Normally, an insured cannot recover on negligence or breach of contract actions against its insurance broker for having procured coverage, even though the coverage was not entirely in accord with what the inured had requested. As such, if an insured received the subject policy months before an accident at issue, it will be conclusively presumed that the insured had known, understood, and assented to the terms of the policy. Busker on the Roof Ltd. Partnership Co. v. M.E. Warrington, 283 A.D.2d 376, 725 N.Y.S.2d 45 (1st Dep’t 2001). Similarly, in Rotanelli v. Madden, 172 A.D.2d 815, 569 N.Y.S.2d 187 (2nd Dep’t 1991), an insured brought an action against its insurance agent and insurers based upon negligent misrepresentation allegedly made by the agent. It was held therein that allegations that the insurance agent negligently advised the insured that it was covered for certain losses under its existing policies, and that such coverage would be carried over into a renewal policy, were not sufficient to support a claim for negligent misrepresentation. Id. The insured, which had been insured by the same insurer for a number of years, was presumed to have read its policies and thus could not claim to have relied upon the alleged misstatements of the agent. Id.
However, a recent Court of Appeals decision has stated that insurance brokers may be held liable for failing to secure sufficient insurance coverage for its clients, even if the client ultimately signs off on the policy. In American Building Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.3d 730, an insured brought an action against its insurance broker, alleging that the broker was negligent and in breach of contract by failing to procure adequate general liability coverage for a building it subleased. Id. The Court of Appeals held that insurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so. Id. Furthermore, an insured’s failure to read and understand the policy obtained by its broker is not an absolute bar to recovery in negligence and breach of contract claims. Id. At most, the insured’s failure to read the policy may give rise to a defense of comparative negligence but should not bar, altogether, an action against an insurance broker. Id.
A potential safeguard against this situation is for all insureds to consult with their attorney at the time of purchasing a new policy. By walking through the insurance policy with your attorney you can identify potential problems with the coverage and discuss them with your broker to see if a different, or altered, policy may be better for you. Even if there is not a better policy available, by identifying the problem areas before there is a problem, you can plan to minimize your risk. Contracts can be written to limit your risk and shift the majority of the loss onto others when possible. But unless you meet with your attorney, you may not find out about the deficiencies in the policy, and what you should have done to minimize them, until it is too late.