Claims Against Insurance Broker Dismissed from Sandy Coverage Action

A federal district court in New York recently granted an insurance broker’s motion to dismiss breach of contract, negligence, and consumer protection law claims by a commercial property owner that alleged its property had sustained damage from Hurricane Sandy. Plaintiff, Long Beach Road Holdings, LLC, originally obtained a first mortgage from Westchester Bank on commercial property it owned in Island Park, New York. Under the National Flood Insurance Program, the property had been designated as a flood zone, requiring Long Beach Road Holdings to purchase flood insurance. Long Beach Road Holdings claimed that after it received a notice from Westchester of the flood insurance requirement, it hired Fairmont Insurance Brokers to procure flood insurance. Subsequently, Foremost Insurance Co. issued a standard flood insurance policy (“SFIP”) to Long Beach that provided for $450,000 in coverage.

After the property was damaged as a result of flooding from Hurricane Sandy, Long Beach submitted a claim to Foremost, alleging a net amount of $262,205.78 in property damage. A lead claims examiner for Foremost denied the claim because the policy allegedly did not go into effect until November 2, 2012, several days after the storm hit. Long Beach subsequently sued Foremost and Fairmont. In granting Fairmont’s motion to dismiss the claims against it, the court acknowledged that an insurance broker can be held liable for failure to procure suitable insurance coverage under a breach of contract theory. However, in this case, Long Beach was not denied coverage because Fairmont procured the wrong type of insurance, but because the policy allegedly had not gone into effect at the time the property was damaged. Further, the court dismissed the negligence claim against Fairmont and explained that New York courts have been reluctant to impose additional duties on insurance brokers, including the duties of trust and confidence that are ordinarily placed on other professionals, such as lawyers and engineers.