Happy New Year to all and all the best for a healthy and prosperous year!
This is the second in my 3-part series on the current state of E&O law and how we got here. We will address the “Expertise of the Broker" issue, and we will go down the Rabit Hole together starting with what will seem to come out of VERY left field.
A few weeks ago, I had oral argument in a large E&O case on my Motion to Dismiss. I asserted 50 separate grounds for dismissal of the 35 Causes of Action. Literally, every ground that I ever used to defend a broker over my career, all in the one motion. I held up a large blow-up of this picture and asked the Judge and the other Attorneys “What is this a picture of?"
As you might expect they all said “JELLO". They were all wrong. This was a picture of a GELATIN DESSERT. “JELL-O" is nothing more than a brand name for one company's gelatin desert product, (Kraft Heinz), trademarked in Le Roy, New York, in 1897 by Mr. Pearle Bixby The point I made to the Court is that 99.99 % of people refer to ALL gelatin desserts as JELL-O and will swear they are correct. When, over time, something incorrect is repeated and repeated and repeated it takes on a life of its own even when 100% wrong making it nearly impossible to undo what everyone thinks is correct.
The law as to Insurance Brokers and Agents is no different. Most courts and attorneys get it wrong. They read a headnote or do a word search in a Westlaw document without ever actually reading the case or having any idea of the context or nuances of the decision. They will often rely on a current holding of a seminal case, without reading that source case often from a higher and thus binding court. Going to the source, e.g. the Court of Appeals rather than an Appellate or Lower court's interpretation of a Court of Appeals case is basic lawyering. As U.S. Supreme Court Associate Justice Felix Frankfurter, said in Henslee v. Union Planters Bank, 335 U.S. 600 (1948):
"Wisdom too often never comes, and so one ought not to reject it merely because it comes late."
Courts, all courts, get things wrong…all the time. My pet peeve is the lazy and imprecise use of language by courts. If you were on the operating table getting woozy from the anesthesia but you heard the surgeon ask the nurse for the “sharp cutty thing" rather than the “B.P. scalpel handle with the A10 blade" you would rip of your mask and get the hell off that table---fast. Well words in the law are like scalpels in medicine. We expect our Judges to be precise and use words and concepts with surgical precision. Sadly, most courts do not know the difference between an “Agent" and a “Broker", or many other things in the Insurance E&O world yet rule on them anyway.
The seminal case in New York for your E&O protection was Murphy v Kuhn back in 1997 …back when we were still Lustig & Brown, LLP. That case said that brokers were not guarantors, that there was no duty to advise except in extraordinary circumstances and that the only common law duty a broker has is to procure the coverage specifically requested or tell the Insured you could not. But in that decision was a ticking time bomb to the uninitiated. The Court said this too:
“Notably, other jurisdictions have recognized such an additional duty of advisement in exceptional situations where, for example, * * * (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent…."
Sadly, the Court of Appeals incorrectly used the word “expertise" in that sentence. What the Court meant to say is that a broker “knows more than the insured" about insurance generally. Nothing more! No better proof is that just above that sentence were several paragraphs of the Court stating why Brokers are NOT experts.
By way of context, “expertise" has a surgically precise legal meaning. It is a technical term in the law of the highest order. To qualify as an expert in New York, (and thus be allowed to testify at trial or render an opinion in a submission to the Court), the standards are clear. An expert is qualified to proffer an opinion if he or she possesses the requisite skill, training, education, knowledge, or experience to render a reliable opinion. Even then expert testimony or opinion will ONLY be allowed to aid the jury in examining an issue which requires professional or technical knowledge. While an expert should generally be permitted to offer an opinion on a matter involving professional or scientific knowledge not within the range of ordinary training or intelligence, it must first be shown to have general acceptance in the relevant field." What everyone misses is that the law is clear. There can be no experts when it comes to most procurement cases and the law says that the Broker has to cimple procure what is specifically requested. It is result oriented and the HOW does not matter. Also, there are no accepted standards in the industry like those that guide CPAs or Architects. As to the policy, a broker cannot be an expert as a matter of law when as to the policy, when, for over a hundred years, the law in New York has been that an insured knows the meaning of the provisions of the policy in its possession, and that it understands its terms and conditions.
So, a poor and lazy choice of words in the Murphy case took on a life of its own with Judges often citing the “expertise" language against brokers without the Judges and their law clerks, (who write their opinions), ever bothering to actually read the decision and/or understand its context or the fact that the Murphy Court did NOT find that the Broker there was an expert. JELLO! Worse, and a further example of the JELLO principal, is that many lawyers and Courts cite Murphy to support a Special Relationship argument without bothering to appreciate that the Murphy court REJECTED finding a Special Relationship even though Kuhn was the Broker for 40 years!!!!
What is the current relevance and why this article now?
Recently I have been retained to defend a Broker on a Failure to Procure case with a serious construction accident injury resulting in a denied liability claim. Damages are in the millions. My client, a person of many years' experience and certainly incredibly knowledgeable at what he has done his entire life, consistently referred to himself to me as an “Expert" in construction GL coverage and related. Their website uses the term “expertise" in multiple places. These facts present the perfect storm, the confluence of events that, coupled with Judges who blindly cite a fortune cookie legal statement about the “expertise" of a broker, (both wrong and out of context), can create bad law even more egregious and faster than we can undo.
So, from a purely E&O perspective, make sure your marketing materials and websites do not hold your agency out as an “expert" or having “expertise" or any words to that effect. Do not do that in conversation, correspondence or emails. Understand that while ….yes …you are extremely knowledgeable, as a legal matter you are not experts---------and that is a good thing for preventing and, more importantly, defending and winning E&O claims.
Submitted by:
Howard S. Kronberg, Esq.
Kaufman Dolowich, LLP