For approximately the past 40 years, Felsen has been the insurance broker for the Scotto brothers in their various enterprises. Plaintiffs alleged that Felsen represented itself as an expert in the insurance field. They also allege that Felsen acted as a de facto risk manager for their various business entities.

In 2002, Scotto purchased property in South Brunswick, New Jersey upon which Scotto was going to develop a hotel. Scotto requested that Felsen obtain full and complete insurance coverages to insure Scotto against all manner of peril in connection with the renovation and future operation of that commercial property including, but not limited to, builders risk and business interruption insurance. Felsen claims to have advised Scotto that it could not obtain business interruption insurance for this project.

Felsen placed the insurance on the property and for the project " which did not contain business interruption coverage " and was paid a commission.

During the course of construction, the property was damaged significantly by fire. This is alleged to have caused Scotto to sustain significant financial losses during the construction phase of the project. As a result, the hotel did not open on schedule. Thus, Scotto also suffered losses as a result of not being able to open and operate the hotel.

Scotto alleged that Felsen could have obtained business interruption insurance for this project since several insurance companies were issuing such coverage for this type of project. Scotto sought to recover the damages it allegedly sustained as a result of Felsens failure to procure business interruption insurance.

The complaint alleged three causes of action. The first alleges a claim for negligence. The second alleges a claim for breach of contract. The third alleges a claim for breach of fiduciary duty.

Felsen moved to dismiss the third cause of action, asserting that it did not have a fiduciary relationship with Scotto. Scotto alleged that the length of the relationship and Scottos reliance upon Felsens expertise in the insurance business established sufficient facts to sustain a cause of action for breach of fiduciary duty.

Court Defines Broker-Customer Relationship

The purchase of an insurance policy through a broker does not give rise to a fiduciary relationship between the agent or broker and the customer, held the court. An insurance broker has the obligation to obtain the coverage requested by the customer within a reasonable period of time or to inform the customer of the brokers inability to obtain such coverage.

The Court of Appeals has recognized that exceptional and particularized situations may arise in which insurance agents, through their conduct or by express or implied contract with customers and clients, may assume or acquire duties in addition to those fixed at common law. However, the imposition of those additional duties should be governed by the facts of the particular case and the particular relationship between the parties. Despite this language, no New York court has ever imposed liability upon an insurance broker for breach of fiduciary duty for failing to obtain insurance coverage for a client when the insurance broker has advised the client of the unavailability of or inability to obtain the insurance.

The Court of Appeals recognized that courts in other states had found a special relationship may exist between and insurance broker and a customer when the broker is paid an additional fee for consulting services above and beyond the commissions earned on placement and/or renewal of policies, where there is a longstanding relationship between the customer and the broker and the customer relies upon the brokers expertise as to the coverage or the course of conduct between the customer and the broker establishes that the customer is relying upon the broker advice regarding the type and amount of coverage to be obtained and the adequacy of such coverage.

No Special Relationship

The facts as alleged in the complaint, as supplemented by the affidavit of Peter V. DeSantis, Scottos vice president of Purchasing, do not allege facts sufficient to establish the existence of a fiduciary relationship between Scotto and Felsen. The pleadings and the DeSantis affidavit establish nothing more than a long term insurance broker-customer relationship.

There is no evidence, nor do plaintiffs claim, that Felsen received any compensation from Scotto for consulting services. The only compensation Felsen received was the commissions earned on the placement or renewal of insurance policies.

The bare legal conclusion that Felsen was Scottos de facto risk manager is insufficient without factual allegations to establish such relationship existed. Discovery would not reasonably assist Scotto in obtaining the facts and information necessary to establish the existence of a fiduciary relationship between Felsen and itself.

The courts have recognized that in exceptional circumstances a cause of action for negligent misrepresentation exists where there is a special relationship between the customer and the insurance broker and the customer reasonably relies upon the brokers representations. However, Scotto has pled a cause of action for breach of fiduciary duty; not negligent misrepresentation.

Permitting a customer of an insurance broker to sue for breach of fiduciary duty when the broker inaccurately or negligently advises the client of the unavailability of such insurance coverage would open flood gates of even more complicated and undesirable litigation.

The cause of action for breach of fiduciary duty was dismissed. [IA]

Scotto Princeton LLC v. Felsen Associates Inc., NYLJ 01/23/06 (Supreme Court, Nassau County) (AUSTIN, j)