In 1959 the film “Anatomy of a Murder” was released. Based on real life events, it concerned, like the workings of the human body, the inner workings of a criminal trial - hence the title. The word “Anatomy” is an excellent way of thinking about civil law, the kind applicable to E&O cases against agents and brokers. In this edition of “The E&O Report”, we will review what a cause of action is in an E&O matter in connection with a recent New York appellate court decision.  

Each claim (called a “Cause of Action”) against an insurance agency or brokerage in E&O lawsuits has a foundation, a formal structure, and elements. For example, if an agency or brokerage is sued for negligent misrepresentation, the anatomy of that cause of action requires, among other things, a “representation” that was made that was “wrong.” This makes both common and legal sense.  A “fraudulent misrepresentation” cause of action adds to that “intent” as an element, as opposed to simple negligence. The law says that the negation of any one of these prima facie elements negates the entire cause of action. Many of these elements that are required to support a cause of action have existed for centuries and are based on British common law. They are well known and not in dispute.  

Much of our success in defending insurance agents and brokers in E&O matters has been to focus on this “anatomy” of a cause of action and attack the weakest elements. Thus, even if a broker failed to do something that it was required to do, there still may be a way to win the case if we can negate even just one prima facie​​​¹  element of the cause of action.  Of course, this requires that the court also have the correct understanding of the anatomy of the causes of action against brokers and agents. Most courts do have that understanding. But sadly, some courts do not, or intentionally ignore them in an effort to hold insurance agents and brokers liable based on a clear sense of judicial activism. Those decisions, logically flawed, create bad law that we must deal with until overturned. 

One such case decision was issued on April 7, 2021 in a case called Commodore Maintenance Corp. v Insight Cos., Inc.^​2  It was a simple case that warranted a simple decision. The broker assumed the duty and then failed to notify the appropriate insurance carriers of an accident involving the plaintiff's employee. This was nothing more than a negligence claim. The assumption of a duty to provide notice to the carrier of the accident. While plaintiff sued the broker for negligence, it also asserted causes of action for breach of contract and breach of fiduciary duty, alleging that the defendant breached a special duty to it. No such cause of action existed except for simple negligence. 

The New York Appellate Division Second Department, (a court known for seeking to expand the liability of brokers and agents beyond what the Court of Appeals allows), found a “special relationship” to exist and a fiduciary duty based thereon. This is a bad case both because the legal reasoning was wrong, and because it will be used against New York insurance agents and brokers, particularly as to the finding of a fiduciary duty cause of action. 

To understand how wrong this court decision is, we go back to the anatomy illustration referred to above. First, a fiduciary duty cause of action has many parts to its anatomy. One part is the existence of a “special relationship” which, contrary to the ruling of the court, is NOT synonymous with a fiduciary duty but merely one of several prima facie elements. The other critical element that must be present WITH a special relationship is “dominance and control”. The turning over of all decision-making authority to someone else. For example, think about the handling of a lawsuit by your lawyer, or your treatment for an illness by your doctor. You leave it to them to make the decisions. That is what the doctrine is almost always limited to professionals. That “dominance and control” element was not present in the Commodore case. 

Second, the New York case that originated the notion of a “special relationship” in the context of insurance agents and brokers was Murphy v Kuhn³  which we have written about extensively over the years. But the Murphy case was limited to a negligent misrepresentation cause of action, (a duty to advise), because a “special relationship” is part of the anatomy of that cause of action. It is a prima facie element.  But, a “special relationship” is NOT a part of a negligence cause of action. It is not part of a breach of contract cause of action and it is just one of a half dozen elements of a fiduciary duty claim, but which does not apply to giving notice to a carrier. 

Based upon the analysis of the decision described above, it is clear that the recent Commodore decision is bad law; it is simply wrong.  Our concern is that the decision will likely be cited by insureds’ attorneys and activists courts to try to hold insurance agents and brokers liable, way beyond what the majority of cases have consistently ruled for the past thirty years. As always, we will continue our fight against those types of claims when they are made against New York insurance agents and brokers.

Submitted By:

Howard S. Kronberg, Esq.

Keidel, Weldon & Cunningham, LLP.