At the direction of the Supreme Court of Pennsylvania, the Superior Court of Pennsylvania adopts the “special relationship” test and holds insurance brokers have no duty to inspect property before advising clients on property insurance needs

Wisniski v. Brown, 2006 Pa.Super. 216 (August 15, 2006)

By:  Matthew S. Marrone, Esquire

(mmarrone@lucascavalier.com)

In Wisniski v. Brown, the Superior Court of Pennsylvania (intermediate appellate court) had the opportunity to consider whether an insurance broker breached its duty of care by failing to inspect an insured’s property prior to issuing coverage. 

Mark and Elizabeth Wisniski, doing business as Saturn Surplus, alleged they contacted their insurance agent, Brown & Brown Insurance Co. of Pa., Inc. in 1994 to obtain commercial business insurance for their property.  They allegedly informed the agent they wanted “complete coverage” for their new property, which was apparently located in close proximity to a stream.  The Brown agency did not inspect the property prior to selling a policy to plaintiffs, which contained an exclusion for property damage caused by a flood. 

Saturn Surplus was flooded on September 7, 1999, and plaintiffs subsequently claimed the Brown agency breached its duty of care by failing to conduct a physical inspection of the property prior to issuing insurance for it.  They argued a reasonable inspection would have revealed the need for flood insurance, which was never offered to the plaintiffs.  They further contended the agency never informed them of the exclusion contained within their policy.  The Pennsylvania Court of Common Pleas (trial court) entered summary judgment in the agency’s favor, finding no reasonable jury could conclude the agency had breached its duty to the plaintiffs. 

Plaintiffs appealed the grant of summary judgment, and when the Superior Court originally considered the matter in 2004 (2004 Pa.Super. 211), it reversed, finding summary judgment in the agent’s favor was not appropriate since a jury could find the Brown agency negligent for not inspecting the premises before recommending an insurance package, and for failing to offer flood insurance.  The court concluded in its June 7, 2004 opinion that plaintiffs presented more than enough evidence (including an expert report) for a reasonable jury to find the Brown agency failed to exercise the requisite standard of care.  However, the court specifically noted it was not holding, as a matter of law, insurance agents always have a duty to inspect the businesses for which they offer coverage.  They did, however, claim to adhere to the general rule in Pennsylvania that insurance agents have a duty to exercise the skill and knowledge normally possessed by members of that profession, which is determined upon the circumstances of each individual case. 

The Brown agency appealed the Superior Court’s reversal to the Supreme Court of Pennsylvania, which vacated the holding on December 21, 2005 (887 A.2d 1238) and remanded the case back to the Superior Court to specifically determine whether such a duty claimed by plaintiffs exists under Pennsylvania law.

On remand, the Superior Court reversed itself, and specifically found an insurance broker owes no duty, as a matter of law, to inspect a client’s property before advising the client on property insurance needs.  In doing so, the Superior Court essentially adopted the “special relationship” test, though the Superior Court called it a “confidential relationship.”  Many other jurisdictions have already adopted this test, which basically states an insurance broker has no affirmative duty to evaluate an insured’s risks and recommend insurance coverages unless a “special relationship” between the broker and insured exists.  Some jurisdictions have offered guidance regarding the elements of such a relationship, noting it can be evidenced by an agent (1) exercising broad discretion in serving the client’s needs; (2) counseling the client about specialized insurance coverage; (3) holding himself out as a highly skilled insurance expert coupled with the insured’s reliance on his expertise; or (4) receiving compensation beyond any ordinary commission for the advice or guidance provided.

The Superior Court of Pennsylvania came to a similar conclusion in Wisniski, finding that the question of whether a “confidential relationship” exists between the parties is intensely fact-specific.  However, it further found that “for the great majority of broker-client interactions, the relationship will not be . . . confidential,” and that “for ordinary negligence purposes, the relationship between an insurance broker and client is an arm’s-length business relationship.”  It reinstated the trial court’s grant of summary judgment in the broker’s favor.

The Wisniski case represents – by far – the most important decision in the realm of Pennsylvania insurance broker/agent law in recent years.  It conclusively adopts sound legal analysis from other jurisdictions, and sets favorable precedent (with the Supreme Court’s apparent blessing, no less) which should prove extremely helpful in the future defense of insurance brokers.