Coverage-Advice Liability for Insurance Brokers: Special Relationship Turns on Reliance and Misstatements About Whether Coverage “Exists,” and Lost Profits May Be Recoverable in Tort

1. Introduction

This decision addresses when an insurance agent/broker may face negligence liability not merely for failing to procure specifically requested insurance, but for failing to correctly advise a client about the availability of a type of coverage—especially where the client repeatedly asks about the same gap and relies on the agent’s asserted expertise.

Parties and relationship. Plaintiff Marcellus Energy Services LLC supplied drivers who operated vehicles owned or leased by Schlumberger Technology Corporation. Defendant Tompkins Insurance Agencies, Inc. served as plaintiff’s insurance agent from 2014 through 2019 (and later obtained coverage relevant to the risk).

Core problem. Plaintiff suffered out-of-pocket property damage exposure when its employees damaged Schlumberger vehicles (notably in 2015 and again in 2019). Plaintiff contended defendant negligently advised it that physical-damage coverage for Schlumberger vehicles operated by plaintiff’s employees either did not exist or could not be obtained. The 2019 loss allegedly jeopardized plaintiff’s Schlumberger business and led to a claim for lost profits.

Key issues. The Third Department focused on: (i) whether triable issues existed as to a “special relationship” giving rise to an advisory duty, (ii) whether the record conclusively established that a “Hired Vehicle Coverage” endorsement would have applied to Schlumberger vehicles, and (iii) whether lost profits are categorically unrecoverable in tort (the court held they are not).

2. Summary of the Opinion

The Third Department affirmed the denial of both sides’ summary-judgment motions. It held that material factual disputes—especially credibility disputes— prevented a determination as a matter of law on liability.

• Special relationship / duty to advise: Whether defendant’s agent told plaintiff the requested coverage “did not exist” (and plaintiff relied), or merely that defendant could not place it, presented a fact question central to whether a special relationship and heightened duty arose.
• Endorsement applicability: Plaintiff failed to establish, as a matter of law, that a “Hired Vehicle Coverage” endorsement (used for a rental truck in earlier years) necessarily would have covered Schlumberger vehicles. The record contained contrary testimony that the endorsement applied only to rental agreements.
• Lost profits: Defendant was incorrect that lost profits are barred in tort. Lost profits may be recoverable if they are the natural and probable consequence of the wrong, and the record presented a triable issue on causation and foreseeability.

3. Analysis

3.1 Precedents Cited

The court’s reasoning is best understood as an application—and careful policing—of the boundary between (a) ordinary broker procurement duties and (b) the exceptional “special relationship” that can create an affirmative duty to advise about additional coverages.

A. Baseline rule: insurance agent relationship is ordinarily commercial, duty defined by the insured’s request

• M & E Mfg. Co. v Frank H. Reis, Inc. and Wied v New York Cent. Mut. Fire Ins. Co.: These cases supply the foundational proposition that an agent-insured relationship is typically an “ordinary commercial relationship” and does not inherently include ongoing advisory obligations. The Third Department uses this baseline to frame why plaintiff must show more than mere dissatisfaction with a policy outcome.
• Finch v Steve Cardell Agency and American Bldg. Supply Corp. v Petrocelli Group, Inc.: These authorities reinforce the core procurement duty: the agent must obtain the coverage the client specifically requests (or be liable in negligence/contract if it fails). The court draws on them both for the general duty statement and later when assessing plaintiff’s endorsement-based argument.

B. “Could the coverage have been procured?”—a necessary component of procurement-liability theories

• Rodriguez v Investors Ins. Co. of Am. (with Transamerica Ins. Fin. Corp. v Iron Eagle Contr. Corp., Gorgone v Regency Agency, and American Motorists Ins. Co. v Salvatore): These cases support the proposition that, to recover for failure to procure insurance, the plaintiff must show the desired coverage could actually have been obtained before the loss. This matters here because the dispute was not simply “did the broker fail to place requested coverage,” but also “was the broker wrong about the market availability of such coverage,” and whether the inability was broker-specific (access to carriers) rather than absolute (coverage does not exist).

C. The exception: “special relationship” creates a duty to advise beyond specific requests

• Hefty v Paul Seymour Ins. Agency and John Mezzalingua Assoc., LLC v Travelers Indem. Co.: These cases are cited for the principle that, even absent a specific request, a broker may be liable for failing to advise if a special relationship exists. The Third Department aligns this case with that framework but emphasizes the “exception, not the norm” character of special-relationship findings.
• Voss v Netherlands Ins. Co.: This is the court’s central template for identifying the three situations that can establish a special relationship: (1) separate compensation for consultation, (2) interaction about coverage with reliance on agent expertise, or (3) extended course of dealing putting the agent on notice of special reliance. The Third Department applies Voss to isolate the factual dispute: what exactly was represented about coverage existence/availability, and did plaintiff rely on that expertise?
• Murphy v Kuhn: Cited for the case-by-case nature of deciding whether additional responsibilities should be recognized. Here, it supports letting a factfinder evaluate the relationship dynamics and reliance rather than converting the dispute into a bright-line rule at summary judgment.

D. Summary judgment and credibility: causation and special relationship commonly for the factfinder

• Finch v Steve Cardell Agency (again): The court quotes Finch to underscore that proximate cause in broker negligence claims is generally for the factfinder—particularly apt where testimony diverges.
• Nicotera v Allstate Ins. Co.: Used in a “compare” citation to contextualize why defendant’s reliance arguments did not eliminate fact issues here; the Third Department treated this case as distinguishable on its facts.
• AB Oil Servs., Ltd. v TCE Ins. Servs., Inc., McColgan v Brewer, and Petri Baking Prods., Inc. v Hatch Leonard Naples, Inc.: These cases are marshaled to support denying summary judgment where the special-relationship and advice/representation issues depend on credibility determinations and contested interactions.
• Hefty v Paul Seymour Ins. Agency (compare): Cited to show that, unlike cases where the record clearly establishes—or negates—a special relationship, this record was conflicted.

E. Endorsement applicability and “unavailability” theories

• Reilly v Progressive Ins. Co. and Transamerica Ins. Fin. Corp. v Iron Eagle Contr. Corp.: Support the framing that telling a client coverage is “unavailable” can function as a breach of the duty to provide requested coverage—if the coverage was in fact procurable.
• Mott v New York Prop. Ins. Underwriting Assn., JKT Constr., Inc. v United States Liab. Ins. Group, and Hjemdahl-Monsen v Faulkner: These authorities appear in the court’s discussion delineating the doctrinal overlap (and differences) between ordinary procurement duty and special-relationship advisory duty. The Third Department treated plaintiff’s endorsement-based theory as still entangled with factual disputes about what was requested and what was represented.
• Cromer v Rosenzweig Ins. Agency Inc.: Invoked in a “compare” citation when the court concludes the record does not conclusively establish endorsement applicability as a matter of law—signaling that, in other cases, documentary policy language and undisputed facts may permit a definitive coverage/procurement conclusion at summary judgment.
• Ruberti v Butler: Cited for the preservation principle; the court refused to credit a summary-judgment argument first raised in reply/oral argument.

F. Lost profits in tort: modern damages rules and foreseeability

• IKB Intl., S.A. v Wells Fargo Bank, N.A.: Cited “generally” for modern damages principles, reinforcing that lost profits are not categorically excluded in tort; the controlling inquiry is governed by ordinary damages rules.
• Levine v American Fed. Group, Wolf St. Supermarkets v McPartland, and Dunlop Tire & Rubber Corp. v FMC Corp.: These cases support the proposition that lost profits may be recovered where they are the natural and probable consequence of the wrongful act, and where the causal chain is sufficiently grounded. The court relied on evidence that defendant knew the Schlumberger relationship depended on proper coverage and that Schlumberger warned business would be affected after the 2019 incident.

3.2 Legal Reasoning

The opinion’s logic rests on identifying the dispositive factual fork: did defendant’s agent represent that the desired coverage for Schlumberger vehicles “did not exist” (i.e., was impossible in the market), or did he convey only that defendant could not obtain it (i.e., a limitation of defendant’s access/carrier relationships)? That difference matters because it drives both duty (special relationship and reliance on expertise) and causation (whether plaintiff would have sought coverage elsewhere).

Why summary judgment failed for both sides. Plaintiff offered deposition testimony (Tubbs) indicating repeated inquiries and repeated assurances that such coverage was not a “thing,” including the assertion that “two people could not insure the same vehicle,” leading plaintiff not to shop the risk elsewhere. Defendant’s agent (Toftegaard) disputed that account, testifying he did not say the coverage does not exist; he said defendant could not procure it. Because these competing versions go to the heart of whether plaintiff’s reliance was reasonable and whether defendant should have recognized it was being relied upon, the court treated the matter as credibility-bound and therefore for the factfinder.

Endorsement theory remained fact-dependent. Plaintiff attempted to leverage a “Hired Vehicle Coverage” endorsement used for a Penske rental truck and to analogize it to later coverage that ultimately paid a Schlumberger-related claim. The Third Department rejected plaintiff’s invitation to decide applicability as a matter of law, noting record evidence that the endorsement applied only to rental agreements and finding insufficient proof that federally required “lease arrangements” for Schlumberger trips were functionally the same as a rental agreement within the endorsement’s meaning.

Lost profits were not barred as a matter of law. The court corrected defendant’s categorical argument and applied ordinary tort-damages concepts: lost profits are potentially recoverable if they are the natural and probable consequence of the tort and are supported by evidence of foreseeability and causation. Here, the record included evidence that defendant knew lack of coverage could cost plaintiff the Schlumberger account and that Schlumberger explicitly linked future business volume to the coverage dispute.

3.3 Impact

1) “Exists” vs. “we can’t get it” becomes a litigation fulcrum. The decision highlights that broker communications about coverage availability can be outcome-determinative. Advising a client that a product “does not exist” (as opposed to “we cannot place it”) can support a factfinder’s conclusion that the broker undertook an advisory role, induced reliance, and discouraged the insured from seeking alternatives—strengthening duty and causation in negligence.

2) Repeated inquiries can evidence special reliance. The opinion reinforces that a course of dealing—especially repeated, specific questions about a known coverage gap— may put an objectively reasonable agent on notice that the client is seeking and relying upon expertise, even absent separate consulting fees.

3) Policy endorsements require rigorous, record-based proof. For insureds, the case is a cautionary signal: analogies between endorsements across policy periods are not enough. Courts will demand proof that the endorsement’s operative terms actually reach the claimed risk (here, Schlumberger vehicles) rather than a superficially similar scenario (a rental truck).

4) Lost-profits exposure is real in broker negligence suits. The decision underscores that brokers facing negligence claims cannot rely on a simplistic “tort = no lost profits” defense. Where a broker understands that a coverage gap threatens a key commercial relationship, lost-profits claims may survive dispositive motion practice.

4. Complex Concepts Simplified

• “Special relationship” (insurance broker context): A fact-specific relationship in which the broker’s role goes beyond order-taking (placing what the insured requests) and includes an added duty to advise. Under Voss v Netherlands Ins. Co., it may arise from extra compensation, reliance during coverage discussions, or a long course of dealing showing special reliance.
• “Duty to procure” vs. “duty to advise”: “Procure” means obtaining the insurance the client asked for. “Advise” means guiding the client toward additional coverage even if not expressly requested. New York treats the advisory duty as exceptional.
• “Proximate cause” in broker negligence: Even if a broker was negligent, the insured must show the negligence caused the loss—for example, that the coverage could have been obtained and would have applied, and that the insured would have acted differently with correct information. These are often fact questions.
• “Summary judgment”: A pretrial ruling that can be granted only when there is no genuine dispute of material fact. When testimony conflicts on key points (what was said, what was relied upon), courts typically leave the dispute for trial.
• “Lost profits” as damages: Profits a business claims it would have earned but for the wrongful act. They can be recovered in tort if proven and if they are a natural and probable consequence of the wrong, not remote or purely speculative.

5. Conclusion

Marcellus Energy Servs. LLC v Tompkins Ins. Agencies, Inc. is a fact-driven but consequential Third Department decision emphasizing that broker negligence cases often turn on communications and reliance: whether an agent told an insured that coverage “did not exist,” whether repeated inquiries created objectively apparent special reliance, and whether those dynamics make duty and causation questions unsuitable for summary judgment.

Just as importantly, the court reaffirmed that lost profits are not categorically barred in tort and may be available where the broker knew a coverage gap threatened a key business relationship and the alleged loss is a natural and probable consequence of the failure to procure/advise.