Arthur J. Gallagher lacked authority to issue additional endorsements

A California court has found Arthur J. Gallagher had no authority to issue additional insured endorsements in a high-exposure construction defect litigation.

The court ruled California law prohibits the issuance of additional insured endorsements by a broker, finding an insurance broker transacts insurance but not on behalf of an insurer.

The court said an agent may be either an employee of the insurer or an independent contractor acting under the insurer’s specific authorization. It defined an insurance broker as a person who, for compensation, on behalf of another person transacts insurance, other than life insurance, but not on behalf of an insurer. “Generally an agent has the authority to bind the insurer and to execute insurance policies. Generally a broker does not normally have authority to bind, and the insurer must first execute the binder or policy,” the court said.

Arthur J. Gallagher claimed it had authority to issue additional insured endorsements and contends it does so throughout the United States.

The construction lawsuit issue arose when Arthur J. Gallagher, acting as broker for a construction scaffolding company, issued an additional insured endorsement to a contracting plastering, doing business with the scaffolding company without: 1) contracting the insurer, PMA Capital Corp. of Pennsylvania; and 2) confirming the plastering contractor was entitled to additional insured coverage under the terms of the PMA policy. In fact, the scaffolding company’s policy with PMA specifically required a written contract.

Arthur J. Gallagher never sought to ascertain whether there was a written contract between the scaffolding company and the plasterer, but allowed its clerical staff to issue additional insured endorsements on a blanket basis.

For more information on the court decision, visit http://www.courts.co.riverside. ca.us/pubacc.htm and type in the case name or number: California Insurance Guarantee Association v. Caliber One Indemnity Company; Arthur J. Gallagher & Co., Superior Court of California, Riverside County, RIC 412261; related to Leo Savedra V. Alma Construction, Pro West, Superior Court of California, Riverside County, RIC 358444.