“…(I)t is reasonably foreseeable that an additional insured … will be harmed if an insurance agency or other intermediary fails to procure the intended coverage, just as the primary insured would be. …(C)onsiderations of fairness, including the defendant’s ability to prevent the harm, permit a finding that the defendant owes a duty of care to foreseeable third parties.” So said a federal appeals court about an insurance agency, a baseball team, and an inflatable children’s ride that caused a fatal injury.
A company called National Pastime Sports contracted with the Cleveland Indians Baseball Company to hold “Kids Fun Day” events before Indians’ games during the 2010 season. One piece of Kids Fun Day was a large inflatable slide. The contract between National Pastime and the Indians required National Pastime to carry commercial general liability insurance. It also required the CGL policy to name the Indians as an additional insured.
The company asked an insurance agency to obtain the required coverage. The first page of the insurance application contained a section labeled “Qualification Questions”. A box was checked in that section, indicating that the events to be insured would include “bounce houses or inflatables”. Based on the application, the agency obtained a quote from AIG for a policy with a $5,000,000 each occurrence limit and a $2,600 premium, and the client accepted. A certificate of liability insurance was issued, presumably by the agency, in late April, naming National Pastime as the insured and the Cleveland Indians as the certificate holder.
Neither the insured nor the Indians had received a copy of the actual policy until after the incident. The court opinion does not explain the reason for the delay; possibly the insurer had not yet issued the policy. Regardless, it wasn’t received before the date when the inflatable slide collapsed on top of two men who had been looking at an exhibit outside the Kids Fun Day zone. One of them died nine days later.
National Pastime informed the agency of the accident and learned its CGL policy did not cover injuries resulting from the use of inflatables. In an email, the company pointed out to the agency that it had checked the inflatables box on the application. An agency employee admitted to having missed that detail. She promised to submit the claim, but cited the exclusion in the policy, stating that the inflatable’s owner should carry its own liability insurance and name National Pastime as an additional insured.
Two months later, the insurer denied coverage and the lawsuits started. The insured sued the insurer, the insurer filed a counterclaim that it owed no coverage to the insured and the Indians, and the Indians sued the insurer and the agency. The trial court ruled in the insurer’s and agency’s favor, and the Indians appealed.
The appeals court noted that the agency had issued a certificate of insurance, naming the Indians as the certificate holder, and stating that the certificate holder was named as additional insured. “… (A) contracting party owes a separate and distinct common law duty of care,” the court said, “to all those whom the party knew or reasonably should have foreseen would be injured by the party’s negligent acts or omissions.” In the court’s opinion, the agency knew it was obtaining coverage for the Indians and should have foreseen that they could be harmed.
The court also said that the Indians reasonably relied on the certificate, since it had not yet received a copy of the policy. The certificate gave the false impression that the policy would cover all of the insured’s operations for Kids Fun Day.
Accordingly, the court sent the case back for trial. Published reports said that National Pastime received a $750,000 settlement from the agency. After the insured failed to show up on court, an Ohio court ordered the insured to pay $3.5 million to the deceased man’s widow. The Indians settled with her for an undisclosed amount.
Carelessness caused this agency’s problems. The employee said in an email, “I’m so used to quoting up your events I think I hardly look at anything but the dates and the details of the event.” Had she looked, she would have noticed the inflatable box was checked. She could then have attempted to get coverage for the exposure or advised her insured that it was not available. Instead, her insured had a surprise uninsured loss.
Agency workloads are heavy, and it can be easy to miss details like this. As this case illustrates, though, catching the details can make all the difference between protecting the clients or leaving them exposed to uninsured losses.