The American Agents Alliance has filed two briefs with the California Supreme Court in an attempt to protect insurance producers from fallout resulting from a recent Appellate Court ruling. On June 30 the state Supreme Court announced it is extending the time it needs to rule on the petitions for review until Aug. 5
A recent Appellate Court decision in a case involving the rock band Third Eye Blind could seriously impact producers’ errors and omissions liability. The ruling, from Third Eye Blind v. North American Specialty Insurance (2005) 127 Cal.App. 4th 1311, involved an internal split within the band. An ousted band member sued the remaining members, and the defense was turned over to the band’s general liability carrier under their personal injury/advertising injury coverage. The company declined the claim, reasoning the “field of entertainment” exclusion should have negated coverage.
As a result, the band incurred almost $2 million in defense costs, and ultimately sued the insurance company, the insurance agent/broker and their manager. During the lawsuit, the band successfully established that the general liability policy should have provided a defense and the insurer was in breach of contract. Shortly after, the company paid $1.65 million to the band to settle its obligation. Despite the ruling that the company was responsible for the defense of the band, the lawsuit against the insurance agent/broker and manager was allowed to proceed.
The plaintiffs argued that the insurance agent/broker and the manager should have alerted the band members to the existence of the exclusion, and advised them to obtain separate E&O coverage that supposedly would have provided adequate protection. (In reality, it probably would not have, due to typical exclusions contained in that kind of policy.) The insurance agent/broker and manager successfully moved for the court to throw out the case on the grounds they could not be liable when the court already ruled the insurer was to be held accountable.
After the case was dismissed in the trial court, Third Eye Blind appealed the decision and the Appellate Court reinstated the case against the insurance agent/broker and the manager. The Appellate Court believed the two parties had a duty to advise the band to procure “complete, uncontestable” insurance coverage. The court stated that failing to do this resulted in the lawsuit against the insurance company and substantial attorney fees.
Acting on behalf of its members and all California agent/brokers, the American Agents Alliance has filed two letter briefs with the California Supreme Court regarding this case. The first asks the Court to simply take the existing case “off the books.” By removing it from published opinions, the case can not be used in other litigation. In the second letter, the Alliance has asked the Court to review the Appellate Court decision, and offered our criticism of the legal reasoning accordingly.
Alliance President David Nielson believes the Appellate Court decision sets a dangerous precedent for agent/brokers. “First off, there is no such thing as ‘complete, uncontestable’ coverage,” Nielson commented. “We believe this case could be used by ‘creative’ lawyers to make similar arguments against insurance agent/brokers whenever a client is denied coverage.”
Nielson noted that the agent/broker involved in the dispute is not a member of the Agents Alliance, but that did not prevent the Alliance from becoming involved. “This case has far-reaching implications for all California agent/brokers. The Alliance is committed to protecting the entire agent/broker distribution system.”
The Carmichael, California insurance professional continued, “This case must either be overturned or de-published. Otherwise, some attorneys may use the ruling as a basis for action against an agent/broker any time an insurance company begins a declaratory relief action seeking a court decision that coverage does not exist. Under any of those circumstances, a client could claim that an agent/broker ‘should have’ advised them to obtain additional insurance coverage that ‘would have’ provided the supposed ‘complete, uncontestable’ coverage.”
“We are very encouraged by the Supreme Court’s decision to extend the deadline to review our petition,” Nielson said. “Ordinarily, a denial of a petition will come within 45 days of the filing. We believe this case may have peaked the interest of the Supreme Court justices, and they want to take a closer look into the matter.”
Thus far the Alliance is the only agent/broker organization to take action on this matter.
Alliance counsel J. Alan Frederick of the law offices of Marrone, Robinson, Frederick and Foster, is representing the association in this case. Frederick also assisted in protecting Alliance members’ interests in the Krumme v. Mercury case.
Nielson concluded, “These efforts represent the continued efforts of the American Agents Alliance to remain proactive on behalf of all California agent/brokers in matters that could have a direct impact on their businesses. We will report on the outcome of this case when one is reached.”
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