Broker loses case for providing poor advice

New Hampshire’s Supreme Court ruled against an insurance broker on Friday, in a divided opinion, for providing poor advice on a hotel’s insurance coverage.

Golden Beach, Florida-based 101 Ocean Blvd. LLC had worked with Exeter, New Hampshire-based Foy Insurance Group Inc. as its insurance agent for several properties since the early 2000s, according to the 3-2 ruling by the New Hampshire Supreme Court in 101 Ocean Blvd. LLC v. Foy Insurance Group Inc.

In 2014, Lloyd’s of London opted not to renew its policy on the Ocean Boulevard Hotel in Hampton, N.H. Turning to the surplus lines market, Foy obtained a $2 million replacement cost policy that provided for $10,000 in law and ordinance insurance coverage, which is designed to pay for the increased costs associated with complying with current building codes and other ordinances when rebuilding a structure after a loss.

“At no time did Foy recommend that (owner Albert J. Bellemore Jr.) purchase additional law and ordinance coverage on behalf of Ocean,” the majority opinion said.

In October 2015, a fire severely damaged the hotel. Mr. Bellemore was told the cost to replace the existing structure would be about $1.1 million, and rebuilding it in compliance with the current building code would cost an additional $905,070.

He decided to demolish the structure rather than rebuild it. After accounting for depreciation, the insurer paid Ocean $910,141 for the structure’s replacement cost, which did not include the additional cost necessary to rebuild the structure in compliance with the building code.

Ocean filed suit against Foy, alleging because the parties had a “special relationship,” the broker had a duty to inform Ocean it had insufficient law and ordinance coverage to pay for reconstruction in compliance with the current building code, and that Foy had been negligent.  A jury returned a verdict largely in Ocean’s favor, apportioning 25% fault to Ocean and 75% fault to Foy.

Foy appealed the verdict on several grounds, including there was insufficient evidence Ocean could have purchased additional law and ordinance coverage.

In ruling in Ocean’s favor, the majority opinion said, “Viewing the evidence and all reasonable inferences in the light most favorable to Ocean, we conclude that the evidence was sufficient for a rational trier of fact to have found that additional law and ordinance coverage was  generally available in the marketplace and was specifically available to Ocean.”

The dissenting opinion said, “I conclude that Ocean failed to adduce sufficient evidence to enable a reasonable jury to find that Ocean’s loss would not have occurred without Foy’s conduct, and because such a  proof is a necessary element of a negligence action,” he would set aside the jury verdict.

Attorneys in the case did not respond to a request for comment.