Broker's Liability Arising Out of Performance of Safety Inspections Is Excluded
Cherilyn Zavatsky | Bloomberg Law
Insurance brokers at times may undertake non-traditional roles with respect to insureds. Brokers’ professional liability insurance is usually obtained to cover the broker’s liability for its activities, but brokers may also obtain commercial general liability (CGL) insurance. The Fourth Circuit recently held that bodily injury claims against an insurance broker that undertook responsibility for safety inspections at a South Carolina dam project, pursuant to an Owner-Controlled Insurance Program (OCIP), were excluded under an “Insurance and Related Work” endorsement to the CGL.
Broker as Safety Inspector
McGriff, Seibels & Williams, Inc., an insurance broker, procured insurance for a dam project in South Carolina (Project) through an OCIP. The OCIP Manual of Insurance Procedures provided that McGriff would supervise and review the Project safety program. Manuel Salazar was seriously injured while working on the Project and sued McGriff and others. Salazar alleged that, as the insurance broker for the Project, McGriff was negligent in undertaking its duty to identify and correct potential safety problems at the site. Salazar had also alleged that McGriff breached its contract with the owner of the power lines that caused his injury, South Carolina Electric & Gas Company, by failing to regularly inspect the facility and identify potential safety issues.
Houston Casualty Company issued a professional liability insurance policy to McGriff and defended McGriff against Salazar’s suit. St. Paul Fire and Marine Insurance Company issued CGL and umbrella insurance policies to McGriff but declined to defend McGriff, asserting that the policy excluded coverage for “Insurance and Related Work.” The endorsement stated:
We won’t cover injury or damage or medical expenses for which the protected person may be held liable because of:
- any obligation assumed by any protected person in connection with an insurance contract or treat; [or]
- any failure to carry out, or improper carrying out of, any contractual or other duty or obligation in connection with an insurance contractor treaty.
The Salazar matter settled for $20 million, with $5 million contributed by Houston Casualty and McGriff’s other insurers. Houston Casualty then filed suit against St. Paul, seeking reimbursement for defense and settlement costs. The district court granted summary judgment in favor of St. Paul and Houston Casualty appealed.
Inspection Duties Are “In Connection With” Insurance Contract
Houston Casualty argued that the “Insurance and Related Work” endorsement did not preclude coverage for the Salazar claims because McGriff’s duties to inspect and identify potential safety issues arose independently of the insurance policy. Houston Casualty also argued that neither Salazar’s negligence nor his breach of contract causes of action alleged that McGriff’s liability depended on the existence of an insurance contract. Rather, the negligence claim was based on “a common law duty arising from a voluntary undertaking.” The court rejected Houston Casualty’s arguments.
The court took a broad view of the term “in connection with.” First, the court noted that Salazar’s identification of McGriff as the insurance broker for the Project, when looked at in the context of his negligence and breach of contract claims, made clear that McGriff’s duties were assumed “in connection with” an insurance contract. The court agreed with the district court’s ruling that Salazar’s complaint in no way alleged that McGriff assumed its safety-related duties in any role other than that of the insurance broker for the Project. In addition, the court reasoned that, because McGriff’s safety inspection obligations were dictated by the OCIP Manual for an insurance program procured for the Project by McGriff, its obligations arose in connection with an insurance contract. Lastly, that McGriff may have voluntarily assumed its safety duties had no bearing on whether such duties were connected to an insurance contract.
Therefore, the Fourth Circuit held that the district court did not err in granting summary judgment to St. Paul and affirmed its ruling that St. Paul had no duty to defend or indemnify McGriff.
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