Jaspan Schlesinger Wins Summary Judgment on Real Estate Developer's Breach of Contract and Negligent Misrepresentation Claims Against Insurance Broker
Jaspan Schlesinger LLP
represents the Plaintiffs in Rose v. Arthur J. Gallagher & Co., et
al. (Nassau County Supreme Court Index No. 4322/2009). The
case involves an insurance broker’s incorrect interpretation of the coverage
available under a real estate developer’s property insurance policy and the
broker’s issuance of an erroneous insurance quote to the developer. The
Plaintiffs are certain real estate development companies and their principal.
Defendants are insurance brokers who provided insurance brokerage and
consulting services to Plaintiffs over the course of a decade.
In early 2008, Defendants
brokered the renewal of a blanket property insurance policy for Plaintiffs
which covered Plaintiffs’ entire real estate portfolio. The portfolio was
valued in excess of one billion dollars.
In May 2008, Plaintiffs
requested that Defendants advise them as to the availability of $100,000,000 of
all-risk property insurance coverage under the blanket policy for a potential
new acquisition located in New Orleans, Louisiana. Plaintiffs also
requested that Defendants provide a quote for the cost for such coverage.
Plaintiffs informed Defendants that they were unable to complete their
negotiation for the purchase of the property until they received Defendants’
response to their inquiry. Plaintiffs had made similar inquiries of
Defendants in the past and, in fact, the parties had entered into a contract
obligating Defendants to interpret coverage and provide professional advice
about Plaintiffs’ insurance program as requested.
advised Plaintiffs that the requested coverage was available under the blanket
policy at a cost of approximately $200,000. However, the quote was
incorrect because the policy was subject to a thirty million dollar wind
sublimit for properties located in New Orleans and, thus, one hundred million
dollars of coverage was not available for Plaintiffs’ proposed acquisition. The quote was also erroneous because Defendants failed to inform
Plaintiffs that, in addition to the amount quoted, in order to even obtain the
available thirty million dollars of wind coverage they would be required to pay
an additional $250,000 wind premium. Defendants
never informed Plaintiffs of their mistake.
Plaintiffs relied upon
Defendants’ advice in determining the property’s net operating income and, by
extension, the maximum price they would be willing to pay to purchase the
property. They then entered into a contract to purchase the property for
$97,500,000, put down a nonrefundable four million dollar deposit and entered
into a rate lock agreement with their lender that would cost approximately
twelve million dollars to break if the transaction did not close. After
undertaking these obligations, Plaintiffs were informed of Defendants’ mistake
by their lender’s insurance consultant.
Defendants then endeavored
to obtain the wind insurance coverage Plaintiffs required. Ultimately,
they quoted Plaintiffs over seven hundred thousand dollars to obtain the
requisite coverage. Had Plaintiffs known the actual cost of insurance at
the time they initially sought advice from Defendants, their analysis of the
property’s net operating income would have yielded a substantially different
result and the maximum price they would have been willing to pay for the
property would have been millions of dollars less. Nevertheless, they had
no choice but to proceed with the transaction because the cost to back out
would have exceeded sixteen million dollars.
Jaspan Schlesinger LLP, on
behalf of Plaintiffs, commenced this action in Nassau County Supreme Court alleging causes of action for breach of contract and negligent
misrepresentation. Plaintiffs sought to recover, among other things, the
difference between the price they paid for the property and the price they
would have paid if Defendants provided an accurate quote.
Jaspan Schlesinger LLP
Partners, Steven R. Schlesinger and Stanley A. Camhi and Associates, Jessica M.
Baquet and Anthony Bagnuola, succeeded in obtaining summary judgment as to
Defendants’ liability to Plaintiffs. The Nassau County Supreme Court
agreed with Jaspan’s contention that, as a matter of law, Defendants failed to
discharge the duties imposed upon them by the parties’ contract. The
Court also adopted Jaspan’s argument that Defendants were liable for negligent
misrepresentation insofar as the parties were in privity, the advice Defendants
provided Plaintiffs was inaccurate and Plaintiffs’ reliance on that advice was
reasonable because of the parties’ longstanding relationship, the Plaintiffs’
history of asking for similar advice from Defendants and the Defendants’
knowledge that its advice was relevant to Plaintiffs’ negotiation for the
purchase of the property.
Jaspan’s team of attorneys
similarly defeated a cross-motion by Defendants which sought to dismiss the
entire lawsuit on the basis that Plaintiffs’ theory of damages was allegedly
speculative as a matter of law. The Court rejected all of Defendants’
arguments and instead found that Jaspan had demonstrated that Plaintiffs’ loss
with respect to the purchase price of the property was "capable of being
established on a reasonable basis” and that "the only triable issues of fact
remaining concern the amount of damages sustained by Plaintiffs.”
It is to be noted that the Nassau County Supreme Court’s
decision in Rose marks one of the only occasions on which a
Court has found an insurance broker liable for negligent misrepresentation
without a trial.