No Need to Read the Fine Print: The New York Court of Appeals Holds that an Insured's Failure to Read an Insurance Policy Does Not Bar an Action Against the Broker

By Kenneth A. McLellan Esq. & Eric W. Swartz, Esq. of Winget Spadafora Schwartzberg LLP

The New York Court of Appeals, New York’s highest court, recently held on November 19, 2012 in American Building Supply Corp. v. Petrocelli Group, Inc., 2012 N.Y. LEXIS 3476 (2012) that even when an insured fails to read its insurance policy, the insured may still maintain an action against its broker where issues of fact exist as to a request for specific coverage.
Plaintiff, American Building Supply Corp. ("ABS"), brought suit against its insurance broker, Petrocelli Group, Inc. ("Petrocelli"), alleging negligence and breach of contract in connection with Petrocelli’s alleged failure to obtain requested insurance.
Pursuant to a lease agreement, ABS was to obtain general liability insurance for bodily injury and property damage. ABS previously obtained an insurance policy through another broker, Pollack Associates, which was deficient. ABS thereafter hired Petrocelli to obtain a policy that would comply with the requirements in the lease agreement. ABS alleged that it told Petrocelli that only employees entered the premises and it specifically requested general liability coverage for its employees. Despite ABS’ request for specific coverage, Petrocelli obtained a policy that was nearly identical to the previous, defective policy. In October 2005, one of Plaintiff’s employees was injured and ABS’ insurance company disclaimed coverage.
After Plaintiff filed suit, Petrocelli moved for summary judgment, which was denied. The Supreme Court found an issue of fact, reasoning that a jury could conclude that Plaintiff made a specific request for such coverage to the Defendant. The Appellate Division then reversed, holding that Plaintiff’s failure to read the policy precluded recovery. However, the Court of Appeals ultimately agreed with the Supreme Court that issues of fact existed as to whether Plaintiff requested coverage for its employees and whether Defendant failed to procure the requested coverage. The Court of Appeals acknowledged that this would not be a difficult case if it relied only on Plaintiff’s testimony, but found that since only employees entered the premises, the insurance policy obtained by the Defendant would hardly make sense.
The Court of Appeals noted the split in the Appellate Division departments, with some courts holding that where the insured has received the policy, the insured is presumed to have read and understood it, and with other courts holding that the presumed reading of the policy will not bar an action for negligence against the broker. The Court of Appeals went on to say that an insured should have a right to rely on the expertise of their broker and that failure to read the policy may give rise to a comparative negligence defense, but should not bar an action against the broker where questions of fact exist. A strong dissent from a divided Court — the decision was 4-2 — reasoned that it would seem elementary that a person read a contract before they complain of it and stated that they saw nothing in the record to overcome the presumption that ABS assented to the policy terms.
This decision seems to be a departure from the more insurance-broker-friendly Court of Appeals’ decision in Murphy v. Kuhn, 90 NY2d 266 (1997), where the Court held that agents do not have a continuing duty to advise, guide or direct a client to obtain additional coverage. That Court reasoned that an insured is in a better position to know both their own assets and ability to protect themselves than agents or brokers. As a result of the decision in American Building Supply Corp., in a situation where there is a request for specific coverage, an insured’s failure to read the policy may give rise to a comparative negligence defense, but will not bar the suit itself if issues of fact exist. 
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This document has been provided for informational purposes only and is not intended and should not be construed as legal advice. Please consult with counsel in connection with any specific inquiry arising under federal or the applicable state or local laws that may apply to you and your company.


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