In August of 2010, a relatively small fire struck Taunton City Hall, a building constructed in 1848. The extinguishment and remediation of the fire caused widespread wallboard removal throughout the building, and the reconstruction of the building triggered the need for the entire building to be compliant with the Massachusetts State Building Code, Massachusetts Architectural Access Board regulations, and sprinkler regulations.
It was projected by the architect working for the city, who testified at trial, that the cost above and beyond the necessary reconstruction cost to bring the building into compliance with the various ordinances and laws would be approximately $3.6 million. The city was only insured for $1 million for the increased cost of construction owing to the enforcement of ordinances and laws.
The city alleged that the defendants, Farrell Backlund Insurance Agency, LLC, and its owner, Russel Martorana, were negligent in failing to provide city employees with the necessary insurance advice so that those employees could understand and appropriately react to the exposure the city faced in the cost of complying with ordinances and laws following a substantial loss in one of the city’s older buildings such as City Hall.
To establish the duty it was owed by its agent, the city, which had a 10-year relationship with Farrell Backlund prior to the fire, relied upon the existence of a contract entered into in 2000 that specified the scope of services Farrell Backlund was to provide the city. The city also relied upon several public professions of expertise on the part of the agency, as well as extensive evidence of a “special relationship” between it and its agent that would give rise to a duty to ensure that adequate insurance was obtained for the city.
The plaintiff presented expert testimony by insurance expert witnesses Michael Rodman and Bradley Smith, both of whom opined on the standard of care applicable to an insurance agent providing advice to a municipality. Both experts opined that the agent in this situation made multiple representations of expertise and was thus bound to a higher standard of care. Both experts also testified that the agent failed to meet that standard of care by not providing the city with the opportunity to correctly assess and respond to its exposure.
Both experts testified that the agent should have alerted the city that its older buildings could face exposure in the event of a significant loss. Both experts testified that the agent should have advised the city that it might retain professionals who could correctly assess the degree of exposure presented by the enforcement of ordinances and laws.
There was also evidence at trial that the agent had secured a quote for a new property insurance policy six weeks prior to the City Hall fire, which included $25 million in increased cost of construction coverage, but that he declined the quote without forwarding it to the city.
A Bristol County Superior court jury returned a $2 million verdict in favor of the plaintiff on both the negligence and breach of contract counts. With interest, the judgment is approximately $3.4 million.