Hotline Support

Beware of COVID-19 “Name the Broker” Lawsuits – Legal Update For Insurance Agents & Brokers

FINRA Special Alert Offers Observations on COVID-19 Remote Work and Supervisory Practices
June 19, 2020
New FinCen Guidance on the CDD Rule, Cyber Fraud and Virtual Currency Scams Exploiting Twitter
September 1, 2020

timothy g ventura

By Timothy G. Ventura, Esq., Vice Chair, Philadelphia Professional Liability Practice Group
This week a federal judge in Texas granted an insurance broker’s dismissal from litigation involving a COVID-19 business interruption coverage dispute. While there have been a flood of suits filed nationwide by policyholders against insurers seeking declaratory judgments that coverage should be owed for business interruption losses resulting from government closures due to COVID-19, some plaintiffs are already naming insurance agents/brokers in these actions before the coverage claim is adjudicated.
Naming the broker may simply be an attempt to defeat federal court diversity jurisdiction to enable plaintiffs to maintain these actions in state court, a perceived better forum. A common tort claim pled for negligent misrepresentation against the broker – e.g., an alleged misrepresentation that the policy would or would not cover the pandemic loss – should often fail as a matter of law at the pleadings stage for legal insufficiency where there is no breached duty that caused harm. Brokers may also seek dismissal for lack of damages, i.e., the monetary damages sought against the broker are identical to those sought against the insurer co-defendant on a contract/coverage claim. Agents and brokers should move to dismiss these actions before discovery whenever possible, while also alerting the court to potential misjoinder for diversity purposes.
In practice, the Texas case serves as a timely reminder that brokers should avoid making statements that a claim is or is not going to be covered. Coverage determinations are the responsibility of the insurer, and policy language varies. You can read about the case on Law360.

Insurance Broker Ducks Dallas Eatery Co.’s Virus Loss Suit

Presented by the Insurance Agents & Brokers Practice GroupEdited by Timothy G. Ventura, Esq.
Should you have additional inquiries, please contact:
Christopher E. Dougherty, Esq.Director, Professional Liability Department
Craig S. Hudson, Esq.Assistant Director, Professional Liability Department