|November 11, 2013|
Previously published on November 8, 2013
Recently, in San Diego Assemblers v. Work Comp for Less Insurance Services, Inc. (October 4, 2013, CA Court of Appeal, Fourth Appellate District), the court upheld the granting of summary judgment on behalf of a broker on the grounds that it breached no legal duty to its client. The court rejected arguments that the duty of an insurance broker to its client should be expanded for policy reasons.
San Diego Assemblers, a remodeling contractor, asked Work Comp for Less Insurance Services, Inc., a retail insurance broker, to procure the “least expensive” liability policy. The only term requested by the insured was in regard to the limits of the policy. The broker obtained a policy and provided it to San Diego Assemblers, which neither complained about the coverage nor specifically advised that it did not want inclusion of a “manifestation endorsement” or a “prior completed work exclusion.”
Assemblers performed remodeling work on a restaurant in 2004. In 2008, a fire caused substantial damage to the remodeled restaurant. The restaurant's insurer, Golden Eagle Insurance (Golden Eagle), paid for the damage. Thereafter, Golden Eagle began pursuing Assemblers to pay for the damage. Assemblers tendered Golden Eagle's claim to its 2004 and 2008 liability insurers. The claim was denied by both liability insurers. Based on the “manifestation endorsement” that limited coverage to injury or damage first manifested during the policy period and the “prior completed work exclusion,” Golden Eagle subsequently sued Assemblers and obtained a default judgment. Assemblers assigned any claims it had against the broker to Golden Eagle. Golden Eagle sued the broker alleging negligence in failing to obtain adequate coverage. The broker filed a motion for summary judgment, which the court granted on the grounds that the broker owed the client no legal duty to obtain different coverage.
The Court of Appeal affirmed, holding that the broker owed no duty to its client to obtain insurance with prior completed work coverage.* The court confirmed the well-settled law that the duty of a broker is limited and a breach will only occur where the broker misrepresents the terms of coverage; where there is a specific request by the client for a specific type or extent of coverage; or where the broker holds himself out as having a special expertise in a given field of insurance being sought by the insured.
Assemblers never requested different coverage. The broker never undertook to ascertain and fulfill Assemblers’ insurance needs. The court rejected the argument that the broker had an implied contractual duty to investigate the client’s coverage needs and procure the requisite coverage to meet those needs where the client did not request the coverage and likely could not have afforded it. The court was unwilling to extend the duty of a broker based on policy arguments.
In sum, this case confirms the limited duty of a broker to use reasonable care, diligence and judgment in procuring the insurance requested by an insured. While there are situations where that duty can be expanded, the facts of this case did not support such expansion.
* The court also held that Golden Eagle’s claim was barred by the superior equities doctrine as the claim was equitable in nature. Therefore, Golden Eagle would need to establish “that its equitable position is superior to the position of the party to be charged. ... An insurer cannot establish its position is equitably superior to the party to be charged if the party is not the wrongdoer whose act or omission caused the underlying loss or is not otherwise legally responsible for the underlying loss.” The court reasoned that the equitable claim must fail as, despite the assignment, the broker did not cause the fire or otherwise agree to indemnify the contractor for the loss.