Dana A. Gittleman, Esq. is a shareholder in the Professional Liability Department at Marshall Dennehey Warner Coleman and Goggin. Resident in the firm’s Philadelphia office, she focuses her practice on the defense of claims and lawsuits brought against insurance agents and brokers, attorneys, real estate professionals, and large product manufacturers. Dana may be reached at firstname.lastname@example.org.
When COVID-19 coverage suits emerged – and trended toward dismissal on the face of the policy language itself – litigators anticipated an uptick in litigation against insurance brokers. Yet, despite the approaching two-year statute of limitations on claims that have been denied, this anticipated trend has not pervaded Pennsylvania courts. While COVID-related litigation has undoubtedly impacted many areas of litigation, recent Pennsylvania cases demonstrate the good news that the existing precedent pertaining to insurance brokers does not necessitate a rebalancing to accommodate pandemic claims.
The United States District Court for the Eastern District of Pennsylvania recently dismissed a daycare and preschool’s claims of negligence and negligent misrepresentation against its insurance broker in BSD-360, LLC d/b/a the Goddard School v. Philadelphia Indemnity Insurance Co., et al., 2022 WL 138075 (E.D. Pa. Jan. 14, 2022). This case reiterated the prevailing “skill and knowledge normally possessed by members of [the] profession” standard of care – rejecting allegations of a heightened duty of care – and applied established Pennsylvania case law to the plaintiff’s claims of negligence and negligent misrepresentation. In other words, despite the novelty of the pandemic and COVID-related claims, the court applied existing case law to determine that the insured had not plausibly pled claims for negligence and negligent misrepresentation against its insurance broker.
In Goddard, the plaintiff insured purchased an “all-risk” insurance policy from the defendant, Philadelphia Indemnity Insurance Company, procured by its broker, Specht Insurance Group, Ltd. Predictably, PIIC denied coverage for COVID-related claims based upon exclusionary language in Goddard’s policy. Specifically, the court found that the insurance policy “unambiguously provides coverage only in the event of an ‘outbreak’ of a communicable disease at the insured premises” and “requires physical loss of the premises, not merely the loss of certain uses of the property.” Id. at *3 (emphasis in original). The court dismissed Goddard’s claims against PIIC for declaratory judgment, breach of contract and bad faith premised on PIIC’s denial of Goddard’s claim for business income and extra expense coverage.
As against Specht, Goddard alleged that the insurance broker “acted negligently in failing to obtain coverage ‘that would cover losses due to a public health emergency arising from a virus such as COVID-19.’” The court reviewed and granted dismissal on the basis of each of Specht’s three arguments in turn. First, Goddard failed to allege the existence of a special relationship giving rise to a heightened duty to advise, including through payment of consultation and advisory fees, a contract with the insured or an exclusive broker relationship. Second, Goddard allegedly had a “reasonable expectation” that its policy would cover any and all shutdowns, including due to a public health emergency; however, the court deemed this an unreasonable, implausible expectation compounded by a lack of support in the industry. The Goddard court stated, “it would be tough to claim that Specht did not match up to others in the profession when no reasonable insurance broker could have predicted the COVID-19 pandemic before it occurred and worked to acquire policy coverage for it in advance.” Id. at *13. Third, the court determined that Specht had no duty to “walk Goddard through the meaning and implication of each and every provision” of its insurance policy. Id.
Goddard alternatively pled negligent misrepresentation against Specht, arising from Specht’s purported misrepresentation of the coverage afforded by the policy by responding that the policy would “absolutely” cover a “shut down for any reason.” The court concluded that this statement constituted mere “exaggeration” or “puffery,” as “no reasonable party would believe that an insurance policy would cover it unconditionally.” Id. at 14. Further, there was no averment that the policy was inconsistent with Goddard’s request; rather, Goddard contended that Specht procured the policy Goddard desired, but the policy did not provide coverage for any potential loss including unforeseen consequences of the global pandemic. Id. at 15.
In reaching its decision, the court relied upon existing precedent to analyze the viability of Goddard’s negligence and negligent misrepresentation claims, avoiding creating a separate set of rules or precedent for pandemic-related losses. In other words, the court did not retroactively impute knowledge of COVID-related risks or coverage issues on the insurance broker. At the time of policy procurement, there was no indication of a special relationship or heightened duty to advise; Specht acted in accordance with the standard of “the skill and knowledge normally possessed by members of that profession;” and coverage for “shut down for any reason” did not connote a nearly two-year suspension of normal operations for businesses worldwide.
The Goddard holding may blunt future potential COVID-related claims against insurance brokers, following the trend of quick dismissal of insurance carriers from coverage disputes and declaratory judgment actions. While it was initially anticipated that businesses would attempt to turn to their insurance brokers following COVID-related claim denials as a source of compensation, the Goddard holding suggests that the novelty and unpredictability of COVID-19 may insulate insurance brokers from liability for alleged failure to procure specific and nuanced pandemic-related coverage prior to March 2020. Goddard is favorable for insurance brokers for pandemic or non-pandemic related actions, as it reiterates that the prevailing standard of care applies to either type of claim and supports early extrication by motion to dismiss where a complaint is insufficiently pled.