1st District Holds Broker Had No Obligation to Additional Insured

August 22, 2023 / News / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, August 22, 2023

The 1st District Appellate Court recently held that a broker had no liability to an additional insured where the broker was alleged to have assisted the named insured in avoiding the payment of insurance proceeds to the additional insured.

The case is Santa Rosa Mall, LLC v. Aon Risk Services Central, Inc., 2023 IL App (1st) 221352 (July 21). The additional insured, Santa Rosa Mall of Puerto Rico was represented by Morgan, Lewis & Bockius LLP of Chicago. Foley & Lardner LLP of Chicago represented the broker, Aon Risk Services Central.

Santa Rosa had a longstanding lease to a Puerto Rican subsidiary of Sears for shopping center space in Bayamon, Puerto Rico. The lease required Sears to maintain insurance for, among other things, losses due to a windstorm.

The lease gave Sears the option of purchasing commercial coverage with a loss payable clause to Santa Rosa and paying the insurance proceeds, once recovered, into a special account in the name of Santa Rosa. Alternatively, Sears could self-insure any loss, in which case Sears was to furnish Santa Rosa a written undertaking to provide funds required to complete repairs.

In September 2017, Hurricane Maria struck Puerto Rico, causing widespread damage, including damage to Sears’ shopping center leased property. Sears’ insurance coverage then in effect, which Aon brokered, identified as insureds Sears, its subsidiaries, and others for which Sears had responsibility for providing insurance. It also authorized Aon to issue certificates of insurance to additional insureds and loss payees.

Aon subsequently emailed Santa Rosa’s property manager a certificate of insurance identifying Santa Rosa as a loss payee. Sears also informed Santa Rosa that Sears was working with its insurers and requested to know where the proceeds should be deposited in accordance with lease requirements.

However, after receiving payments and commitments from its insurers for $46 million, with another $13 million yet to come for related disputes, Sears changed course. In June 2018, it informed Santa Rosa that Sears had no obligation to set up a special account for insurance proceeds so long as Sears agreed to self-insure the property, and stated further that it had, in fact, so elected.

Santa Rosa responded that this new approach contradicted Sears’ earlier position and was defeated by the fact that an insurance policy was already in place, as contemplated by the first option under the lease.
In October 2018, Sears filed for Chapter 11 bankruptcy, and Santa Rosa’s attempts to recover were largely put on hold.

Santa Rosa brought suit against Aon in 2021 for professional negligence and tortious interference with contract. It claimed that Aon assisted Sears in working out a scheme to divert insurance recoveries that were to be deposited for Santa Rosa’s benefit, knowing full well that Santa Rosa was a loss payee, all in violation of the lease.

The trial court dismissed the complaint for failure to state a cause of action, and Santa Rosa took this appeal.


In an opinion by Justice Mary L. Mikva, the 1st District affirmed. She initially addressed Santa Rosa’s claim for professional negligence. Santa Rosa argued that, under the relevant policy’s definition, it qualified as not just a loss payee but an additional insured whose rights are not easily forfeited by the named insured.

The cases on which Santa Rosa relied, however, wrote Mikva, involved an additional insured’s rights against the insurer, not a broker. Aon’s client here was Sears, not Santa Rosa, and Aon had a duty to procure coverage that conformed with Sears’s needs and instructions. Once it did so, moreover, it owed no post-procurement duties to an additional insured. The professional negligence claim therefore failed.

In a related argument, Santa Rosa contended Aon had a duty to protect it from foreseeable harm, a duty not dependent on contract or privity of interest. Mikva noted one case, Cleveland Indians Baseball Co., L.P. v. New Hampshire Insurance Co., 727 F. 3d 633 (6th Cir. 2013), where a broker was found negligent in failing to provide adequate coverage for an additional insured’s foreseeable coverage needs.

That case, however, involved a broker’s failure to procure coverage, and here Santa Rosa was not alleging a failure to procure. The argument therefore would not apply.

Regarding tortious interference, Mikva defined the tort as having several elements, including, as important here, a defendant that “unjustifiably induced a breach of the contract.” That element of the tort required that the defendant not just participate or have knowledge of the breach, but actually instigate the breach.

According to Mikva, Santa Rosa’s allegations fell short. It alleged that Aon “worked with” and “assisted” Sears in the scheme to deprive the mall of the insurance proceeds. But the most that could be gleaned from a liberal reading of the record was that Aon had the “opportunity” to induce Sears to breach the lease. No “allegation of fact” claimed that Aon in fact did so.

Santa Rosa pointed out it actually did allege that Aon “induced Sears to breach the Lease,” but Mikva characterized this particular allegation as “purely conclusory” and insufficient, observing that Illinois remains a fact-pleading jurisdiction where notice pleading does not give rise to a cause of action.

The 1st District therefore affirmed the judgment in favor of Aon.

Key Points

  • A broker, unlike an insurer, has no post-procurement duties to an additional insured.
  • To state a cause of action for tortious interference with contract, a plaintiff must, among other things, allege in a nonconclusory fashion that the defendant unjustifiably induced a breach of contract.
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