Broker Responsible to Insured for False Application


Insurer May Increase Premium on Audit

New York appellate courts are noted for succinct and clear opinions that seem to resolve most issues presented to them with what seems like little effort. Of course, anyone who writes knows that it is more difficult to be brief than to write succinctly with as few words as possible.

A perfect example of successful brief and succinct writing is Seneca Ins. Co., Inc. v. Certified Moving & Storage Co., LLC, — N.Y.S.3d —-,  2016 N.Y. Slip Op. 02757,  Supreme Court, Appellate Division,  2016 WL 1420951 (APRIL 12, 2016) where the Appellate Division was faced with an appeal from orders denying motions for summary judgment.

The trial court, to the extent appealed from, denied defendants/third-party plaintiffs’ motion for summary judgment dismissing plaintiff’s complaint and partially denied third-party defendant Frenkel & Co.’s cross motion for summary judgment dismissing the third party complaint.


Certified Moving and Storage Co. and Certified Installation Services, LLC (collectively, Certified) paid premiums based upon Certified’s payrolls for the trucking and warehouse operations of the business. The initial premiums were deposit premiums. Seneca maintained the right, under the policies, to conduct payroll audits after the conclusion of the policy periods to determine the final premium. During one of these audits, Seneca determined that the installation business and payroll was a far more substantial portion of Certified’s business then the insurer had previously realized. Accordingly, Seneca sought to reclassify the policy and premium amounts to reflect the risks it actually believed it took under the policy.

Seneca filed this action, seeking payment of the premiums and alleging that Certified misrepresented the nature of its business when applying for insurance coverage. Certified filed a third-party claim for indemnification against third-party defendant Frenkel & Co., its broker, claiming that it relied on Frenkel’s representations in completing the application for insurance, specifically, that the installation payroll was not needed.


New York Insurance Law § 3426(d)(1) clearly permits the collection of additional premiums in instances where the policy terms call for it through the conduct of an audit. Moreover, as the motion court also correctly determined, even if § 3426(d)(1) did not apply, there would be, at the very least, a question of fact concerning whether the additional premium increase exceptions of § 3426(c)(1)(D) & (E) apply based on Certified’s alleged omissions in filling out the policy applications.

On the issue of the alleged misrepresentations in the policy application, Frenkel’s motion for summary judgment dismissing Certified’s third-party indemnification claims was also properly denied. There are issues of fact concerning the representations made in filling out Certified’s insurance application, an application that was completed by Frenkel.

It is well settled that an insurance broker may be held liable to its principal for common law indemnification where it breached its duty to that principal by negligently or intentionally misrepresenting facts in connection with obtaining insurance coverage.


Summary judgment is always difficult and it seems odd that the parties appealed the decision rather than taking the case to trial. They can be thanked by the insurance industry in New York because the Appellate Division made clear that an insurer can seek additional premium after an audit and an insured, who allowed a broker to fill out a false application, can hold the broker liable if it can be proved it breached its duty to the principal by intentionally misrepresenting facts on an application

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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