Insurance Broker Liable for Failure to Obtain Coverage

On May 17, 2018, Justice Knipel of the Kings County Commercial Division issued a decision in 1015 70th St., LLC v. M&S Ins. Agency, Inc., 2018 NY Slip Op. 30999(U), holding an insurance broker liable for failure to obtain coverage, explaining:

It is well established that an Insurance broker acting as an agent of its customer has a duty of reasonable care to the customer to obtain specifically requested coverage within a reasonable time after the request, or to inform the customer of the agent's inability to do so. A broker may be held liable for negligence in failing to procure insurance where the broker failed to exercise due care in the transaction. Liability will also be found where the broker falsely informs the party seeking insurance that the insurance has been obtained. Lustigman explains, in paragraphs 6 and 7 of his affidavit, that plaintiff engaged M&S to procure insurance and that the closing was scheduled for the next day, i.e., October 17, 2013, and "thus, time was of the essence." M&S did not inform plaintiff that it could not timely procure a policy, but accepted the assignment from plaintiff to timely procure an insurance policy by the date of the closing. The emails submitted show that Lustigman, on behalf of M&S, never indicated to plaintiff that he could not timely procure an insurance policy. Rather, M&S represented to plaintiff that M&S did obtain an insurance policy for plaintiff by October 17, 2013 by providing a binder to plaintiff that showed an effective date of October 17, 2013, when no policy was actually in place.

M&S argues that the presentation of a binder to plaintiff did not constitute a representation that it had procured an insurance policy for plaintiff. However, Insurance Law § 2118(f)(2)(B) defines a "binder" as "written evidence of a temporary insurance contract." Thus, by providing a binder to plaintiff, M&S affinnatively represented to plaintiff that plaintiff had insurance coverage.

M&S further argues that the binder sent to plaintiff was merely a "sample binder" based on a quoted estimate, and that plaintiff knew that coverage was not yet bound at the time that it received the binder. M&S claims that "plaintiff was well aware that the policy was in the process of being bound, but not yet bound." However, nowhere in the emails did Lustigman ever inform plaintiff that the insurance policy was not bound despite M&S' providing of a binder to plaintiff or that the binder was just a "sample." Lustigman admitted, at his deposition, that there was no email or other written document showing that he told plaintiff that the binder was a sample binder, or that insurance coverage was not bound. Lustigman even admitted, at his deposition, that an insurance binder demonstrates that insurance is in effect. There is no evidence which supports M&S' argument that M&S informed plaintiff that the binder was a sample binder or that the binder did not evidence an actual insurance policy. Furthermore, it is noted, as plaintiff points out, that M&S' claim that the binder was not an actual binder, but only a "sample binder," would mean that M&S intended to defraud plaintiff and plaintiff's lender by intentionally and falsely representing that there was insurance in place when there was no such insurance.

. . .

M&S, citing Springer v Allstate Life Ins. Co. of N. Y (94 NY2d 645, 649 [2000]), additionally contends that since a binder does not constitute part of an insurance policy, the binders given by it to plaintiff did not show that there was insurance coverage. M&S' reliance upon Springer, however, is misplaced. In Springer (94 NY2d at 649), the Court of Appeals held that an insurance binder is a temporary or interim policy until a formal policy is issued, and that a binder provides interim insurance, usually effective as of the date of application, which terminates when a policy is either issued or refused. Springer (94 NY2d at 649-650) stands for the principle that a binder does not create rights that do not otherwise exist based on the common terms of an insurance policy. Here, in contrast, plaintiff is claiming that M&S provided a binder to it as evidence that M&S had timely procured an insurance policy for it when no insurance was bound.

. . .

Based on the above, the court finds that plaintiff has satisfied its burden of making a prima facie showing that M&S was negligent as a matter of law and M&S has failed to raise any bona fide triable issue of fact. Therefore, summary judgment in plaintiffs favor on the issue of liability with respect to plaintiffs negligence claim must be granted.

(Internal quotations and citations omitted).

If you have questions regarding an insurance coverage dispute, contact Schlam Stone & Dolan partner Bradley J. Nash, who heads the firm’s insurance recovery practice, at bnash@schlamstone.com.