Breach of Contract is not an Insured Against Risk of Bodily Injury in a CGL Policy
Bliss Sequoia Insurance & Risk Advisors, Inc., and Huggins Insurance Services, Inc. (collectively, “Bliss Sequoia”) and Allied Property & Casualty Insurance Company (“Allied”) moved for summary judgment to determine whether Allied has a duty to defend Bliss Sequoia against claims brought by Bliss Sequoia’s insured. In Bliss Sequoia Insurance & Risk Advisors, Inc.; and Huggins Insurance Services, Inc. v. Allied Property & Casualty Insurance Company, Case No. 6:20-cv-00256-MC, United States District Court For The District Of Oregon (October 5, 2020) the USDC ruled on the motions.
Bliss Sequoia purchased a general liability policy from Allied. The policy contained a clause that provided coverage for “any sums that the insured becomes legally obligated to pay because of ‘bodily injury[.]'” Bliss Sequoia is the only named insured.
Bliss Sequoia, an insurance company, had a waterpark as a client. In 2014, the waterpark communicated with Bliss to obtain on behalf of the water park professional risk management advice from Bliss Sequoia in order to obtain a professional opinion from qualified and competent risk management and insurance specialists, regarding the kind and amount of insurance that would be sufficient and adequate to insure the water park.
After a young boy was seriously injured at the waterpark, his family sued the waterpark. During that action, the waterpark discovered Bliss Sequoia had sold it woefully inadequate insurance. The waterpark sued Bliss Sequoia for misrepresentation and professional negligence. During settlement negotiations with the family, the waterpark assigned its claims against Bliss Sequoia to the family. The family brought its own third-party complaint against Bliss Sequioa.
None of the underlying complaints allege conduct by Bliss Sequoia that resulted in bodily injury. Instead, the complaints allege breach of fiduciary duty, professional negligence, negligent misrepresentation, implied and/or equitable indemnity, and contribution. Far from alleging any bodily injury caused by Bliss Sequoia, the complaints allege the boy’s injuries were “caused by a lack of adequate lifeguards at the water park at the time of the near drowning of [the boy].”
An insurer’s duty to defend arises if the complaint alleges any claim that the policy covers. To determine whether a complaint against the insured alleges a covered claim, Oregon courts use the “‘four-corners’ rule” and compare the complaint to the insurance policy. This rule mandates that courts determine the duty to defend by reviewing only the complaint and the policy. An insurer has no duty to defend when the complaint alleges only conduct that clearly falls outside the coverage of the policy.
Bliss Sequoia argues that it now faces liability “by reason of” a child’s injuries, whereas Allied argues that Bliss Sequoia now faces liability not “by reason of” a child’s injuries, but “by reason” of its professional conduct in recommending inadequate insurance coverage.
The claims against Bliss Sequoia resulted from a third party, not the insured, who was legally liable for another’s bodily injury. Bliss Sequoia, if liable, is legally liable for damages not because of bodily injury, but because of its own own negligent or intentional omissions in its actions as an insurance agent or broker.
The damages sought from Bliss Sequoia are not because of bodily injury but are sought because of Bliss Sequoia’s poor performance of its contract. Bliss Sequoia was not involved in the waterpark’s daily operations. As Bliss Sequoia was not involved in the decisions regarding the appropriate number of lifeguards, it cannot be “legally obligated” to pay damages for any bodily injury caused by inadequate staffing of lifeguards. Instead, Bliss Sequoia’s liability arises solely from its own negligence in providing professional services to the waterpark.
There is no causal connection between the bodily injury here and the actions or omissions of Bliss Sequoia. Whether an insurer has the duty to indemnify is a question separate from whether it has a duty to defend. The parties agreed at oral argument that without a duty to defend, there is no duty to indemnify. The Court agreed.
Because the underlying complaint against Bliss Sequoia does not state a claim that would be covered by its general liability policy, Allied has no duty to defend. Allied’s motion for summary judgment, was granted.
A CGL is limited to coverage for bodily injury or property damage caused by the insured. It does not provide coverage for errors and omissions of the insured. 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 counsel on what insurance to buy to a waterpark, is informative. There was clearly no coverage since there was neither bodily injury or property damage. On the other hand, an Errors and Omissions policy would probably have provided a defense and indemnity to Bliss Sequoia.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves 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 handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and [email protected]
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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