Not amused: broker's failure to cover "amusement devices" for Cleveland Indians yields wrongful death suit.
At a "Kids Fun Day" event before a Cleveland Indians baseball game, a large inflatable slide collapsed on and injured spectators Douglas Johnson and David Brown. Johnson died 9 days later.
This insurance dispute arises out of a lawsuit filed against the Cleveland Indians and other parties by Brown and the estate of Johnson in an Ohio state court for punitive and compensatory damages. The question is whether the district court erred when it concluded that the insurance broker, defendant CSI Insurance Group, which mistakenly failed to obtain the insurance that would cover the accident, could not be liable in negligence. The Sixth Circuit Court of Appeal resolved the dispute in Cleveland Indians Baseball Co. L.P. v. New Hampshire Insurance Co., 12-1589 (6th Cir. 08/23/2013).
On the first page of the application sent to the insurance broker, under the heading "Qualification Questions," a checked box indicates that the events will have "bounce houses or inflatables." CSI subsequently provided National Pastime with a proposal for a policy from defendant New Hampshire Insurance Company for a premium of $2,590, which was accepted. It is undisputed that neither National Pastime nor the Indians had received a copy of the full policy at the time of the accident that killed Johnson and underlies this insurance dispute.
Shortly after the accident, National Pastime was notified of the accident. It was then that National Pastime learned, despite its specific request on the application for insurance, that CSI had mistakenly failed to procure a comprehensive liability policy that expressly covered inflatables. In an email exchange between CSI and National Pastime, National Pastime points out that it checked the box on the cover page of the application that inflatables would be used at the event. In response, an employee of CSI emailed back, "Oh, ok. Sorry, I guess I missed it. I'm so used to quoting up your events I think I hardly look at anything but the dates and the details of the event."
The underlying suit by Johnson and Brown was submitted to New Hampshire Insurance, which denied any responsibility to defend or indemnify National Pastime or the Cleveland Indians based on the "amusement device" exclusion in the policy. New Hampshire Insurance subsequently filed a counterclaim against National Pastime and a third-party complaint against the Indians stating that it was not required to defend or indemnify under the terms of the policy. The Indians then filed a counterclaim against New Hampshire Insurance for a declaratory judgment seeking coverage under the policy and filed a complaint against CSI, the insurance broker that failed to procure the insurance as requested.
The district court held that any duty owed to the Cleveland Indians by CSI must lie in statute or contract and ruled out any negligence claim.
The Indians filed a complaint against CSI claiming tort injury due to CSI's negligent failure to procure the insurance requested by National Pastime Sports for the "Kids Fun Day" events, as well as the Indians' reliance on a certificate of insurance they received from CSI as notice that the requested coverage was in place. The trial court granted summary judgment in favor of CSI. The Indians appealed.
The ball club set forth in its complaint several negligence claims based on CSI's failure to procure the requested insurance and the Indians' reliance on the certificate of insurance the team received from CSI, which caused the Indians to proceed with the "Kids Fun Day" under the false belief that the organization was covered by the insurance it had requested and for which it had paid.
To establish a prima facie case of negligence, a plaintiff must establish that a duty existed, that the duty was breached; causation between the breach and the injury; and damages. Michigan law does not require that plaintiff have a link such as privity, a bond approaching privity, or a fiduciary relationship with the defendant in order for a duty of reasonable care to exist. Specifically, a contracting party owes a separate and distinct common law duty of care to all those whom the party knew or reasonably should have foreseen would be injured by the party's negligent acts or omissions.
The Michigan courts have imposed "an independent duty of care" to be exercised by providers of professional services, like insurance brokers, toward third parties where the harm was foreseeable and where the defendant had specific knowledge that its actions might harm a specific third party.
In this case it is reasonably foreseeable that an additional insured will be harmed if an insurance agency or other intermediary fails to procure the intended coverage, just as the primary insured would be. Although it is understandable that the law should not allow the insurance broker to be held liable to a limitless class of claimants who are total strangers to the relationship between the insurance agency and the insured, or parties who were unknown to the insurance broker before the filing of a suit, this is not that case.
CSI knew it was procuring insurance for the Indians as well as for National Pastime; it knew exactly what dates and events the insurance was for; it knew that the Indians had paid the premium and that CSI had issued a certificate of insurance to the Indians indicating that the policy was in effect. CSI was well aware that the Indians could be harmed if the proper insurance was not procured.
The ball club contended that it also was injured when CSI delivered a certificate of insurance that implied that the requested insurance was in force. The elements of the tort of negligent misrepresentation are: the defendant made a material misrepresentation; the representation was false; the defendant was negligent in making the misrepresentation, i.e., the defendant breached a business or professional duty of care to provide accurate information to those who employ him; and the plaintiff suffered damages as a result.
If an insurance agent could have foreseen possible injury to some specific third party, it can be held liable for a negligent misrepresentation. Under this approach, concepts of foreseeability and reliance are combined to limit the professional's liability. Rather than imposing liability on any potentially foreseeable third party, the parties must show a determination of whether the professional had any reason to know that a third party might be using the information and whether the professional knew that the third party would be relying on the information.
The element of foreseeability was conceded by CSI. It is undisputed that neither the Indians nor National Pastime had not yet received a copy of the full policy from New Hampshire Insurance Co. or CSI. In the absence of receipt of the actual policy, reliance by the Indians on the certificate as a representation by CSI that CSI had procured the requested insurance, including coverage for inflatables, was reasonable.
The judgment of the district court was reversed and remanded for proceedings consistent with this opinion concerning the Indians' negligence claims against defendant CSI Insurance Group.
An insurance agent or broker issuing a certificate of insurance must be certain that it accurately represents the coverages obtained. The agent or broker owes a duty to its client and the additional insureds it knows or should know will rely on the certificate. Failure to be accurate and failure to get the insurance promised by the certificate can be very expensive to the agent or broker who misrepresented a material fact on the certificate, whether done intentionally or negligently.
"I guess I missed it" is not an excuse. It is an admission of the violation of the duty to obtain the insurance requested by the insured and the Cleveland Indians ball club.
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Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage claims handling, bad faith and fraud. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. His ebooks are available at zalma.com/zalmabooks.htm. Contact him at zalma.com or email@example.com.
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|Title Annotation:||Down to Cases|
|Publication:||American Agent & Broker|
|Date:||Nov 1, 2013|
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