Failure to Review Insurance Policy Does Not Bar Insured’s Potential Recovery

Plaintiffs own a number of commercial properties in Brooklyn. In connection with that ownership, plaintiffs retained defendant broker to arrange for insurance coverage for the buildings.

At the time of issuance, in 2002, the policies did not cover flood-related damage. In 2007, defendant offered plaintiffs flood coverage. Plaintiffs agreed and believed that the buildings were covered for flood damage. However, plaintiffs were never informed that the policies excluded coverage for properties within specified flood zones. The buildings at issue were in flood zones so that they were in fact not covered for flood. The policies were renewed annually.

In 2011, before Hurricane Sandy hit the New York area, plaintiffs requested that defendant affirm to them in writing that the buildings were covered for flood damage. Defendant did so, writing that the buildings had $1 million of flood coverage. Only after Hurricane Sandy damaged plaintiffs’ buildings did plaintiffs learn that the buildings had no flood coverage. Plaintiffs sued for negligence, breach of fiduciary duty and misrepresentation.

The Kings County trial court first addressed a broker’s duties, that a broker was generally obligated to secure the requested coverage or advise the client that such coverage was not available. It then addressed defendant’s claim that plaintiffs’ injury could have been avoided had plaintiffs read the policy, which would have disclosed the exclusion. While a party that binds itself to an agreement is presumed to have read the relevant documents, the court determined that an insurance policy is excluded from that general rule. The court held that unless an insured is shown to have known differently, it is entitled to rely on the representations of the broker who procured the coverage as to what is covered. The insured’s failure to read the policy does not bar recovery.

The court noted some appellate discrepancy in this holding, but decided to follow the authority that allowed plaintiffs’ claims to survive for trial.

383 3rd Avenue Partners Limited Partnership et al. v. Alliance Brokerage Corp.

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