Legal Updates for Insurance Agents & Brokers
New York Appellate Court Upholds Dismissal of Claims Against Insurance Broker
The holding in Da Silva v. Champ Construction, a recent decision from New York’s Appellate Division, Second Department, again establishes the high standard of proof required in order to maintain a claim against an insurance broker in New York. Whether the broker is sued under theories of negligence, breach of contract or fraud, a party seeking to sue its broker for a gap in insurance coverage continues to face an uphill battle.
In Da Silva v. Champ Construction Corp., the appellate court affirmed the trial court’s dismissal of Champ Construction’s third-party claims asserted against its insurance broker for its alleged failure to procure workers’ compensation coverage for a construction project, where the plaintiff was injured. Champ Construction sued the broker, asserting causes of action for breach of contract to procure insurance, negligent failure to procure insurance and fraud relating to the failure to procure insurance.
Da Silva filed a lawsuit to recover damages for personal injuries he allegedly sustained in a construction site accident that occurred on August 14, 2013. At the time of the accident, Da Silva was employed by Champ Construction. Champ Construction thereafter commenced a third-party action against its insurance broker, alleging that the broker had agreed to procure workers’ compensation coverage for the project, yet failed to do so. Champ Construction moved for summary judgment against the broker, and the broker cross-moved for summary judgment. The trial court granted the broker’s motion and denied Champ Construction’s motion. Champ Construction appealed.
In hearing Champ Construction’s appeal, the Second Department noted that an insurance broker in New York may be held liable under theories of breach of contract or negligence for failing to procure insurance upon a showing by the insured that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction. The court held that Champ Construction failed to show the existence of an agreement by the broker to procure workers’ compensation insurance for the project or that the broker specifically undertook a duty to procure such a policy.
The court further held that the broker established that any failure to procure insurance did not proximately cause any damages to Champ Construction. Specifically, the broker demonstrated that, notwithstanding the lack of workers’ compensation insurance, the Da Silva received benefits from the general workers’ compensation fund relating to the occurrence. Under these circumstances, the appellate court held that any failure to procure insurance did not proximately cause damages to Champ Construction. As a result, the appellate court agreed with the trial court that the causes of action asserted against the broker for breach of contract and negligence were properly dismissed.
The Second Department likewise agreed with the dismissal of the fraud cause of action against the broker. The court found that Champ Construction failed to show that the broker made a material misrepresentation of fact as to the procurement of insurance. Moreover, the court observed, the certificate of insurance that was issued by the broker stated that it was “issued as a matter of information only and confer[red] no rights upon the certificate holder.” Accordingly, the court held that it was unreasonable to rely upon the insurance certificate for coverage in light of the disclaimer language contained on the certificate itself. As a result, the court upheld the dismissal of the fraud cause of action.
The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note to firstname.lastname@example.org ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2020 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved.