Recent Caselaw Affecting Insurance Broker Liability: A Not so "Semi-Charmed Life" for Brokers
February, 2006
Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC, 2005 Cal. App. LEXIS 494 (Cal. App.).
Facts
Plaintiff musical group retained an insurance broker who obtained a commercial general liability (CGL) policy from North American Specialty Ins. Co. (NAS). The broker did not advise plaintiff that the policy contained a Field of Entertainment Limitation Endorsement (FELE) excluding coverage for personal or advertising injury claims of (1) invasion, infringement or interference of the right of privacy or publicity; (2) copyright or trademark infringement; (3) defamation, except for claims arising out of a public appearance unrelated to the band’s professional entertainment work; (4) plagiarism, piracy or unfair competition regarding unauthorized use of others’ ideas or works; and (5) breach of contract regarding the band’s professional entertainment work.
The band fired one of its members, who then sued the band claiming that it had misappropriated his right of publicity by making unauthorized use of his name, likeness and goodwill, and violated his rights under the Lanham Act by creating public confusion regarding his affiliation with the band and his role in creating or sponsoring the band’s music.
The band tendered the complaint to NAS, who denied the claim as excluded by the FELE endorsement. The band defended the suit on their own and ultimately settled the case for more than $3 million.
The band sued NAS claiming that NAS breached its policy obligations by unreasonably refusing to defend and indemnify the band. It also sued the broker for negligence, breach of implied contract and declaratory relief for failing to advise that the policy contained a FELE, such that an additional errors and omissions insurance policy would be necessary to guarantee full coverage, and alleging that they would have obtained such a policy if they had been so advised.
The court granted the band’s motion for summary adjudication regarding NAS’ duty to defend, holding that the FELE was ambiguous as applied. NAS later settled with the band. The broker then moved for judgment on the pleadings asserting that because the court found that the policy did provide coverage, the claim against the broker for failing to obtain additional coverage or explain the FELE exclusion was moot. The court granted the motion and the band appealed.
Analysis
The appellate court reversed, allowing the suit to proceed against the broker. The court stated that whether the broker failed to give competent advice is an independent question that does not depend on whether the carrier was justified in denying coverage. Specifically, the band’s claims do not depend on an assumption that the CGL policy was deficient. Rather, the broker failed to alert the band that the FELE would give NAS a viable basis for refusing coverage under some circumstances and, consequently, failed to recommend that the band purchase errors and omissions insurance to ensure complete, uncontestable coverage.
Learning Point:
Under Third Eye Blind, the absence of desired coverage is not necessarily required to maintain a negligence and/or breach of contract claim against an insurance broker. The insured may also pursue claims against a broker where the broker’s alleged failure to properly advise the insured concerning certain policy exclusions created a potential coverage gap allowing the insurer to legitimately contest the insured’s desired coverage. •
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