QP, INC., Plaintiff–Respondent, v. The FLANDERS GROUP, INC., Defendant–Appellant.
Plaintiff commenced this action alleging that defendant breached a contract pursuant to which defendant became plaintiff's insurance agent, procured insurance for plaintiff and generally assisted and advised plaintiff in regard to insurance matters. Defendant moved for summary judgment dismissing the complaint on the ground that it had fulfilled all of its obligations to plaintiff as required by law. We conclude that Supreme Court properly denied the motion.
In Murphy v. Kuhn (90 N.Y.2d 266, 272), the Court of Appeals specifically recognized that there were “[e]xceptional and particularized situations [that] may arise in which insurance agents, through their conduct or by express or implied contract with customers and clients, may assume or acquire duties in addition to those fixed at common law.” The determination whether those additional duties arise is governed by the existence of a special relationship between the insured and the insurance agent (see id.). Where such a relationship exists, courts have recognized the viability of a breach of contract cause of action against the insurance agent (see e.g. Sawyer v. Rutecki, 92 AD3d 1237, 1237–1238, lv denied 19 NY3d 804; Axis Constr. Corp. v. O'Brien Agency, Inc., 87 AD3d 1092, 1093–1094; Hersch v. DeWitt Stern Group, Inc., 43 AD3d 644, 644–645).
Even assuming, arguendo, that defendant met its initial burden on the motion, we conclude that plaintiff raised triable issues of fact whether a special relationship existed between the two parties and whether defendant breached the resulting implied contract (see Axis Constr. Corp., 87 AD3d at 1093–1094).
It is hereby ORDERED that the order so appealed from is affirmed without costs.
Although I concur with the conclusion reached by the majority, I write separately to express my view that the viability of plaintiff's breach of contract cause of action is not dependent upon the existence of a “special relationship” between the insured and the insurance agent (see Murphy v. Kuhn, 90 N.Y.2d 266, 270–271). In my view, the special relationship identified in Murphy was the recognition of the potential expansion of tort liability of insurance agents beyond their “common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so” (id. at 270). Indeed, Murphy expressly “allude[d] to” Kimmell v. Schaefer (89 N.Y.2d 257, 264) for its “general relevance” to the special relationship concept (Murphy, 90 N.Y.2d at 271). Importantly, Kimmell involved a tort-based negligent misrepresentation cause of action.
While I agree that a special relationship is required when a dissatisfied client of an insurance agent advances tort-based theories against the agent beyond the aforementioned common-law duty, in this case plaintiff has not advanced any tort-based causes of action. Instead, the complaint asserts a breach of contract cause of action. Thus, determination of the duties and obligations of the insurance agent in this case are defined by the terms and conditions of the contract, if any, between the parties. Because I agree with the conclusion of the majority that plaintiff raised issues of fact with respect to the terms and conditions of the contract between the parties, and the alleged breach of defendant thereby, I concur only with the result reached by the majority.
I respectfully dissent because I disagree with my colleagues that there are issues of fact with respect to whether this case presents one of those “[e]xceptional and particularized situations ․ in which insurance agents, through their conduct or by express or implied contract with customers and clients, ․ assume[d] or acquire[d] duties in addition to those fixed at common law” (Murphy v. Kuhn, 90 N.Y.2d 266, 272). Defendant is an insurance agency and plaintiff, its client, was in the business of manufacturing machine parts. During the relevant time period, defendant had an ongoing business relationship with plaintiff, for which defendant had procured insurance coverage, namely, as relevant to this appeal, an insurance policy from Great Northern Insurance Company, which is part of the Chubb Group of Insurance Companies (Chubb). Defendant was an authorized agent of and had a written agency agreement with Chubb. In February 2000, plaintiff purchased a machine for the specific purpose of manufacturing products for one of its customers, but plaintiff soon experienced problems with the machine's operation. As early as August 2000, plaintiff's relationship with its customer was being adversely affected by the machine's breakdowns and plaintiff faced losing that customer if it could not remedy the resulting production problems. Despite assistance from the machine's manufacturer and distributor, these problems continued. On or about August 23, 2001, during a meeting between plaintiff's president and a representative of defendant to review plaintiff's insurance needs, an employee of plaintiff came into the meeting to advise that the machine had again broken down. At that point, the parties began discussing available insurance options. This led to a meeting with a representative of Chubb less than a week later, followed by a series of letters and telephone calls in which Chubb continued to seek information from plaintiff regarding its production problems. Chubb eventually hired a technical consultant who prepared a “Loss Analysis” report dated April 15, 2003 with respect to the subject machine, which led Chubb to issue a May 14, 2003 letter that disclaimed coverage on the basis that any losses suffered by plaintiff as a result of the subject machine were not covered under the Chubb policy. Plaintiff sued Chubb in March 2004 seeking coverage for the losses sustained as a result of the subject machine and Chubb's answer asserted, inter alia, an affirmative defense based on the two-year suit limitations clause in the Chubb policy. That action was subsequently settled for $250,000.
In this action, plaintiff does not allege that defendant failed to procure insurance coverage that it requested, that defendant did not properly advise plaintiff as to available coverages, or that defendant failed to provide timely notice of an occurrence or loss to plaintiff's insurer. Instead, plaintiff alleges that defendant breached heretofore unheard of duties of an insurance agent or broker by, inter alia, preparing a standard notice of loss form known as an ACORD and forwarding it to Chubb, allegedly without plaintiff's knowledge or consent, and by failing to advise plaintiff that the “clock was ticking” on the two-year suit limitations period in the Chubb policy. Such duties do not exist as a matter of law and the causes of action alleging such duties therefore are devoid of merit. Moreover, such duties do not exist even if there was a special relationship between plaintiff and defendant.
The issue as framed by the majority presents a close question on which reasonable minds can differ. Nevertheless, assuming, arguendo, that there is an issue of fact as to the existence of a special relationship between defendant and plaintiff as contemplated by Murphy (id.), I conclude that there was no cognizable duty that defendant breached and, moreover, there was no act or omission by defendant that caused plaintiff to sustain damages in any respect whatsoever. Plaintiff specifically claims that defendant breached a duty that was owed to plaintiff when, on or about August 23, 2001, defendant prepared and forwarded the ACORD to Chubb. Instead of breaching a duty that defendant allegedly owed to plaintiff by filing the ACORD, defendant was in fact fulfilling a contractual obligation that both plaintiff and defendant owed to Chubb. Pursuant to the Chubb policy, plaintiff was obligated “in the event of loss or damage ․ [to n]otify [Chubb], or one of [its] authorized representatives, as soon as possible, as to what occurred.” Pursuant to its agency agreement with Chubb, defendant was obligated to “report all losses and claims promptly, and provide relevant loss and claim information.”
The breach of the notice provision of an insurance policy has in a countless number of cases resulted in an insured's loss of insurance coverage. In cases where an insured gives notice of a loss or potential loss to its insurance agent or broker, the failure to relay that notice to the insurer presents an undeniable potential for liability for that agent or broker. In circumstances where an insured gives what would otherwise be timely notice to its insurance broker, if the broker then fails to relay that notice promptly to the insurer, the broker could be liable if the insurer disclaims on late notice grounds because “notice to the broker cannot be deemed notice to the insurer” (120 Whitehall Realty Assoc., LLC v. Hermitage Ins. Co., 40 AD3d 719, 721). In contrast, because notice to an agent is deemed notice to the insurer, an insurance agent who does not promptly relay notice to the insurer upon being informed of a loss faces liability if the delay causes the insurer to forfeit a policy exclusion or defense (see Associated Mut. Ins. Co. v. Samicaban, Inc., 178 A.D.2d 883, 884–885). Given the undeniable contractual obligation of both plaintiff and defendant to give notice of a loss to Chubb at the earliest possible time and the fact that I am aware of no case in which an insured has lost coverage by giving “early notice” of a loss or claim to an insurer, I conclude that defendant cannot as a matter of law be held liable to plaintiff for filing the ACORD dated August 23, 2001.
To the extent that plaintiff seeks to impose liability on defendant based on defendant's alleged failure to provide a copy of the ACORD to plaintiff or otherwise to advise plaintiff that this standard insurance form had been submitted to Chubb, I conclude that this cannot serve as a basis for imposing liability on defendant. First, in moving for summary judgment, defendant submitted the affidavit of an expert who asserted that it was not industry practice for an agent or broker to provide a copy of an ACORD to the insured, and plaintiff offered no evidence to counter that opinion. Second, plaintiff was not injured or prejudiced by the filing of the ACORD because the two-year suit limitations period set forth in the Chubb policy runs from the loss and not from the filing of a claim by way of an ACORD or by any other method. Notably, plaintiff contends that it did not suffer an insurable loss until the subject machine stopped working completely in May 2002. Assuming this to be true, there was nothing that defendant did, including but not limited to the filing of the ACORD in August 2001, that prejudiced plaintiff or otherwise caused it to lose coverage. Third, assuming, arguendo, that plaintiff and its president did not have specific knowledge that an ACORD was filed by defendant or did not know what an ACORD is, it is nevertheless abundantly clear that plaintiff knew that Chubb was investigating a claim that occurred on or was reported on August 23, 2001. Plaintiff's undeniable knowledge that Chubb considered August 23, 2001 to be the date of loss or at least the date on which the subject loss was reported is based, inter alia, on multiple items of correspondence from Chubb to plaintiff referencing that date, including a December 10, 2001 reservation of rights letter and the May 14, 2003 disclaimer letter, which stated, in addition to the subject heading, that plaintiff “reported this issue as a claim to Chubb on August 24, 2001.” Therefore, the assertion of plaintiff's president that he believed that Chubb was merely evaluating the scope of available coverage as opposed to investigating a claim is, even assuming that belief to be true, unreasonable as a matter of law based on the undisputed documentary evidence.
Lastly, I would reject any contention by plaintiff that defendant had a duty to advise that the “clock was ticking” on the two-year suit limitations period in the Chubb policy. Assuming, arguendo, again that there was a special relationship between plaintiff and defendant, it has never been the duty of an insurance agent or broker in this state to advise a customer of its legal rights under the terms and conditions of an insurance policy or to advise a customer of the consequences of taking or failing to take any particular action under an insurance policy. In the context of this case, plaintiff is essentially contending that defendant should have analyzed the terms of a contract, i.e., this insurance policy, in the context of a particular set of facts, e.g., when plaintiff's loss may have occurred, and should have thereafter advised plaintiff of the legal consequences of failing to commence a lawsuit within two years of that loss. That is distinctly legal advice and, given that defendant is not a law firm, it had no obligation to provide legal advice to plaintiff. To the contrary, for defendant to have done so could have arguably constituted the unauthorized practice of law (see Judiciary Law § 478).
For these reasons, I would reverse the order and grant defendant's motion for summary judgment dismissing the complaint.