Insurance Brokers and COVID-19 Shutdowns

In a recent case, Judge Barry Ashe gave a thorough summary of the Louisiana law for claims against insurance brokers for failing to obtain coverage for COVID-19 government mandated shutdowns. B&P Rest. Grp., LLC v. Eagan Ins. Agency, 2021 U.S. Dist. LEXIS 88330 (E.D. La. May 10, 2021).

The case is instructive for both insureds and brokers because it emphasizes the need for a clear statement by the insured of what coverage it is requesting and a clear statement by the broker of what coverage it has obtained.

Judge Ashe held that the insured stated a claim against the broker because the insured’s statement during December 2019 renewal discussions that a virus caused shutdown would have a devastating effect on its restaurant business could plausibly be understood as an expression of its need for business-interruption insurance that would cover virus caused shutdown claims.

Judge Ashe referred to the leading Louisiana Supreme Court case of Isidore Newman Sch. v. J. Everett Eaves, Inc., 42 So. 3d 352, 356 (La. 2010), which held that the elements of a claim against an insurance broker are:

  1. That the insurance broker agreed to procure coverage,

  2. The broker failed to use reasonable diligence to procure the coverage and failed to notify the insured that the coverage had not been obtained, and

  3. The broker acted in such a way that the insured could assume it was insured.

The insured has the responsibility to request the type and amount of insurance it needs, and it is the insured’s obligation to read the policy to make certain the policy meets its needs. Id. at 359. On the other hand, the broker has a duty to advise the insured about aspects of the insurance policy that a lay person would not commonly understand. Id., at 358.

Here, the broker allegedly advised that any shutdowns would be covered by the civil authority provision. Further, the broker allegedly failed to advise that policies that provided greater coverage for virus-caused losses were available and allegedly failed to advise that the civil authority coverage was time limited. Judge Ashe held that a fact finder may later find that these matters were beyond the general knowledge of a lay insured, and, therefore, the insured’s allegations were sufficient to raise at least the possibility of recovery from the broker.

Judge Ashe also discussed Offshore Production Contractors, Inc. v. Republic Underwriters Insurance Co., 910 F. 2d 224 (5th Cir. 1990), which initiated a narrow line of cases under which the broker owes a heightened duty to the insured when the broker held itself out as a specialist in procuring insurance for the insured’s particular type of business. Judge Ashe did not decide whether this alleged heightened duty survived in Louisiana after Isidore Newman because the petition stated a claim against the broker without it.