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Failure by an insurance agent to obtain proper insurance is not a bodily injury



Bliss Sequoia Insurance & Risk Advisors, Inc., and Huggins Insurance Services, Inc. (collectively "Bliss Sequoia") and Allied Property & Incident Insurance Insurance Company ("Allied") moved for a summary assessment for to determine whether Allied has an obligation to defend Bliss Sequoia against claims from Bliss Sequoia's insured. I Bliss Sequoia Insurance & Risk Advisors, Inc .; and Huggins Insurance Services, Inc. v Allied Property & Casualty Insurance Company Case No. 6: 20-cv-00256-MC, U.S. District Court of Oregon (October 5, 2020) USDC

BACKGROUND

Bliss Sequoia purchased a general liability policy from Allied. The insurance contained a clause that covered "all amounts that the insured is legally obligated to pay due to" bodily injury [.] "" Bliss Sequoia is the only insured.

Bliss Sequoia, an insurance company, had a water park as a customer. In 2014, the water park communicated with Bliss to obtain professional risk management advice from Bliss Sequoia on behalf of the water park to obtain a professional opinion from qualified and competent risk management and insurance specialists regarding the type and amount of insurance that would be sufficient and sufficient to insure the water park.

After a young boy was seriously injured at the water park, his family sued the water park. During this action, the water park discovered that Bliss Sequoia had sold the deplorably insufficient insurance. The water park sued Bliss Sequoia for misrepresentation and professional negligence. During settlement negotiations with the family, the water park awarded its claims against Bliss Sequoia to the family. The family raised their own third-party complaint against Bliss Sequioa.

None of the underlying complaints alleges the conduct of Bliss Sequoia resulting in bodily harm. Instead, the complaints allege breach of fiduciary duty, professional negligence, negligent presentation, implied and / or fair compensation and subsidies. Far from claiming any bodily harm caused by Bliss Sequoia, the complaints claim that the boy's injuries were "caused by a lack of sufficient lifeguards at the water park at the time of the drowning [the boy]."

DISCUSSION

An insurer's obligation to defend arises if the complaint claims any claim that the insurance covers. To determine if a complaint against the insured alleges a covered claim, Oregon courts use the “four-corner rule” and compare the complaint with the insurance policy. This rule stipulates that courts determine the obligation to defend by examining only the complaint and the policy. An insurer has no obligation to defend when the complaint only claims behavior that clearly falls outside the insurance's coverage.

Bliss Sequoia claims that it is now liable "for" the injuries of children, while the Allies claim that Bliss Sequoia is now not liable "because of" the injuries of children, but "because of" its professional conduct when it recommends inadequate insurance coverage.

The claims against Bliss Sequoia originate from a third party, not the insured, who was legally responsible for the bodily injury of others. Bliss Sequoia, if responsible, is legally liable for damages not due to bodily harm, but due to its own negligent or intentional omissions in its actions as an insurance agent or broker.

The damages claimed from Bliss Sequoia are not due to bodily injury but are requested due to Bliss Sequoia's poor performance of the contract. Bliss Sequoia was not involved in the daily activities of the water park. As Bliss Sequoia was not involved in the decisions on the appropriate number of lifeguards, it cannot be "legally liable" to pay damages for bodily injury caused by insufficient staffing of lifeguards. Instead, Bliss Sequoia's responsibility stems solely from its own negligence in providing professional services to the water park.

There is no causal link between the bodily injuries here and the actions or omissions of Bliss Sequoia. Whether an insurer is obliged to compensate is a question that is separate from whether it has an obligation to defend. The parties agreed in an oral argument that there is no obligation to compensate without a defense obligation. The court agreed.

As the underlying complaint against Bliss Sequoia does not specify a claim that would be covered by its general liability policy, Allied has no obligation to defend. Allied's request for a summary judgment was granted.

A CGL is limited to coverage for bodily injury or property damage caused by the insured. It does not cover the insured's errors and omissions. If Bliss Sequoia only had a CGL and no E&O policy protecting it, its incompetence as an insurance agent or broker offering advice and advice on which insurance to buy for a water park is informative. There was clearly no coverage as there was no bodily injury or damage to property. On the other hand, a policy of error and omission would probably have given Bliss Sequoia a defense and reparation.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, handling insurance claims, fraud and insurance fraud almost equally for insurers and insurers. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

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