When Does a Special Duty Arise in A Breach of Co

We’ve previously discussed the general idea that in New York a simple breach of contract does not give rise to tort liability – because no special duty typically exists outside of the contract. The Appellate Division of the Supreme Court of New York, Fourth Departmentrecently heard motions addressing exactly this point in the case of 5 Awnings Plus v. Moses Insurance Group.

Background of the Case

Defendant was an insurance agent for a company known as API. He obtained worker’s compensation insurance for them through NYSIF (NY State Insurance Fund.) Plaintiff 5 Awnings Plus eventually bought API and the defendant offered to get insurance for plaintiff.

The defendant, Moses, advised the plaintiffs to sign an agreement that would transfer the worker’s comp insurance policy from API to 5 Awnings. Unfortunately, plaintiff didn’t know that API owed money (premiums) on the policy and shortly after the transfer, NYSIF sued the plaintiff to recover about $12,000, which the plaintiff wound up paying.

Plaintiff, in this lawsuit, sued defendant to recover $12,000. Plaintiff’s theory was that defendant knew or should have known of the money owed, and thus the defendant gave the plaintiff improper advice. The defendant argued that the complaint should have been dismissed, and when the lower court rejected that argument, defendant appealed to the Fourth Department.

Triggering of a Special Duty

Plaintiff, in sum, argued that defendant owed it a duty – specifically to warn it about problems with the API policy assignment and transfer. The court first looked at the insurance business in New York to craft some general guidelines. It found that the applicable standard was that “an insurance agent’s duty to its customer is generally defined by that customer’s request for coverage.” Unless there is a special request or existing obligation to do so, there is, as a general rule, no requirement for the insurance agent to advise, direct or guide the client. Plaintiffs, seeking to recover for breach of contract or negligence must show that a specific (or special) request was made for coverage not included in the policy. A general request for coverage is not enough to satisfy this element.

Here, the plaintiff asked for the defendant to obtain “the best policy value” for its insurance coverage. The court ruled that this was the exact kind of request that was insufficient to trigger a special duty. The words “best policy value” seem vague and like boilerplate, not a specific or special request. The contract of transfer that the plaintiff signed stated on its face that plaintiff would be responsible for any amount owed.

Thus the court ruled that the elements for breach of contract had not been met. There was no specific request for coverage that defendant failed to meet, just general language that did not amount to a specific request.

Additionally, for similar reasons, no special duty between defendant and plaintiff was triggered. Negligence requires a duty to be breached, and in the insurance agent sphere, under established New York law, a duty does not arise unless a special request for coverage was made – which it was not in this case. Absent any kind of duty, claims for negligence must necessarily fail.

The court reversed the lower court’s rulings and granted the defendant full dismissal of the breach of contract and negligence claims.

It is important to retain competent counsel both when entering into contracts and litigating disputes over breach of contract, especially in areas such as insurance purchases that may have subtle downstream consequences. Please do not hesitate to contact our office for a consultation.