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(Article from Insurance Law Alert, March 2015)

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Although it is well established that insurance brokers owe a duty of reasonable care to their clients, a broker generally has no duty to provide specific coverage advice unless the broker and the insured have a "special relationship." The existence of a special relationship depends on several factors, including but not limited to the following: (1) whether the broker holds himself out as a highly-skilled expert; (2) whether the policyholder relied on the broker’s expertise in its coverage decisions; and (3) whether the broker received compensation, above the customary premiums, for the advice provided. Although this inquiry is inherently fact-driven, courts frequently dismiss special relationship allegations as a matter of law. In a recent decision, however, the Indiana Supreme Court ruled that summary judgment was improper because questions of fact existed as to a special relationship. Indiana Restorative Dentistry, P.C. v. Laven Ins. Agency, Inc., 2015 WL 1087199 (Ind. Mar. 12, 2015).

The Indiana Supreme Court held that the factual record supported "conflicting inferences" as to a special relationship. Several factors mitigated against a finding of a special relationship: the broker received no extra commission for specialized expertise; the parties had not met in person until the insurance claim at issue arose; and policy limit increases were typically initiated by the policyholder rather than the broker. However, the court noted that other evidence weighed in favor of a special relationship: the extensive length of the parties’ relationship; the issuance of annual questionnaires by the broker to the policyholder about insurance needs; the broker’s representations in marketing materials that it was an "authorized administrator" for the specific type of coverage at issue; and the broker’s routine distribution of "risk review" newsletters (authored by a third-party) to clients. In denying summary judgment, the court noted the "high bar" for summary judgment under Indiana law and emphasized that special relationships remain the exception rather than the rule.

As reported in our March 2014 Alert, the New York Court of Appeals similarly reversed a summary judgment ruling in favor of a broker, finding questions of fact as to a special relationship. Voss v. Netherlands Ins. Co., 2014 WL 804129 (N.Y. Feb. 25, 2014).