Court of Appeal Affirms that Broker has No Duty to Known Third-Party Beneficiary

Marc Zimet obtained affirmation from the California Court of Appeal, Sixth Appellate District, on an issue which has been simmering in California for a while; whether an insurance agent/broker owes a duty of care to known third-party beneficiaries. In our case, the claim was from the additional insured general contractor against our client, an insurance broker, which sold a GL policy to its subcontractor client. The GL policy contained an Independent Contractor exclusion. An employee of another subcontractor was severely injured when he fell from a scaffold and later sued the general contractor and the broker’s subcontractor client.

The Court of Appeal held that there was no duty owed by the broker to the general contractor to procure for the broker’s client (a subcontractor), a GL policy which insured against claims against the subcontractor’s independent contractors. This was so because the subcontractor client stated in its application for the GL policy that it used no subcontractors. The Independent Contractor exclusion was relied upon by Admiral Insurance to deny the subcontractor’s claim and the general’s AI tender (even though the general contractor obviously used subcontractors). The issue of whether a broker owes a duty to known additional insureds has not been fully fleshed out in California and recent case law has been expanding brokers’ duties and to whom such duties are owed. While the decision is not presently published, the opinion offers guidance to defense counsel as how to defeat claims such as these, which are on the upswing.