When Your Insurance Company Declines Coverage: Is Your Broker Liable?4/4/2018 | By: Randy J. Heller, Esq.| GDB 2018 Spring Newsletter
An insurance broker dodged a bullet when a court held that he did not mislead his client about the scope of coverage or fail to provide appropriate advice—even though the client was left with no coverage and no defense against a construction accident on its property.
When one pays for insurance, one hopes it will be there to protect you in the event of a jobsite accident. It is hard enough to get proper insurance from your contractors. It shouldn’t be so hard to get your own insurance right. That’s why you use a broker.
In this case, a property owner made a generalized request of its broker to procure commercial general liability (CGL) insurance. During work by a contractor at the property, an individual was injured when he fell off a ladder. When the owner gave notice to its carrier, coverage and defense were denied. As it turns out, the CGL policy which had been obtained did not cover injuries to employees, contractors or employees of contractors.
With no remedy against the insurance company, the owner sued its broker for failing to obtain appropriate coverage. But the broker was able to establish that he had warned the owner that the policy had an exclusion for injuries to construction workers. Not only that, the broker had informed his client that such coverage could be obtained for an additional $5,000—an option which the owner declined. Accordingly, the broker was found not to be liable to the owner on the facts of this case.
There are a few interesting takeaways from this appellate case. First, the court recognized that on appropriate facts, the broker might very well be liable. If he was paid for his advice (not just a commission on the premium), or if there was a long “course of dealing” which would indicate that his expertise was being relied upon, he could be found to have a “special relationship” with his client and be liable for giving poor advice. But here, whether or not there was a special relationship, the broker was found to have discharged his duties without fault.
Perhaps a more important lesson is that one cannot assume there is adequate insurance merely by looking at the limits of coverage set forth on a Certificate of Insurance. These days, policies are being written all the time which do not cover the most basic types of injuries and damages (here, injuries to construction workers). Endorsements abound in which coverage is excluded for damage to the work itself, or to third parties, or to neighboring properties, or for Labor Law violations, or for damages which occur as soon as the work ceases. Without reading the policy and all its endorsements, it is impossible to tell if there will be coverage.
And that can be a very expensive lesson.