Defense Digest Vol. 12, No. 4, December 2006 Pennsylvania Aca,!aEURoe Professional Liability

In the recent decision Wisniski v. Brown & Brown Ins. Co. of Pa., 2006 Pa. Super. 216, 2006 Pa. Super. LEXIS 2157 (Pa. Super. 2006), the Pennsylvania Superior Court considered whether an insurance broker has a duty to inspect a business property for purposes of offering flood insurance. The plaintiffs Mark and Elizabeth Wisniski were the owners of certain commercial property located in Millersburg, Dauphin County, known as Saturn Surplus, where they operated a military surplus supply store. The store flooded on September 7, 1999, when a stream traversing the property overflowed its banks into the building, allegedly causing damage to the structure and its contents in excess of $375,000. The plaintiffs initially had contacted Brown & Brown Insurance Company of Pennsylvania ("the Brown Agency"), an insurance brokerage, prior to purchasing the subject property in 1994, to obtain commercial business insurance for the property. The plaintiffs alleged that, although the two Brown Agency representatives with whom they spoke recommended that they obtain commercial property and liability coverage, neither representative inspected the property before selling the policy to the plaintiffs. The policy ultimately was placed with EMC Insurance Company ("EMC"). The plaintiffs claimed that neither of the defendants informed them that their insurance policy contained an exclusion for property damage caused by flooding or that flood insurance was available for an additional premium. From 1994 through 1998, the plaintiffs continued to renew their policy. Sometime during 1995, EMC directed a representative to inspect the plaintiffsAca,!a,,c property to perform a risk analysis with respect to the insurance coverage. The plaintiffs alleged that during the inspection, the EMC representative identified various risks and made recommendations to the plaintiffs to minimize those risks. The representative also noted that the property was located directly across a highway from the Susquehanna River and that a stream traversed the property beneath the building. Nonetheless, the EMC representative did not recommend to the plaintiffs that they obtain flood insurance coverage. After a flood occurred in September 1999, the plaintiffs notified the Brown Agency of the loss. They were informed, however, that no coverage was available for the flood damage. In their Complaint, the plaintiffs alleged that the Brown Agency, EMC and their respective representatives breached a duty to "exercise the skill and knowledge normally possessed by members of the insurance profession in good standing in similar communities," relying upon the Restatement (Second) of Torts 2d, A,?299A. The gravamen of the plaintiffsAca,!a,,c Complaint was that the defendants breached their duty by failing to investigate their insurance coverage needs, inspect the property, inform them that flood insurance was not included in the policy, or recommend to the plaintiffs that they purchase flood insurance. The Brown Agency and EMC each filed motions for summary judgment, and the plaintiffs responded to the motions. The trial court granted the Brown AgencyAca,!a,,cs motion but denied EMCAca,!a,,cs motion. Both plaintiffs and EMC appealed. In a published opinion, the Superior Court quashed EMCAca,!a,,cs appeal and heard the plaintiffs' appeal on its merits. See Wisniski v. Brown & Brown Ins. Co. of Pa., 2004 Pa. Super. 211, 852 A. 2d 1206 (Pa. Super. 2004). The Pennsylvania Supreme Court granted the Brown AgencyAca,!a,,cs petition for allowance of appeal. The Supreme Court issued a per curiam Order vacating the Superior CourtAca,!a,,cs decision and remanded for reconsideration of whether a duty exists, directing the court to apply the five-prong test previously set forth in Althaus v. Cohen, 562 Pa. 547, 756 A.2d 1166 (Pa. 2000). See Wisniski v. Brown & Brown Ins. Co. of Pa., 585 Pa. 44, 887 A. 2d 1238 (Pa. 2005). The Court in Althaus reasoned that courts should consider the following factors in determining the existence of a duty: (1) the relationship between the parties; (2) the social utility of the actorAca,!a,,cs conduct; (3) the nature of the risk imposed and forseeability of the harm incurred; (4) the consequence of imposing a duty upon the actor; and (5) the overall public interest in the proposed solution. In considering the first factor Aca,!aEURoe the relationship between the parties Aca,!aEURoe the Wisniski Court concluded that no principal/agent relationship existed between the plaintiffs and the Brown Agency, noting that the Agency was merely a broker and "lacked the power to bind [Plaintiffs] to any particular insurance contract." Further, the court concluded, "for ordinary negligence purposes, the relationship between an insurance broker and client is an armAca,!a,,cs length business relationship." In applying the second factor Aca,!aEURoe the social utility of the actorAca,!a,,cs conduct Aca,!aEURoe the court reasoned "there is significant social utility in inspecting a property before advising a client about its insurance needs." The court noted that an inspection may assist a broker to better understand the risks that a particular client faces, the value of the assets to be insured, and the overall scope of appropriate coverage. The court also reasoned, however, that "brokers are not necessarily specialists in loss prevention or property inspection, so the social utility of a brokerAca,!a,,cs inspection may be limited."