The 2019 Q1 edition of the PLUS Journal is now available, and today we have a guest post from one of the authors, Peter Biging. This post is an addition to his article featured in the Q1 issue of the PLUS Journal, available here.

biging, peterPeter J. Biging is a partner in the law firm Goldberg Segalla, LLP, where he heads up the firm’s New York metro area Management and Professional Liability practice.  He is also Vice Chair of the firm’s nationwide M & PL practice group.  Peter can be reached at pbiging@goldbergsegalla.com.  Peter was assisted in the preparation of this article by Ryan McNagny, a commercial litigation and professional liability associate in the firm’s Manhattan office.  Portions of the content of this article will also appear in the American Bar Association TIPS Journal Year in Review Winter issue, covering a broad range of professional liability and D&O developments in 2018.

As a supplement to the Insurance Agents/Brokers E&O 2018 Year in Review article published in the PLUS Journal’s 1st Quarter issue, it should be noted that just before the article was sent out for publication, the Alabama Supreme Court issued what could turn out to be an important decision on the “duty to advise.”  See Somnus Mattress Corp. v. Hilson, 2018 WL 6715777 (Ala. Sup. Ct. Dec. 21, 2018).   In its decision, the Alabama Supreme Court affirmed an Alabama Circuit Court decision dismissing claims on summary judgment against an insurance agent for alleged negligence in failing to advise a mattress manufacturer to purchase business interruption loss coverage. The plaintiff manufacturer argued that the agent should be held responsible for the uninsured loss he suffered following a fire that destroyed a mattress factory, and ultimately ended up putting the manufacturer out of business.  In affirming the dismissal, the Court held that an insurance agent/broker generally does not have a duty to advise and cannot be deemed to have assumed a duty to advise absent evidence either that (1) the insurance agent/broker misrepresented the coverage in a manner that the insured could not have known from a reading of the insurance policy, or (2) the agent/broker and insured were in a “special relationship.”

Without setting any bright line rules for when a special relationship may arise, the Court took note of decisions in other states discussing when a “special relationship” can be found, and in so doing appears to have implicitly accepted the following as bases for finding of a special relationship:

  • Where the agent/broker has entered into an express agreement to provide coverage advice
  • Where there has been a long established relationship between the insured and the agent/broker of entrustment from which it clearly appears the agent/broker appreciated the duty of giving advice to the insured client, and the client’s reliance upon same
  • Receipt of compensation by the agent/broker for consultation and advice separate and apart from receipt of commissions on premiums paid
  • The offering of expertise with regard to a question of coverage where the insured relied on the agent/broker’s expertise in making a coverage decision
  • Where an ambiguous request has been made for coverage that requires a clarification

See id. at *7-9.  Because it found that none of “the types of elements that trigger such a duty were . . . present in this case,” id. at *10, the Court concluded that no basis existed for finding the defendant insurance agent owed a duty to advise the plaintiff to purchase business interruption coverage arising from fire loss.

This decision could prove to be significant.  While the Alabama Supreme Court did not lay out its professed standard for when a special relationship can be found to exist, in engaging in an examination of and discussion of the grounds other courts have relied upon for finding of a special relationship, it can be argued that the Court implicitly adopted these standards for use by Alabama state courts going forward.

Read Peter’s article in the PLUS Journal here.