Jaspan Schlesinger Wins Summary Judgment on Real Estate Developer’s Breach of Contract and Negligent Misrepresentation Claims Against Insurance Broker
Date: September 30th, 2014
Location: Mineola, New York

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.

Thereafter, Defendants 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.

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Stephanie A. Speirs is sworn in at the Appellate Division, Second Judicial Dept.

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