LP v Marsh USA Inc 885 NYS2d 276 278 (NY App Div 2009) (finding no special relationship despite plaintiffrsquos assertions that it hired Marsh a large sophisticated broker ldquoto act as their insurance advisor and broker for all of their DampO insurancerdquo)
SMS Servs LLC v HUB Intrsquol Nw LLC 540 F Apprsquox 628 628 (9th Cir 2013) (affirming district courtrsquos finding of no special relationship ldquo[e]ven if [broker] held itself out as an insurance specialisthelliprdquo)
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
WHAT IS ldquoSTANDARDrdquo
45
bull So what services have been deemed to be ldquostandardrdquo in todayrsquos world
Tout expertise as part of RFP or initial pitch for business
Reliance on other professionals such as appraisers for certain information necessary to procure insurance
Review of the insuredrsquos existing insurance policies so that the broker can get an understanding of the clientrsquos buying habits and determine whether the insured should replace or change any of its existing insurance coverage
Review of documents that will show the types and amounts of insurance the client is required to buy such as the clientrsquos by-laws
Regular meetings with the insured throughout the year to discuss the clientrsquos needs and goals help design and develop the clientrsquos insurance program provide insurance advice and answer any questions the client may have
Help the client fill out its application for insurance and submission of the application to the relevant insurers
Pass on quotes from the insurance company and await instructions from the client as to how to proceed ndash decision-making authority remains with insured
Review the policies and endorsements received from insurers for accuracy and conformity to specifications and negotiated coverages
Broker generally paid by commission received from insurer and is not separately paid by insured for consulting advice
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
WHAT IS ldquoSPECIALrdquo
46
bull What servicesfactors have been deemed to suggest a relationship is ldquospecialrdquo
bull While none has been found to be essential to the determination here are some
examples
Whether the insured and insurance broker had an intimate long-term
relationship and a course of regular dealings over an extended period of time
Whether the insurance broker served as the insuredrsquos exclusive insurance
broker
Whether the insurance broker voluntarily assumed the responsibility for
selecting the appropriate type or amount of coverage for the insured
Whether in addition to standard commissions the insurance broker may
receive from the insurance company for placing the coverage the insurance
broker received compensation directly from the insured for consulting advice
Whether the insurance broker held itself out as having special expertise
beyond what other brokers in standard relationships provide
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
DELEGATION OF
DECISION-MAKING AUTHORITY
47
bull Perhaps most important is whether the insured delegated its insurance
decision making responsibility to the insurance broker ndash true ldquorisk managerrdquo
Hoffend amp Sons Inc v Rose amp Kiernan Inc 851 NE2d 1149 1152 (NY
2006) (finding no special relationship because insured did not ldquodelegate its
insurance decision-making responsibility to RK [its broker]rdquo)
Sawyer v Rutecki 937 NYS2d 811 813 (NY App Div 2012) (finding no
special relationship because insured ldquoretained final decision making authority
over what coverage to obtainrdquo)
DeHayes Group v Pretzels Inc 786 NE2d 779 783 (Ind Ct App 2003)
(ldquoThe final decision [regarding insurance to purchase] however was made
by Pretzels [insured] These facts do no show that DeHayes [broker]
possessed lsquobroad discretionrsquo with respect to Pretzelrsquos needsrdquo)
Beauty Craft Supply amp Equip Co v State Farm Cas Ins Co 479 NW2d 99
101-02 (Minn Ct App 1992) (ldquolsquoSpecial circumstancesrsquo may arise when the
insured delegates decision-making authority to the agent helliprdquo)
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
THE OUTCOME
48
bull Tiara focused on statement that Marsh would serve as both broker and risk
management advisor
ldquoTo this end we would like to confirm that Marsh will serve as your insurance
risk management and risk financing advisor and insurance broker helliprdquo
bull Marsh focused on what was ldquostandardrdquo ndash eg absence of a transfer of
decision making authority and a clear statement that burden was on Tiara to
provide information for application including Appraised Replacement Cost
Value
ldquo[Broker] will not independently verify or authenticate information provided by
you necessary to prepare underwriting submissions hellip and you will be solely
responsible for the accuracy and completeness of such informationrdquo
bull Unanimous jury verdict
bull Questions left unanswered
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records
BROKER BEST PRACTICES
49
bull Do your job
bull Clear written agreement
bull Impact of written ldquoBest Practicesrdquo
bull Be careful with distinctions between ldquostandardrdquo additional services provide by
all insurance brokers and transition into ldquoRisk Managerrdquo
bull Provide the client with options document the process and keep records