Producer's Edgeby Isaac Peck, Publisher
If you’ve been an insurance agent for any length of time, chances are you’ve pre-filled an application for one of your clients before.
Depending on your agency’s focus and client type, helping your client fill out their insurance application, or, if we’re being honest, filling out their application for them, may be very commonplace for you, or it might be rather rare.
The practice varies widely depending on the type of clientele an agent is dealing with, the type of business the agent is writing, and even the size of the account.
While it is somewhat common with many insurance agents, a recent lawsuit against an insurance agent, Kaufman v. P&G Brokerage Inc., highlights the very real danger that exists when an agent does not check the answers on the application with the client or get the client’s signature on the application before binding coverage.
In this case, despite the insurance agent’s protestations and best legal arguments, the New York Supreme Court ruled that they could be held solely liable for negligence and failing to properly manage a client’s insurance policy renewal, which the plaintiff ’s argued resulted in a denied fire damage claim.
Here’s the details of what happened.
Background
In 2016, Meyer Kaufman, the plaintiff and property owner, engaged P&G Brokerage Inc. (P&G) to procure and maintain insurance coverage for a small apartment building that he owned in Brooklyn, New York. P&G obtained a policy from Union Mutual Fire Insurance Company (Union), with automatic annual renewals requiring updated applications. For Kaufman’s policy documents and renewal applications, P&G designated an internal P&G email address as the main email contact point.
During the 2019 and 2020 renewal processes, Union added the following question to the insurance application: “Are any of the habitational units rented to anyone other than individuals on a long term lease for their exclusive use and that of their immediate families?”
Kaufman alleges that P&G, without consulting him, inaccurately answered this question “No,” despite the property being leased through Iris House, a non-profit intended to assist those living with HIV/ AIDS and other health issues. Iris House had subsequently subleased to an individual named Rasheed Murdaugh, who had made an agreement with the non-profit to lease one of the apartment units for 30 percent of his income. The renewal applications that P&G submitted to Union were not forwarded to Kaufman, nor was he consulted with respect to how the applications were completed, the suit alleges.
Fire and Denied Coverage
In March 2021, a fire damaged the property, prompting Kaufman to file an insurance claim. Union denied the claim, citing material misrepresentation in the renewal applications regarding the leasing arrangement, leaving Kaufman without coverage for the loss.
In July 2022, Kaufman then sued P&G for negligence and breach of contract, asserting that the broker’s mishandling of the renewal process led to the denial of its insurance claim.
P&G responded to Kaufman’s claims by denying liability, raising 25 affirmative defenses, and then filing a third-party complaint against Iris House and Murdaugh, alleging their lease and tenant relationship contributed to the coverage dispute. P&G further argued that Iris House’s own negligence and contractual obligations means that they were responsible for the fire and, at a minimum, should contribute to the losses. The court was tasked with evaluating whether the broker’s actions—or thirdparty defendants’ involvement—were at fault for the plaintiff’s uncovered losses.
P&G’s argument essentially was akin to “equitable subrogation,” as it attempted to make the tenant, and its subtenant partially (or wholly) liable for the fire and the damage, irrespective of its own alleged negligence. This is a move that is not uncommon for insurance carriers, who sometimes subrogate (meaning to put someone or something in the place of another, especially in the context of legal rights or claims) against third-parties and attempt to recover damages that they paid out on behalf of their original insured. This was the first case in New York where an insurance agent or broker attempted to use this legal principle in their defense to “spread out” the liability. For this reason, P&G’s counterclaim was escalated to New York’s Supreme Court, Kings County.
Side Note: An example of subrogation would be a property insurer paying a fire claim on an insured property, but then subrogating the claim against the manufacturer of a television that was in the property and was determined to be the cause of the fire (let’s say the fire investigation determined that the television malfunctioned and spontaneously caught fire, causing the fire). The property insurer in a case like this may make a payment to its insured to cover the fire loss, but then subrogate, i.e. take the place of the insured, and sue the television manufacturer and allege that since it was their product was the cause of the fire, they should pay for all damages and losses associated with the fire—essentially reimbursing the insurance carrier for what they paid the insured.
Conclusion
The New York Supreme Court ultimately sided with Iris House and dismissed P&G’s third-party complaint. It ruled that P&G was not entitled to indemnification, as the broker was not a third-party beneficiary of Kaufman’s lease with Iris House. Further, the court found that P&G’s alleged failure to maintain accurate records and disclosures was independent of any duties Iris House owed to Kaufman as a tenant. Consequently, P&G could not seek common law indemnity, as it would not be unjust for P&G to bear full liability for its own handling of the insurance policy.
While the New York Supreme Court ruled against P&G’s interpretation that the property tenants should share in the liability on the property loss, Kaufman’s (the actual property owner) case against P&G was still not decided and litigation continued until September 2024, when Kaufman’s attorneys filed a Stipulation of Discontinuance and the case was dismissed. This type of dismissal is not uncommon if a case is settled confidentially.
The case clarifies that insurance brokers may be held fully liable for failing to properly manage renewals or get a signature on the application. Insurance agents are no strangers to helping a client fill out their insurance applications, but this saga drives home an important lesson: the client needs to review, approve and sign the insurance application to ensure the accuracy of the answers.
This case provides an important reminder of how coverage can be at stake and litigation can ensure when the agency doesn’t get a fresh signature on the insurance application.
Stay safe out there!
