American Building Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.3d 730 (2012)
An insured’s failure to read an insurance policy does not automatically bar a negligence action against a broker who allegedly failed to procure the specifically requested coverage.
Summary
American Building Supply Corp. (ABS) sued its insurance broker, Petrocelli Group, for negligence and breach of contract, alleging failure to procure adequate insurance. ABS claimed it specifically requested coverage for employee injuries, which the obtained policy excluded. The New York Court of Appeals held that factual issues existed regarding the specific coverage request. The Court further held that ABS’s failure to read the policy upon receipt did not automatically bar the lawsuit against the broker, especially when ABS allegedly made a specific request and the policy obtained arguably made no sense considering ABS’s business operations. The Court reasoned that while reading the policy is good practice, the insured is entitled to rely on the broker’s expertise.
Facts
ABS sells building materials. It hired Petrocelli Group to procure general liability insurance. ABS asserts it specifically requested coverage for employee injuries at its Bronx location, where only employees were present. Petrocelli renewed a policy that contained a cross-liability exclusion, barring coverage for employee injuries. An employee was injured, and the insurer disclaimed coverage based on the exclusion. ABS then sued Petrocelli for failing to procure the requested coverage.
Procedural History
The Supreme Court denied Petrocelli’s motion for summary judgment, finding a factual issue on whether ABS made a specific request for employee injury coverage. The Appellate Division reversed, holding that ABS’s failure to read the policy precluded recovery. The Court of Appeals reversed the Appellate Division’s decision, reinstating the Supreme Court’s order denying summary judgment to the broker.
Issue(s)
1. Whether an insurance broker can be liable for negligence or breach of contract for failing to procure specifically requested insurance coverage.
2. Whether an insured’s failure to read and understand an insurance policy upon receipt bars a claim against the insurance broker for failing to procure the requested coverage.
Holding
1. Yes, because 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, provided a specific request for coverage was made. A general request is insufficient.
2. No, because the failure to read the policy may give rise to a defense of comparative negligence but should not bar an action against a broker, especially where specific coverage was requested and the policy obtained appears illogical given the insured’s business operations.
Court’s Reasoning
The Court of Appeals reasoned that issues of fact existed as to whether ABS specifically requested coverage for its employees, and whether Petrocelli, being aware of such a request, failed to procure the requested coverage. The court found that ABS’s deposition testimony supported its claim of a specific request. Since only employees entered the premises, the coverage defendant obtained, which excluded coverage for injuries to employees, “hardly made sense.”
The Court addressed the issue of whether an insured’s receipt of an insurance policy without complaint bars recovery. While prior appellate decisions varied, the Court adopted a more lenient approach. It held that the insured has a right to “look to the expertise of its broker with respect to insurance matters” (Baseball Off. of Commr. v Marsh & McLennan, 295 AD2d 73, 82 [1st Dept 2002]). The failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar the action altogether. The Court emphasized that summary judgment was inappropriate given the factual disputes over the specific coverage request and the circumstances surrounding the insurance procurement.