Pay Notice to Special Relationships under the LawMarch 3, 2020 | Evan H. Krinick |
With Valentine’s Day in our rear-view mirror, it is nice to reflect on the special relationships in our life – with our spouse, our parents, our children, and if one is lucky enough, with our grandchildren. These relationships provide meaning and perspective to our day-to-day existence and can provide immeasurable joy and happiness.
Special relationship in the law has a quite different meaning. It is usually a threshold requirement for a customer of an insurance broker to sue the broker for negligence. Most of the time, there are no special requirements for a disgruntled customer or client to start a lawsuit. Law clients can sue their attorney and medical patients can sue their physicians without any special requirement other than being a client or a patient.
Insurance brokers have a different deal. They can only be sued by a dissatisfied customer if the customer made a particular request for a specific coverage, the broker did not procure the requested coverage within a reasonable time, and the broker did not advise the customer of the inability to get the coverage, or if there is a special relationship.
A special relationship arises in one of three ways: (1) the broker receives compensation for services beyond premiums; (2) the broker and client discuss a question of coverage and the client relies on the expertise of the broker; or (3) a course of dealing over an extended period of time, which reasonably shows that the broker was aware the customer was relying on its expertise.
Recent cases show that it is difficult to meet the threshold requirement to sue your insurance broker.
In one case from Suffolk County, which was reviewed on appeal, an automobile dealership sued its insurance broker when it allegedly failed to procure adequate insurance to cover the loss of one of its vehicles. The insurance procured had a limit of $40,000 for a vehicle, while the actual loss for one vehicle was in excess of $250,000. The dealership’s general request for additional insurance coverage did not satisfy the requirement of a specific request for coverage. Further, the fact that the dealer and the broker had an 11-year relationship was not sufficient to demonstrate a special relationship since a lengthy relationship alone is insufficient to show anything different from a typical broker-customer relationship.
A second recent appellate case reached the same conclusion. In that case, a purchaser of a property renovated the existing house. The broker procured a replacement cost limit of $92,000, which was inadequate when the house was destroyed by fire after the purchaser spent more than $200,000 in renovations. Once again, a general request for an increase in coverage was insufficient to allow a lawsuit against the broker. And, any claim of a special relationship was refuted by the fact that the home buyer was a sophisticated consumer of insurance products who directly managed his insurance and did not always rely on the broker’s recommendations, even though their relationship lasted almost a decade.
Insurance is a hugely important protection that every business owner must carefully evaluate. Too often, only with the benefit of hindsight, does it become clear that the insurance that has been procured is inadequate or insufficient. In order to ensure that the right insurance with the right limits is in place, it is reasonable to rely on your insurance broker for advice and direction. If you want to have the right to sue your broker should there be an error, be specific in your request (and make it in writing), or pay extra compensation beyond the premium, or clearly document that you are relying on the broker’s expertise developed during a long-term relationship.
Chocolates, flowers, dinner and wine are all good ways to celebrate Valentine’s Day with those with whom you have a special relationship. Those treats will not create a special relationship with your insurance broker. But financially speaking, a special relationship with your insurance broker may prove to be critical to your business, just as special relationships with your loved ones are critical to your happiness.
This article appeared in the March 2, 2020, issue of Long Island Business News. © 2020 Long Island Business News
- Evan H. Krinick