Ignore the Fine Print and Sue the Broker

November saw the New York Court of Appeals hand down an important decision in insurance law, one that dramatically changes the balance of responsibilities between producers and insured parties. New York’s lower and intermediate courts have for some time held a lively debate on the question whether the policyholder has a duty to read and understand the policy, but the rule has been that if you don’t understand the policy you had better ask questions. The leading case, Metzger v Aetna Ins. Co., 227 NY 411, 416 [1920], held that the policyholder is presumed to know the contents of the policy, and is barred from suing the producer  for getting the coverage wrong if he retains the policy without objection. New York’s highest court took up the question anew in American Building Supply Corp. v Petrocelli Group, Inc. and answered the question in the negative: the policyholder is entitled to rely on the expertise of the producer in obtaining the requested insurance. A lively dissent by Judge Pigott does not change the holding: the policyholder can sue the producer even after years of renewals. It’s a dangerous development in the law for producers. However, the current ability of producers to duck responsibility for getting the coverage wrong certainly needed a correction. The Court may have overcorrected, but the case certainly opens the curtains on vast vistas of insurance broker liability.

Prudent brokers have already ramped up their quality assurance programs.

American Building Supply Corp. v Petrocelli Group, Inc., No. 181, Decided November 19, 2012.

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