Brokers Facing Sandy Lawsuits
An inability to collect on insurance claims due to Superstorm Sandy flooding is beginning to spill over into lawsuits against some insurance brokers and agents.
“It’s a viable claim where it can be established the agent or broker failed to place necessary coverage for an insured, but it’s highly fact specific,” said Thomas J. Pryor, a shareholder and member of Stark & Stark’s Litigation, Alternative Dispute Resolution, and Insurance Coverage and Liability groups.
One recent case involved Landau Holding Inc., which sells Ethan Allen furnishings in New Jersey. In a May 22 lawsuit, Landau claimed it relied on its insurance broker for advice on risk management and mitigation.
That advice was a failure in the wake of Superstorm Sandy, according to a lawsuit, which alleged negligence , breach of contract and professional malpractice by Capitol Risk Management Services (CRMS), its principal Richard Kohlhausen, and Aspen American Insurance Corp.
“Landau specifically asked CRMS to make sure that the inventory stored at [a warehouse owned by MVN Warehousing Inc.] was insured. CRMS represented to Landau that the necessary insurance was in place,” the lawsuit charged.
After the storm flooded the warehouse and damaged $1.5 million worth of furnishings, however, Landau was told its insurance wouldn’t cover the claim, according to the lawsuit.
Landau had asked CRMS to “coordinate MVN’s insurance with Landau’s insurance, to make sure that Landau was fully covered against casualty losses,” according to the lawsuit.
Two other similar claims were made by the Raritan Yacht Club in Perth Amboy, N.J., against its insurance agent, Exemplar International Inc., and carrier, Federal Insurance Co.; and by Cardolite Corp. against its broker, Willis of New Jersey Inc., and carrier, National Union Fire Insurance Co.
“Not everybody who didn’t get flood insurance has a viable claim,” Pryor said. “It’s all about what was the risk and what was the level of communication between the insured and the agent and broker, and what kind of insurance was prudently required for that risk.”
Pryor said he did not expect “a huge wave of these claims, but I think in the right factual circumstances, I wouldn’t be surprised if such claims are being filed.”
According to Robert D. Chesler and Matthew F. Putorti of Anderson Kill, it may be easier to win such a case in New Jersey than in New York, two of the areas hardest hit by Sandy.
New Jersey courts have found insurance brokers to be liable for their failure to procure adequate insurance coverage in a wide variety of circumstances,” they wrote in an article on Law360.
“By contrast, in New York, in order to prevail against a broker for its negligence in procuring coverage, the policyholder must show that it requested a specific type of coverage, that coverage was available and that the broker failed to obtain the requested coverage.”