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August 30, 2018 Practice Points

Massachusetts Court Limits Scope of Duty Owed by Broker to Insured

In many states, an insurance broker will not be responsible for advising the insured as to the coverage needed, unless there is a special relationship between insured and broker

by Annmarie D’Amour

It is imperative that the party responsible for procuring insurance know what is in the policy, how claims are made and whether prior acts are covered. In many states, an insurance broker will not be responsible for advising the insured as to the coverage needed, unless there is a special relationship between insured and broker. A broker familiar with various policy provisions and can provide advice and pricing options, but may not know an insured’s particular circumstances. Whether adequate coverage has been procured should be confirmed by a comprehensive review of the actual policy language. If the insured wants to additionally obtain risk management services, that likely needs to be part of a separate agreement.

These issues played out recently in Perreault v. AIS Affinity Ins. Agency of New England, Inc., No. 17-P-1139 (Mass. App. Ct. Aug. 2, 2018). Here the Massachusetts Appeals Court considered the scope of an insurance broker’s duty in placing a legal malpractice policy. The court held that under the circumstances, the broker (AON) did not have a “special relationship” with the attorney based on the duration and nature of their relationship, and therefore had no obligation to do other than obtain the policy the attorney asked him to buy.

The policy placed by AON did not provide full prior acts coverage, and an expiring policy contained no tail coverage. Thereafter, in September 2008, the plaintiff retained the defendant Simon Mann to represent him in a wrongful death action, which had to be filed by March 2009 based on the statute of limitations.

In May 2009, after the limitations period passed, the defendant obtained a report from a health care professional that the case had merit, but that the limitations period had passed. the defendant did not share the report with the plaintiff, but instead sent the plaintiff a letter stating there was no likelihood of success on the wrongful death claim and terminating the representation.

The plaintiff sought the opinion of another attorney, who determined that the plaintiff had a viable malpractice action against the defendant.

There were three insurance policies potentially at issue, covering the three firms with which the defendant was involved during period he represented the plaintiff. Each of the policies was a “claims made and reported” policy (requiring that the claim be made against the insured and reported to the insurer during the same policy period) from the same insurer, Liberty Insurance Underwriters, Inc. The policies had a “prior acts” date, meaning that coverage would only be available if the malpractice arose on or after that date, and the notice of claim had to be received during the policy or within an “automatic extended reporting period” of sixty days after the policy terminated.

Policy 1: In 2006, the defendant was an associate at Arnowitz & Goldberg (AG). The firm was covered by a professional liability policy (AG policy), but the defendant was not involved in procuring the policy, did not discuss the policy with the firm’s principals, and had limited communications with the broker about the policy.

Policy 2: In 2007, the defendant became one of three managing members of Arnowitz, Goldberg & Mann LLC (AGM). the defendant procured, through a broker (AON), liability insurance coverage for AGM (AGM policy). The broker assisted the defendant in filling out the application. Although the defendant claimed to have relied “exclusively” on the broker’s advice, the broker did not evaluate the firm’s particular coverage needs and was not asked to provide risk management services or consultation regarding the scope of coverage that AGM might need.

Policy 3: In late December 2009, after the defendant withdrew from AGM and opened his own firm (“Mann Firm”). He contacted the same broker to obtain a malpractice policy for the Mann Firm, again claiming that he relied upon the broker, and requested that the insurance commence January 4, 2010. the defendant did not disclose the plaintiff’s claim, but in an email exchange with the broker, he stated that “he needed coverage for all my past work since I first became an attorney in 2006.”

The broker advised the defendant to make the AGM policy payment in December 2009, “so that [it] does not cancel so we can offer you prior acts.” the defendant made the payment, but a few days later instructed the broker to cancel the AGM policy, and the AGM policy was canceled as of December 31, 2009. While the defendant had the option of purchasing an additional period of extended claim reporting, he did not.

the defendant worked with another AON broker to complete the application for the Mann Firm, manually checking a box indicating that it was a policy with a January 4, 2010 prior acts date (meaning that no acts prior to that date would be covered). On February 2, 2010, a new policy issued for the Mann Firm effective from January 4, 2010 to January 4, 2011, with a prior acts date of January 4, 2010, and no tail (an extended notice period) . After receiving the Mann Firm policy, the defendant did not review it.

In March 2010, the plaintiff sent a demand letter to the defendant pursuant Mass. G.L. c. 93A, and commenced a malpractice action against him. the defendant sought insurance coverage from Liberty for the plaintiff’s claims. Liberty declined coverage under two of the three policies: the AGM policy and the Mann Firm policy because it was not in effect until January 4, 2010, and did not have prior acts coverage before that date or a tail. Liberty did, however, agree to provide a defense under the AG policy. the defendant settled with the plaintiff, assigning all of his rights to any claims against Liberty and AON to the plaintiff.

Thereafter, the plaintiff commenced separate actions against Liberty and AON; the Liberty action concluded prior to the subject appeal. As against AON, the plaintiff alleged causes of action for negligence, breach of contract and violation of G.L. c. 93A. AON was granted summary judgment and the plaintiff appealed.

The court was asked to define the scope of the duty between insured and broker. Absent “special circumstances,” there is “no general duty of an insurance agent to ensure that the insurance policies . . . provide coverage that is adequate for the needs of the insured.” An agent may acquire a greater duty of investigation, advice or assistance or of “due care” by reason of factors creating “special circumstances,” such as (1) a prolonged business relationship; (2) the complexity and comprehensiveness of the customer’s coverages; (3) the frequency of contact between a customer and agent to attend to the customer’s needs; and (4) the extent to which the customer relies on the advice of the agent due to the complexity of the policies. Enhanced duties can also arise “when the agent holds himself out as an insurance specialist, consultant or counselor and is receiving compensation for consultation and advice apart from premiums paid by the insured.”

The appellate court concluded that the defendant did not have a prolonged business relationship with AON, and was not involved in procuring the AG policy. He did not personally communicate with AON until 2007, and then in 2009 when he opened the Mann Firm. Further, the defendant’s insurance needs were not complex, but were limited to basic malpractice liability insurance, and AON was not requested to provide risk management services regarding the scope of insurance that each of the firms might need. Moreover, contrary to the plaintiff’s contention, the statements on AON’s website did not create a special relationship where the statements identified did not deal with the services the defendant requested, and there was no allegation that the defendant had even relied upon those statements.

A special relationship was also not created by the defendant’s email that he needed coverage for all his past work as an attorney. the defendant was expressly advised by AON that he needed to ensure that the AGM policy premium was made, and the policy was not canceled. But the defendant failed to take AON’s advice, requested that the AGM policy be canceled and that the prior acts coverage for the Mann Firm policy commence as of January 4, 2010. Further, he did not request a tail, despite AON’s advice to read the pertinent clause regarding coverage extensions. The defendant was obligated to read the policy, which he conceded that he did not, rather than rely upon representations of the insurance broker.

Because there was no duty running from AON to the defendant, summary judgment was properly granted on the negligence claim as a matter of law.

The plaintiff argued that, even if there was no special relationship, AON’s failure to procure prior acts coverage was a breach of contract. the plaintiff again relied upon the defendant’s e-mail exchange with AON wherein he stated that he needed coverage for all his past work as an attorney since 2006. But AON had responded that the defendant should make sure that the AGM policy was not canceled so that prior acts coverage could be offered. The court concluded that this exchange did not set forth the material terms of an agreement. Further, the defendant requested that the AGM policy be canceled and never requested a tail or prior acts coverage going back to 2006. Consequently, no contract was made.

In the absence of a special relationship there was no merit to the plaintiff’s claim under Chapter 93A, the Massachusetts consumer protection act, which forbids “unfair and deceptive acts or practices. Viewed in the light most favorable to the plaintiff, the plaintiff simply had not presented any evidence that AON’s handling of the insurance requests constituted an unfair or deceptive act under the statute.

Annmarie D’Amour is with Hinshaw & Culbertson LLP, Chicago, IL.

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