A property owner in New York City that found itself underinsured after a fire loss tried to pin the blame on its insurance agent.
The owner was a limited liability company (LLC) that owned three contiguous properties insured under a single policy. One of the buildings, occupied as a dollar store, suffered fire damage in February 2021. The insurance carrier’s records showed that the building had an area of 2,146 square feet. In truth, it was actually much greater than that. The court opinion does not state the real area, but Dollar General has reported that its average store size is 7,400 square feet.
Using the square footage provided, the carrier calculated the amount of the loss at $429,200. The actual loss amount may have been closer to $1.5 million. The carrier went to court to request a declaration that the most they owed was the smaller amount. The insured responded to the complaint and filed its own lawsuit against its insurance agency.
The insured’s accusations against the agency were:
- The agency made “blatant errors” in obtaining the policy and rendering advice and information in response to a specific coverage request.
- The agency violated its contract with them by failing to obtain an adequate insurance policy and provide an accurate description of the property to the carrier.
- The agency failed to consult with the insured to correct any erroneous information the insured provided, and the insured relied on the agency to provide accurate information.
The insured sought damages in excess of $1 million.
The agency asked the court to dismiss the suit. They argued that they provided the 2,146 square feet figure based on information the insured provided and approved and information in public records. Any additional square footage, they argued, “was due to unlawful additions constructed by (the insured), which are not acknowledged by or reflected in the records” of relevant city agencies.
In October 2023, the judge dismissed the lawsuit. She acknowledged that an insurance agent does owe a duty to exercise due care when obtaining insurance for a client. However, she cited prior cases holding that a claim of negligence or breach of contract against an agent will succeed only if the insured made a specific coverage request, not a general one. “(The insured) does not even allege that it made a specific request for coverage in regard to (the building) for an area of more than 2,146 square feet,” she wrote, “or that (the agency) did not procure adequate coverage for a property of 2,146 square feet …”
She also found that the relationship between the insured and the agency was nothing beyond the “typical insurance brokerage-customer relationship.” Therefore, the claim that the insured heavily relied on the agency’s expertise did not hold up.
Unfortunately, some places have a culture where skirting the rules is not unusual or frowned upon. The agent in this case relied on publicly available information for the building description. The insured, in effect, argued that the agent should have known they had built illegal additions (that is, without getting city approval) and should have noted as much on the insurance application. Not only was the insured unscrupulous, but they tried to make the agency pay for not also being unscrupulous.
If the agency made an error in this case, it was in deciding to do business with this company in the first place. It is not always easy to tell on first impression who will and will not be a good client. However, developing this ability may save an agency headaches and legal battles down the road.
