Notification of Updated Information to Insured Does Not Pose Liability on an Insurance Company

Notification of Updated Information to Insured Does Not Pose Liability on an Insurance Company

AgentsofAmerica.ORG | By Draft n Craft Legal Outsourcing Pvt. Ltd.

South Bay Cardiovascular Assoc., P.C. (insured) sued SCS Agency, Inc. (insurance agent) and its insurer Travelers Indemnity Company of Connecticut for negligence, breach of contract, and breach of fiduciary duty, claiming that SCS failed to inform South Bay of the change in coverage for employee dishonesty by Travelers. The Supreme Court of New York, Appellate Division affirmed the lower court’s summary judgment award in favor of third-party defendant Travelers. There was initially a triable issue of fact as to whether SCS had a special relationship with South Bay. There were records containing evidence of dealing over an extended period of time between both the parties, which in turn gave rise to a special relationship between them. SCS had no duty to indemnify South Bay, owing to Traveler’s notice of revisions to South Bay. South Bay Cardiovascular Assoc., P.C. v. SCS Agency, Inc., 2013 N.Y. App. Div. LEXIS 2503 (April 17, 2013)

South Bay had purchased commercial insurance policies from Travelers through SCS. The case revolved around the indemnity provision of the agency contract between SCS and Travelers whereby Travelers agreed to indemnify SCS for liability arising out of the failure of a policyholder to receive notice affecting coverage. The coverage limit for employee dishonesty was $250,000. However, in 2005, Travelers merged with another insurance company and made changes to its commercial liability policies. Amongst these changes was the reduction of the coverage for employee dishonesty to a limit of $25,000, which was notified to South Bay by Travelers.

South Bay’s complaint was that it relied upon SCS to inform about any updated information. In October 2007, South Bay agreed to release Travelers in exchange for a $25,000 payment under the policy and subsequently brought this action. Thereafter, the SCS defendants commenced a third-party action against Travelers seeking contractual and common-law indemnification.

The Appellate division stated that where the insured relied on the expertise of the agent, or where there was a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on the agent, could be found to have a duty to advise because of a special relationship with the insured. Further, the South Bay employee who did not read the policies stated that she had no special training in procuring insurance and that she did not choose coverage on her own. Therefore, the lower court properly denied that branch of the motion of the SCS defendants which was for summary judgment dismissing the complaint insofar as asserted against SCS.

Finally, the Appellate Division opined that a contract to provide indemnity is strictly construed to avoid reading into it as a duty which the parties did not intend to be assumed. The indemnification provision in the contract between SCS and Travelers unambiguously applied upon failure of a policyholder to receive notice affecting coverage. As Travelers sent the notice of revisions directly to South Bay, and South Bay actually received the notice of revisions, which notice informed South Bay of changes affecting coverage, the duty to indemnify was not triggered. In opposition, the SCS defendants could not raise a triable issue of fact.

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