Agents, brokers want Calif. court to depublish opinion

March 20, 2006

Insurance Agents and Brokers of the West (IBA West) is hoping the California Supreme Court will “depublish” an appellate court opinion suggesting that insurance broker-agents owe a legal duty of care to third parties injured when a policyholder failed to purchase insurance coverage that could have protected the third party.

In an amicus, or friend of the court, letter filed Feb. 27 in Business to Business Markets Inc. v. Zurich Specialties, et al., IBA West told the Court that the decision should be depublished because it wrongly “inaugurates a new type of tort claim that [would] turn insurance brokers into the deep-pocket litigation target of choice” and flood courts with litigation “whenever an insured fails to purchase the precise coverage that –in hindsight–would have benefited some third party that the insured happened to injure.”

If the Court grants the depublication order, the appellate court’s decision would govern the specific case before it, but could not be cited as precedent in other cases.

Business to Business Markets Inc. hired Tricon, an Indian software company, to write software for B2B’s business. The software contract required Tricon to carry errors and omissions insurance to compensate B2B if Tricon failed to deliver the software.

B2B contacted retail insurance broker, Hoyla, and told Hoyla that Tricon was in India. Hoyla in turn contacted PLIS, a surplus lines broker, and gave it the information that it had received from B2B. PLIS contacted Zurich Specialties, which issued a policy to Tricon. But the policy excluded coverage for claims arising from or related to work performed in India.

After Tricon failed to deliver usable software, B2B sued Tricon and won nearly $1 million by default judgment; but the judgment was uncollectible due to Tricon’s lack of insurance coverage. B2B sued PLIS for negligence in procuring the policy. The trial court dismissed the case saying PLIS owed B2B no duty of care.

In a published decision, the Court of Appeal reversed, applying cases involving named third-party beneficiaries to find that although B2B was “not quite an intended beneficiary” of the insurance policy, it nevertheless came “close enough to being one” that imposing a negligence duty on PLIS was consistent with prior law.

IBA West argued that B2B could have protected itself by requiring proof of insurance coverage in its contract with Tricon, that similar provisions are routinely written into other types of contracts, and the impact of the decision could be disastrous for producers and consumers. The amicus letter also argued that none of the reasons justifying publication by the appellate court of its opinion were present. Visit:www. ibawest.com/pdf/Articles/022706LtrtoSupreme%20Court.pdf.

Topics California Agencies

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