One of the main themes for the 2025 E&O Seminars is a “Look Back" to the E&O issues of decades past and then seeing where we are today. So I thought this month's E&O Report should dovetail with that. And that was even before this week an upstate Judge issued a denial of a Motion to Dismiss I filed on behalf of a broker who got both
Murphy and
Hoffend… 100% wrong.
Simply, as I will explain, you cannot rely on judges / courts to understand E&O law or get it right. Ever. That is why all the E&O and Best Practices that the BIG I has been teaching you is so very important. When I am involved, I am the last resort. But the key is to put into practice E&O prevention methods, as the BIG I teaches, to avoid ever having to need me.
A. What Happens in the NY Judicial System with an E&O Case
Unlike other states, when a case is filed in NY, you may not be assigned to one judge for the entire case. Some counties have judges that handle parts of litigation, like the preliminary discovery issues. Another handles motions and then another, the trial. So any knowledge a judge gains as to the nuances of a case, (and that is what broker/agent E&O cases are), is lost on the next judge. They handle cases like the person installing a steering wheel at the auto plant. Everyone is the same.
Then there is the sheer variety and volume of cases. A few years ago my wife retired after 30+ years of owning and running a hair salon here in NJ. So she started to come to court with me to see what her husband really did for a living. Her first court attendance was in Kings County in Brooklyn, at the Compliance Conference Part. That is where discovery disputes and status conferences are handled. She expected to see Law & Order. What she saw was Mad Max Beyond Thunderdome. 150 separate cases on a 10 foot wide paper calendar posted on the wall outside the courtroom all scheduled for the same day and time. 200 lawyers all yelling out the names of the cases. Young law clerks, fresh out of school, handling the conferences and disputes, who are more like assembly line workers. Then the Judge who took the bench for about 40 minutes and then left. My wife was flabbergasted. This was not like court on TV. (No…it is not.)
The takeaway is that if there were 10 insurance cases that day, it would be a lot. I was the only E&O case. That is common. So understand that even the best Judges have little experience with Your… My… Our world.
Also, know that their law clerks (or law clerks in the pool of that County), actually research and write the decisions for the Judges. So they read a sentence in a case here or there. They copy & paste from decision to decision without ever reading the SOURCE cases or understanding what they are citing.
B. Looking Back: Murphy & Hoffend
I am proud to say that my predecessor firm, Lustig & Brown, LLP, successfully argued and won for all NY brokers, the seminal cases of Murphy (1997) and Hoffend (2006). The highest court in New York, (the Court of Appeals), in them said that an insurance broker is an “Order Taker" and owes no Duty to Advise as to the purchase of additional coverages unless there is a Special Relationship. The court then noted the limited conditions that may give rise to that Special Relationship to “Advise". (Not to DO anything but “Advise"). The court noted that Kuhn was Murphy's broker who handled all their insurance needs, business and personal since 1957!! (34 years before the accident at issue.) Then the court said there was NO SPECIAL RELATIONSHIP, not even close!
In Hoffend, the Court of Appeals went even further highlighting that Rose & Kiernan “reviewed Hoffend's operations, provided advice regarding insurance, bonding, banking, contracts and product development, and aided Hoffend in creating its business plan and corporate information statements". Only to REJECT finding a Special Relationship under those compelling facts!
C. Present Day
Here is the problem best seen by this example. Even in Murphy, the Court of Appeals was 100% incorrect in calling Hoffend an “Agent". It was not.
Most judges and courts do not understand that there is a legal difference between an Agent and a Broker, (a stark, significant legal and statutory difference), let alone nuanced issues. Under New York Insurance Law, “Article 21. Agents, Brokers, Adjusters, Consultants and Intermediaries", §2101. Definitions" an “Insurance Agent" is defined and most clearly separated from an “Insurance Broker". An Agent, under subsection “(a)", is defined as the representative and only owes a duty to the insurer. While under subsection “(c)" a “Broker" acts as the representative and only owes a duty to the Insured! If you are not licensed as a Broker, (only as an Agent), and you are acting for the Insured in procuring insurance, try telling the NYDFS that its “OK" that you do not have a broker's license under NYIL, “§2104" because the NY Courts do not care about the difference. You will be fined for not having a broker's license.
Imagine you are on the operating table getting woozy from the anesthesia. You hear your surgeon asking the O.R. Nurse for the “sharp, cutty thing" rather than the “#3 scalpel handle with the #5 blade". You would rip off your mask, jump off the table and run for the hills….rightly so. Language in the legal world are our tools. We expect precision from our judges when it comes to language and charged legal term.
As of this writing, Murphy has been cited 2,129 times. BUT…..what often happens is that Law Clerks read what a 2022 decision (also written by a law clerk), wrote ABOUT the 1997 Murphy decision rather than actually reading the decision itself! And that is the point. Recall the game of “Telephone" we all played in grade school. The teacher whispers a phrase in the ear of the first student who then turns his head and whispers it to the second student and so on and so forth until the last student stands up before the class and repeats it out loud. We all know that the last iteration never bears any resemblance to the first recitation. Simply, like a photocopy of a photocopy of a photocopy ……of a photocopy, all detail and critical information is lost in favor of some ghost of the original; some easily remember shorthand. So too the law.
Recently a judge denied my dismissal motion for my broker client finding a question as to the existence of a Special Relationship having NOTHING to do with providing “advise" about Additional Coverage! The insured argued that a Special Relationship about handling a statutory Notice of Cancellation arose based on a 3 year relationship! The court cited cases that cited Murphy but never actually cited or read Murphy and failed to address my argument that the Murphy Court rejected a Special Relationship even after 34 years. It is very common for Judges to cite Murphy for the Special Relationship doctrine without ever understanding that the Court of Appeals Rejected finding it in that case. They always seem to forget the actual conclusion.
The court also said that during a request for reinstatement, notice of a claim to the claims department was not good enough to put the Insurance Company on notice. That notice to the Underwriting department had to be done. (First time I ever heard that in 40 years.)
This is what WE…..are up against.
CONCLUSION
The conclusion of the above is that we cannot rely on the Courts to get the law right or understanding anything about insurance procurement/broker law or how your businesses work. Yes we will make the best and correct legal arguments and hope for the best. But the first step in getting the best result is avoiding E&O claims. While that is almost impossible as we cannot prevent insured from suing you, we can make sure that we do not, in the handling of an insured needs, create any FACTS, that an attorney and/or court can glom onto to support a correct or incorrect application of the law.
For example, (and I understand that this is where the realities of your business meets E&O prevention), do not provide additional notice of cancellation. Do not send premium payment reminders. Do not pay a premium for an insured so that the policy does not cancel. Do not get involved in setting up ACH/EFT payments even if a Premium Finance Company is involved.
Most importantly, try to get the most out of the BIG I E&O Seminars that provide many more comprehensive examples of what to do, and not to do than I can here.
Submitted by:
Howard S. Kronberg, Esq.
Kaurman Dolowich, LLP