Insurance brokers in Florida can now be liable to insurance companies which suffer a loss as a result of the broker’s own fraud or negligence in providing information in an application material to the issuance of a policy.
An appellate court in Florida has issued an opinion applying section 552 of the Restatement (Second) of Torts to insurance brokers, thus allowing claims for negligence and fraudulent misrepresentation to proceed against a broker who did not fully disclose all material information relied upon by the insurance company in issuing a policy.
In Liberty Surplus Ins. Corp., Inc. v. First Indemnity Ins. Servs., Inc. (.pdf), Florida’s Fourth District Court of Appeal reversed the trial court’s dismissal of a complaint filed by an insurance company against a broker for, among other things, negligence and fraudulent misrepresentation. The broker had submitted an application for professional liability insurance on behalf of a law firm. The law firm provided full disclosure to the broker of numerous malpractice claims and disciplinary proceedings involving the firm and its members over the preceding 5-year period; however, the broker only forwarded some, but not all, of that information to the insurance company as part of the application. The insurance company issued and subsequently renewed the professional liability policy to the law firm.
After the law firm was sued in a class action for professional malpractice action, the insurance company discovered the information about the prior claims and proceedings that the broker had not disclosed. The insurance company settled the underlying lawsuit against its insured and filed a complaint against the broker to recover the amount it paid. The trial court dismissed the complaint with prejudice on the ground that any misrepresentations or altering of the application by the broker were imputed to the insured and no legal relationship existed between the insurer and broker.
Section 552 of the Restatement (Second) of Torts provides:
(1) One who, in the course, of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Although Florida had previously adopted section 552 and applied it to professionals such as accountants, title agents, and other types of professionals who supply information to business transactions, that provision had never been expressly applied to insurance brokers – until now. The court found the application of section 552 to an insurance broker to be appropriate when the broker submits an application for insurance that fails to disclose material facts about the applicant that the insurer justifiably relies upon in issuing a policy.
As such, insurance companies can now sue brokers in Florida for negligently or fraudulently misrepresenting or withholding material facts in an application for insurance.