Broker Beware

When analyzing coverage issues arising out of a hurricane, we in South Carolina often look to states affected by Hurricane Katrina and Superstorm Sandy.  The courts of the Gulf Coast and New York have provided, and continue to provide, an ever evolving body of law addressing coverage in the aftermath of a hurricane.

One ongoing battle in the Southern District of New York involves Alliant Insurance Services, Inc. (“Aliant”) and Cammeby’s Management Co. (“Cammeby’s”).  In that matter, a jury found that Alliant unilaterally lowered the flood coverage for Cammeby’s from $30 million to $10 million for the flood sublimit at the Industry City at Bush Terminal complex in Brooklyn.  Thus, Alliant was ordered to pay Cammeby’s the difference between the policy amounts – the $30 million Cammeby’s originally signed up for less the $10 million already paid out under the new lower limits policy — plus $6.3 million in prejudgment interest.  The most recent move in this case?  Alliant is requesting that the Court discard the jury verdict (which, it should be noted, was found after a 2-week retrial on the issue of New York law of ratification) because the Judge improperly limited that retrial to a ratification defense rather than requiring Cammeby’s to prove that broker negligence had directly caused a reduction in coverage.  The original holding in 2014 was overturned when Alliant successfully argued that the Judge provided an improper instruction to the jury as to ratification.  Alliant has argued, and continues to argue that two Cammeby’s employees knew of the change in policy and “clearly manifested” approval.  In New York, a policy change can arguably be ratified by not objecting to it.   While that may be the law of the land, based on the two verdicts thus far, it appears that New York juries do not buy it.   It is likely that a South Carolina jury would agree with New Yorkers on this issue.  Despite “knowledge” of a thing, South Carolinians would probably agree that it is a bit much to hold that a business has approved the unilateral reduction of coverage limits made sua sponte by a broker.

The case is Cammeby’s Management Company, LLC v. Affiliated FM Insurance Company, 1:13-cv-02814.  If you would like a copy of the recent orders in this case or have a question about the case, please do not hesitate to contact us.

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