On February 10, 2021 the Appellate Division First Department^[1], affirmed the dismissal of a failure to procure action against a broker in the case of Trimasa Restaurant Partners^[2]. This case is a significant decision in that it narrows, limits and thus clarifies the application of the special relationship doctrine, which has been used by plaintiff's attorneys in E&O lawsuits since 1997 to attempt to hold insurance agents and brokers liable for things that they never agreed to do for their customers, like procuring coverage not specifically requested. In this issue of The E&O Report we will review the special relationship doctrine and the court's decision in the Trimasa case.

 In 1997 the Court of Appeals, the highest court in the New York State, in the Murphy^[3] case,  reiterated well established law that an insurance broker can only be sued for failing to get coverage specifically requested or where the broker fails to tell the insured that the coverage requested cannot be obtained. But, in Murphy the insured tried a new argument suggesting that based on a long term relationship the broker had a duty to advise them to, in that case, procure higher auto liability limits even though not discussed or requested. Simply, the insured tried to shift the liability to the broker from itself.

While it may seem like a contradiction, the law treats an affirmative duty to speak (advise), as a subset of the existing and well-known negligent misrepresentation cause of action with the same elements. One of those basic, prima facie, elements is a special relationship.  Simply, a special relationship means that you have a status with another party that allows them to rely on your statements. An exaggerated example that makes the point is how you have a right to rely on your doctor's advice that you have a medical condition that needs treatment, allowing you to sue the doctor if he or she is wrong and you are injured because of that misrepresentation. But you do not have the right to rely on that same medical statement that is made to you by a friend that you may meet on the street.

 In the Murphy case, the Court of Appeals suggested that where there is a special  relationship, one party might have a duty to affirmatively speak. Traditionally, a special relationship was limited to professionals such as doctors, lawyers, accountants, etc., and their clients. But, in Murphy the Court set out several criteria where, even in the case of an insurance agent or broker, a special relationship may be found to exist. They were:

1.  The agent receives compensation for consultation apart from payment of the premiums.
   
2. There was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent.
   
3. There is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on.

Setting aside number 1 and 2 above, since Murphy plaintiffs' attorneys and activist judges have used number 3 to create new ways of holding agent and brokers liable, in ways that were never intended, or meant, by the Murphy Court. Simply, they have used that course of dealing language to hold agents and brokers liable for failing to procure anything that winds up not being covered in the insurance policy, even though the insured never asked about it, or even contemplated it.  This allowed the insured to get the cheapest insurance policy, chock-full of exclusions, save premium dollars, and roll the dice that it would not have an uninsured claim. All the while counting on suing the agent or broker based on this course of dealing trope as the guaranty of coverage from the agent or broker's E&O policy, if there was ever an uninsured claim.

Over the years there were some good decisions and some bad decisions that were issued by New York courts on this issue with the original meaning and holding of Murphy getting lost. Think of the game of telephone we played in grade school as kids. The teacher whispers a little phrase to the first child who then whispers it to the second, and the second to the third, and so on. Then the last child stands up and recites what he or she heard, and it bears no resemblance to what the teacher originally said. Sadly, that is often how the law works with each iteration of a seminal case holding being subtly changed, modified, or just wrongly applied.

 Over the years, we have aggressively tried to both stop that bastardization of the law appliable to agents and brokers and correct those wrong rulings. Thankfully, the court's decision in the Trimasa case was one of those successes.

 Trimasa Restaurant Partners, LLC., (“Trimasa"), was created to operate a Japanese restaurant at a leased location in Tribeca, New York City. It had just been created for this business endeavor and had no existence before then. It sought the services of an insurance agency to assist it in procuring insurance coverage for the build-out of the space. During construction Trimasa's contractor found lead paint on columns in the space. It tried to remove it by sanding off the lead paint. As you might expect, the lead dust went airborne and ended up contaminating the apartments in the adjacent high-rise condominium buildings. Suffice it to say that many claims were made against Trimasa for the clean-up costs. The stopped work, the cleanup, and remediation was also claimed to result in lost income and other damage claims.

The insurer denied all of the claims based on the lead paint exclusion in the policy.  Trimasa then sued its insurance agent for the lack of coverage. Since Trimasa never specifically requested lead paint liability coverage it argued that it had a special relationship with its insurance agent that created a duty to affirmatively suggest that the coverage be procured. Since Trimasa was a new LLC and had no prior relationship with the insurance agent, it tried to bootstrap the relationship the insurance agency had with other restaurant LLC's for which the Trimasa owner had previously used the agency.

After we received this lawsuit, we made a pre-answer motion to dismiss.  In response to our pre-answer motion to dismiss, the New York County Supreme Court dismissed the case holding that there was no special relationship.  The plaintiff then appealed to the Appellate Division First Department.  In response to the appeal, the appellate court issued a decision affirming that the dismissal by the lower court.

 What makes the Trimasa decision so important is the clarification of the narrowness and limitation of the special relationship doctrine, which many judges and attorneys either twist or simply get wrong. This decision followed several other cases in holding that where an insured argues that a special relationship exists based on a course of dealing, that course of dealing must relate to the exact coverage at issue. So, for example, an allegation that a special relationship exists based upon an insurance agent or broker following up with insureds concerning cancellations for non-payment of premiums, cannot be used to support the existence of a special relationship for failing to procure asbestos liability coverage.

In the Trimasa case, the plaintiff did not allege that a special relationship existed based on a course of dealing about lead paint liability coverage.  Accordingly, the court properly dismissed that claim altogether.  This is an important decision by the court that will certainly assist New York insurance agents and brokers in defending E&O claims and lawsuits going forward. 

Submitted By:

Howard S. Kronberg, Esq.
Keidel, Weldon & Cunningham, LLP.

[1] Created by the New York State Constitution of 1894, the Appellate Division of the Supreme Court, First Judicial Department, is one of four intermediate appellate courts in the State, and holds jurisdiction over the Counties of New York and the Bronx.

[2] Trimasa Restaurant Partners, LLC v Global Coverage, Inc., 2021 N.Y. App. Div. LEXIS 819, 2021 NY Slip Op 00818.

[3] Murphy v. Kuhn, 90 N.Y.2d 266 (1997).