Voss v. Netherlands Ins. Co.

• Citation: 8 N.E.3d 823,2014 N.Y. Slip Op. 01259,22 N.Y.3d 728,985 N.Y.S.2d 448
• Parties: Deborah VOSS et al., Appellants, v. The NETHERLANDS INSURANCE COMPANY et al., Defendants, and CH Insurance Brokerage Services, Co., Inc., Respondent.
• Decision Date: 25 February 2014
• Court: New York Court of Appeals

22 N.Y.3d 728

8 N.E.3d 823

985 N.Y.S.2d 448

2014 N.Y. Slip Op. 01259

Deborah VOSS et al., Appellants,

v. The NETHERLANDS INSURANCE COMPANY et al., Defendants,andCH Insurance Brokerage Services, Co., Inc., Respondent.

Court of Appeals of New York.

Feb. 25, 2014.

Dirk J. Oudemool, Syracuse, for appellants.

Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Albany (Thomas M. Witz and Benjamin F. Neidl of counsel), for respondent.

OPINION OF THE COURT

GRAFFEO, J.

The primary question before us in this insurance dispute is whether a special relationship existed between the insureds and their insurance broker. Under the circumstances of this case, we conclude that the broker failed to meet its burden justifying summary judgment and dismissal of the complaint is not warranted.

This action arises out of property damage and the consequent business interruption sustained by plaintiff insureds as a result of water damage that occurred following three separate roof breaches in 2007 and 2008. Plaintiffs are Deborah Voss and three business entities owned and controlled by her: Prop–Co, LLC; Classi People, Inc., doing business as Sertino's Cafe; and Dream People, Inc., doing business as Shiver Model. The water damage occurred in a commercial building owned by Prop–Co at 105 First Street in Liverpool, New York, where Voss operated her businesses. The only defendant on this appeal is CH Insurance Brokerage Services, Co., Inc. (CHI), plaintiffs' insurance broker.

Voss began her relationship with CHI in 2004, before the purchase of the 105 First Street property. At that time, Voss operated two modeling agencies, Shiver Model and another entity, at 7145 Henry Clay Boulevard in Liverpool. Voss met with a representative of CHI, Joe Convertino, Jr., to discuss insurance coverage for the premises and her two companies. At the initial meeting, they discussed property insurance, professional liability coverage and business interruption insurance.¹ Convertino asked Voss to disclose sales figures and other pertinent information to enable him to calculate an appropriate level of business interruption coverage for her companies. According to Voss, Convertino also represented that CHI would reassess and revisit the coverage needs as her businesses grew.

At a follow-up meeting, Convertino recommended a comprehensive policy with defendant The Netherlands Insurance Company (formerly Peerless Insurance Company) that afforded, as relevant here, $75,000 per incident in coverage for business interruption losses. When Voss questioned whether the $75,000 limit was adequate, Convertino allegedly assured her that it would suffice based on the condition of the building as well as the size of her businesses. According to Voss, Convertino also averred that he calculated the level of coverage at a threshold level and reemphasized that, each year, CHI “would take it up as the business evolved.” As a result, Voss accepted Convertino's recommendations and paid the premium for the Netherlands policy. No claims under the Netherlands policy were made while the businesses were located at Henry Clay Boulevard.

In April 2006, Prop–Co purchased the 105 First Street premises. The new building had two stories and contained more than twice the square footage of the previous location. Voss decided to move Shiver Model to the second floor and planned to open two new businesses in the same building—Sertino's Cafe and the Glass Terrace, a catering and banquet business.² After Voss discussed the move and the new business arrangements with Convertino, CHI renewed the Netherlands policy with the same $75,000 business interruption limit for the new location and entities. Sertino's Cafe opened in the fall of 2006 and, by early 2007, Shiver Model had moved to 105 First Street and the Glass Terrace was in operation.

The first loss occurred in March 2007, when Voss arrived at work and discovered multiple leaks in the roof with dripping water. The damage disrupted her business operations and a roofing contractor, defendant D.R. Casey Construction Corporation, was retained to replace the roof. The following month the new roof failed, resulting in far more extensive water damage to both floors of the premises. All three businesses were required to close for various periods of time. Netherlands treated these two roof breaches as separate occurrences under the business interruption policy (for a maximum potential of $150,000 in coverage) but, according to Voss, delayed making any payments. Apparently, plaintiffs ultimately recouped only $3,197 for the first loss and $30,000 for the second loss.

Meanwhile, in the midst of dealing with the roofing issues in the spring of 2007, Voss met with another CHI representative, Carrie Allen, to discuss the renewal of the Netherlands policy. When Voss received a proposal indicating that the business interruption coverage would be reduced from $75,000 to $30,000, she asserts that she questioned Allen about the reduction and Allen's response was that she “would take a look at it.” Voss did not follow up, however, because she was preoccupied with the building's extensive property damage. When the Netherlands policy was renewed in April 2007, it reflected a per occurrence limit of $30,000 in business interruption coverage. In August 2007, Sertino's Cafe was closed and Voss opened a new dining establishment, Bistro 105, in its place.

In February 2008, the roof failed a third time, causing significant damage to the premises and further disrupting Voss's businesses.³ In May 2008, while the insurance claims stemming from the third loss were still pending, plaintiffs commenced this action against CHI, Netherlands and D.R. Casey, the roofing contractor.⁴ As relevant to this appeal, plaintiffs alleged that a special relationship existed with CHI and that CHI had negligently secured inadequate levels of business interruption insurance for all three losses.⁵

Following discovery, CHI moved for summary judgment dismissing the complaint. CHI advanced three arguments in favor of dismissal. First, CHI asserted that no special relationship was created and, in the absence of a specific request by the insureds for coverage that went unfulfilled, CHI could not be held liable for failing to recommend or obtain higher limits. Second, it contended that the negligence claim failed based on Voss's admission that she had received the policies and was fully aware of the $75,000 policy limit that applied to the first two losses and the $30,000 policy limit in effect at the time of the third loss. Third, CHI claimed that, even if a special relationship existed, any breach of its duty to plaintiffs was not the proximate cause of their injuries. Instead, plaintiffs' damages occurred because Netherlands failed to timely pay the policy limits.

Supreme Court granted CHI's motion and dismissed the complaint, agreeing with each of CHI's contentions. The Appellate Division, with one Justice dissenting, affirmed (96 A.D.3d 1543, 947 N.Y.S.2d 253 [4th Dept.2012] ). The majority disagreed with Supreme Court on the special relationship issue, finding that CHI had failed to meet its burden of demonstrating the absence of a special relationship. Nevertheless, the majority concurred with the other two rationales and upheld Supreme Court's dismissal. The dissent agreed with the majority that a question of fact existed on the special relationship issue but sided with plaintiffs on the other two questions. The dissent reasoned that, assuming a special relationship existed, it was irrelevant whether plaintiffs were aware of the policy limits and that the proximate cause issue could not be decided as a matter of law on this record.

We granted plaintiffs leave to appeal (20 N.Y.3d 860, 2013 WL 538342 [2013] ), and now reverse.

As a threshold matter, CHI asserts that we need not address the alternative bases upon which the Appellate Division upheld the dismissal of the complaint because, contrary to the conclusion reached by both the majority and the dissent at the Appellate Division, the record does not support the existence of a special relationship between CHI and plaintiffs. CHI contends that, even read in the light most favorable to the nonmoving party—here, plaintiffs—the evidence confirms only the existence of an ordinary broker-client relationship. Plaintiffs counter that the Appellate Division correctly determined that CHI failed to meet its initial burden of tendering proof that no special relationship arose between them.

On a motion for summary judgment, the moving party (here, CHI) has the burden to establish “a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” ( Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324, 508 N.Y.S.2d 923, 501 N.E.2d 572 [1986] ). If the moving party fails to meet this initial burden, summary judgment must be denied “regardless of the sufficiency of the opposing papers” (Vega v. Restani Constr. Corp., 18 N.Y.3d 499, 503, 942 N.Y.S.2d 13, 965 N.E.2d 240 [2012] [internal quotation marks, citation and emphasis omitted] ). In other words, the burden does not shift to the non-moving party to persuade the court against summary judgment. We agree with the Appellate Division that CHI failed to meet its threshold burden on the special relationship issue.

As a general principle, insurance brokers “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” ( American Bldg. Supply Corp. v. Petrocelli Group, Inc., 19 N.Y.3d 730, 735, 955 N.Y.S.2d 854, 979 N.E.2d 1181 [2012] [internal quotation marks and citation omitted] ). Hence, in the ordinary broker-client setting, the client may prevail in a negligence action only where it can establish that it made a particular...