The Facts as alleged here, that plaintiff requested specific coverage and upon receipt of the policy did not read it and lodged no complaint, should not bar plaintiff from pursuing this action.

Although the Court of Appeals noted that it is a good idea for the insured to read its insurance policy, it opined that the insured could rely in this regard upon the expertise of the insurance agent or broker:

While it is certainly the better practice for an insured to read its policy, an insured should have a right to “look to the expertise of its broker with respect to insurance matters” (Baseball Off. of Commr. v. Marsh & McLennan, 295 A.D.2d 73, 82 [1st Dept 2002]; see also Bell v. O’Leary, 744 F2d 1370, 1373 [8th Cir 1984]). The failure to read the policy, at most, may give rise to a defense of comparative negligence but should not bar, altogether, an action against a broker (see Baseball Off. of Commr. 295 A.D.2d at 82).

The Court of Appeals found that there were issues of fact as to whether plaintiff requested specific coverage for its employees and whether defendant failed to secure a policy as requested, and thus concluded that it was inappropriate to award summary judgment to the insurance broker because “plaintiff’s failure to read and understand the policy should not be an absolute bar to recovery under the circumstances of this case.”

The Court of Appeals reiterated that ordinarily, absent a special relationship, an insurance agent or broker has the duty to obtain only the insurance that was specifically requested by the insured:

[I]nsurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage” (Murphy v. Kuhn, 90 N.Y.2d 266, 270 [1997]). To set forth a case for negligence or breach of contract against an insurance broker, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy (see Hoffend & Sons Inc. v. Rose & Kiernan, Inc., 7 N.Y.3d 152, 155 [2006]). “A general request for coverage will not satisfy the requirement of a specific request for a certain type of coverage” (Id. at 158).

The facts of the case were as follows:

American Building Supply (ABS) provided building materials to general contractors. DRK LLC sublet a building to ABS. Under the primary lease, DRK was responsible for procuring a general liability insurance policy with a minimum of $5 million in coverage covering bodily injury and property damage from a New York licensed carrier.

Related: Read the article "Personal Umbrella Undersold?" by Matthew S. Marrone.

As part of its sublease agreement, ABS was required to comply with all the terms of the of the original lease agreement, including the provision to procure insurance. ABS hired the insurance broker, Pollack Assocs., which procured a policy from Burlington Insurance Co. The Burlington policy included a cross-liability exclusion that excluded claims between the policyholders (ABS and DRK) as well as all claims asserted by an “employee of any insured.” ABS and DRK then transferred coverage to a new insurance broker, Petrocelli Group Inc. , which renewed the Burlington policy for a second policy year.

ABS asserted that it specifically requested “general liability for the employees ... if anyone was to trip and fall and get injured in any way.” ABS also alleged that Petrocelli was aware that ABS was a wholesale operation and that only employees were on the premises. Neither ABS nor Petrocelli read the policy and, therefore, were unaware that the policy contained the exclusion. The exclusion came to light in October 2005, when an ABS employee was injured after a forklift fell on his leg and Burlington denied the claim pursuant to the cross-liability exclusion. Although the Supreme Court ordered Burlington to provide coverage to ABS, the Appellate Division, First Department (First Department) reversed citing the above-mentioned exclusion.

ABS then sued Petrocelli for breach of contract and negligence for failing to procure the correct policy. Petrocelli moved for summary judgment, but the Supreme Court denied the motion, claiming there were issues of fact for a jury to decide regarding the plaintiff’s request for specific insurance coverage. The First Department reversed, stating that any recovery was precluded because ABS had failed to read and understand the policy. As such, there were no material issues of fact and summary judgment should have been granted.

In the wake of this decision, given that the receipt of the policy defense will no longer act to bar E&O lawsuits, it is important for insurance agents and brokers to review the procedures in place at their agencies for offering coverages, documenting the insured’s specific request for insurance coverage and delivering the insured’s insurance policy.

1. Offer a full range of coverage

Although under the Court of Appeals decision of Murphy v. Kuhn, supra., ordinarily a New York insurance agent or broker has no duty to advise, guide or direct an insured to obtain a particular type or amount of coverage absent a specific request, the prudent insurance agent or broker will offer a wide range of coverage and document the insured’s file with respect to the coverage the insured selected, as well as the coverage that the insured declined. Use checklists to prompt the agent to offer a wide range of coverage. Proposals can reflect the coverage that was offered. Emails and correspondence to the insured can document the coverage that was offered to the insured and detail the coverages that the insured accepted or declined. If warranted, the insured can sign off on major declinations or reductions of coverage.

2. Document insured’s specific request for insurance

With the loss of the receipt of the policy defense, there is little to prevent an insured, after a denial of a claim or a partial claim denial, from alleging that he or she requested whatever coverage is lacking, essentially making agent’s E&O policy substitute coverage. Such an allegation will often be enough to survive the agent’s motion for summary judgment, allowing the insured to get to the jury in an E&O trial.

Related: Read Matthew S. Marrone's article "Clear Compensation."

E&O trials can be expensive and time-consuming and something that most agents or brokers would like to avoid. To strengthen and bolster the agent’s recollection as to what insurance the insured specifically requested, the agent should establish a regularly followed procedure for documenting the insured’s specific insurance request in the insured’s file. This documentation also could include notes as to the insured’s description of the risk. An email or correspondence to the insured documenting the insurance that was specifically requested could prove very useful in defending an ensuing E&O lawsuit. Equally important is careful preparation of the insurance application, which the insured should sign only after the agent instructs him to review for accuracy. A copy of the signed application should be kept in the insured’s file.

3. Deliver insurance policy with an offer to review

Even though the receipt of the insurance policy defense as a complete bar has been eliminated, agents should implement regularly followed procedures surrounding the delivery of the policy to the insured. When the policy comes in to the agency, a knowledgeable and fully trained policy checker should promptly check it against the application for accuracy. The agent also should be familiar with the forms and endorsements of the various polices offered, which can differ from insurer to insurer.

The policy should then be delivered to the insured with a cover letter advising the insured to review the insurance policy and contact the agent with any questions. The cover letter should offer the insured the opportunity to review the insurance policy with the agent. A copy of the correspondence should be kept in the insured’s file.