The Duty to Read, The Stands-In-The-Shoes Doctrine, Causation & The Farage Decision

The law that governs life is based on Statutes passed by a Legislature, Regulations issued by Agencies created by those same legislatures with both being interpreted by the Courts. Then there is the “Common Law", (“case law"), which is purely a creation of the Courts. Common Law evolves over time. As you can see, at the end of the day the Courts a/k/a individual judges decide everything. Like with anything involving humans, judges are subject to the same foibles, character traits and human frailties that define us. That includes biases and their own personal feelings as to how things should be. When a Court changes longstanding common law, it is required to explain, in detail, why the change. It is called Ratio Decidendi…the Why of a Decision. The Why, a persuasive argument for the change, is the ONLY thing that matters. Otherwise, the court is just using the brute force of its authority. (Think of when you were a kid, and your parents said “Because I said so!)

For over 100 hundred years the law in New York has been that an Insured is deemed to know the contents of its insurance policy. The 1920 decision was issued by the Court of Appeals, the highest court in the State of New York, the name notwithstanding. This is no different than the law applicable to any other contract. It is called the “Duty to Read". When a broker was sued for not getting the right coverage, IF…. we had proof that the Insured got the policy, dismissal was assured based on that Doctrine.

Then in 2002 an Appellate court, a junior court to the Court of Appeals, with no constitutional power to overturn a Court of Appeals decision, did just that and said that the 1920 decision was no longer good law. Why, because the judges on that panel that day were Pro-Insured…simple as that. There was no real explanation in the decision for the change other than something about the Insured relying on the “expertise" of the Broker. (More on that in the 2nd part of this series.)

Then in 2012, the Court of Appeals, on one of our cases, American Building Supply Corp. v. Petrocelli Group, Inc 19 N.Y.3d 730 (2012) upheld that 2002 decision. Again, there was no reason given in the decision. (Other than a similar Pro-Insured bench that heard the case.) However, Judge Pigott dissented in a blistering opinion of his own. He said:

“It seems to me elementary that before you can complain about the contents of any contract, you should at least have read it. Nearly 100 years ago we held that when an insured receives an insurance contract, he or she has a duty to read and examine its contents. There, we held that the insured is “conclusively presumed" to know the contents of the insurance contract and assent to it, when he or she signs or accepts the contract. * * * The majority offers no compelling reason why this basic requirement, i.e. that you read the thing, should not obtain in cases involving an insurance broker."

The point of setting forth the above is that we are in dangerous waters these days with Pro-Insured courts ignoring historical law and the proper principles of jurisprudence. These courts want to change the law at your expense to make brokers and agents guarantors of coverage and liable to the Insured no matter what. So, we have been picking our battles to make sure that the arguments we make and the fact patterns on which they are made are precise and compelling and so that we do not give any court the chance to make a deleterious sea change in the law. That brings me to the core of this article.

That is why I am so very pleased to report that last week the Court of Appeals issued a decision in Farage v Associated Ins. Mgt. Corp. 2024 NY Slip Op 05875 (11/26/24), a combination Coverage / Broker case that solidified one of the best defenses we had…the negation of Causation a/k/the Stands-in-the-Shoes Doctrine. Simply, anyone has a good chance of winning a case where the Broker did NOT do anything wrong. The real magic is winning when they do. (Here I represented two brokers and neither did anything wrong.)  The Stands-in-the-Shoes Doctrine says that EVEN IF the broker did something wrong, IF…IF there would not have been coverage anyway through no fault of the Broker then CAUSATION is broken and the Broker wins.

The classic example is when a Broker is sued for failing to provide timely notice of a claim and the carrier denies on that ground. But, after we analyze the policy and find that an exclusion or limitation would have applied even if notice was timely, (so that the Insured would never have had coverage anyway), “causation", (a legal element that is a predicate to liability against a wrongdoer) is negated and the broker should be dismissed from the case.

In 2020 Farage sued her property insurer Tower for not paying full RCV for the damage to her multi-unit residential rental building that resulted from a 2014 fire. While the claim was made on her 2014 to 2015 policy it had been in effect since 2002. Hence, she also sued her two brokers who serviced the Tower policy over that 12-year period. I represented both brokers against the standard “Failure to Procure" claims. Given the statute of limitations and defects in the Complaint, I moved, Pre-Answer for dismissal asserting a dozen grounds for both brokers.

At the same time Tower moved for Pre-Answer dismissal asserting the 2-year suit clause. What they knew, and we did not at this early stage, was that based on their claim's files, at no time did the Insured ever put them on notice that due to financing issues, she could not complete the RCV repairs in the 2 years and thus was unable to bring suit within that 2-year suit limitation. So, I submitted my own papers in support of Tower's motion saying that, under the Stands-in-the-Shoes Doctrine, separate and apart from my own motion, if the Court grants dismissal to Tower by agreeing that Farage lost her right to sue on the policy due to her own fault, the Brokers get out to as causation is negated as a matter of law. The simple argument I made was several years and many iterations in the making.

The Lower Court Agreed and dismissed Tower and the Brokers without even addressing my own dismissal motion on those other dozen grounds. The Court simply held that if the Insured lost the ability to recover on the policy having nothing to do with the Broker, then no matter what the broker did or did not do, causation was non-existent. The Appellate Court agreed and affirmed the decision.

My fear was that the Court of Appeals would, like with the Duty to Read, uphold Tower's dismissal but carve out the Broker and allow my clients to still be sued. They did not. The Court to their credit but not without a dissent as to Tower upheld the dismissal. The key part of the decision for Brokers was this seemingly innocuous part of the decision:

“Because plaintiff did not raise a question of fact as to the enforceability of the limitation provision, the Tower/AmTrust defendant's motion to dismiss the complaint in its entirety pursuant to CPLR 3211 (a) (1) was property granted. As a result, the claims against the broker defendants were properly dismissed because plaintiff's failure to recover was the result of her own actions and not those of the broker defendants."

That simple sentence solidifies the Stands-in-the-Shoes Doctrine and gives us a sledgehammer to use against all E&O claims.

Happy Holidays to all. Be well…Stay Safe.