The duty an insurance broker owes to its client is to faithfully negotiate and procure an insurance policy according to the wishes and requirements of the client. An insurance broker, however, has no duty to advise its clients of the meaning of provisions of the procured insurance polices. Such was the holding of a recent Appellate Court case, IEC v. Glenview Insurance.
IEC, an industrial box manufacturer, sought insurance for its manufacturing facility. IEC retained Glenview Insurance (“Glenview”) was its insurance broker; Glenview had previously procured policies for IEC. When the time for the renewal of the policy came, Glenview produced premium quotation comparisons from three insurance companies. IEC accepted a premium quotation from the Maryland Insurance Group/Northern Insurance Company (“Maryland”), which was less than their other premium quotation for renewing its expiring policy.
The Maryland policy did not insure against flood damage, but did contain a provision covering damage caused by water backup and sewer overflow. Shortly after the policy became effective, the Aurora area experienced severe rainfall and flooding. IEC’s facility was flooded by several feet of standing water, causing damage to the building and equipment. IEC then filed a claim with Maryland.
Maryland denied IEC’s claim because it determined the damage to be caused by general flooding from surface water. IEC claimed the loss was caused by water backup and overflow from the sewer and, therefore, covered under its policy. IEC filed suit for $2.3 million in damages against Maryland.
At trial, IEC recovered $1.1 million from Maryland. IEC then filed suit against Glenview for breach of contract and negligence to collect the balance of its damages. IEC argued that Glenview had a duty to inform IEC that Maryland might determine that flooding caused by surface water would or could nullify the sewerage overflow coverage. Thus, Glenview’s failure to do the same was negligent. The court ruled that no such duty existed because IEC requested only water backup and sewer overflow coverage and not general flood insurance. Thus, Glenview had no duty to advise IEC that an exception from general flood coverage could nullify coverage under the water backup and sewer overflow provision. The burden to know the meaning of the terms of insurance contracts is on the insured and not the broker.
The court then noted that an insurance broker need only exercise reasonable skill and diligence when the agent negotiates and procures an insurance policy. In this case, because IEC only asked for sewerage backup insurance and not general flood or surface water insurance and Glenview produced a policy that met those requirements, Glenview neither breached its contract nor was it negligent in the procurement of the policy.
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