Appellate Court Agrees Insurance Broker Owed No Professional Duty to Non-Client

By Zachary W. Johnson and Thushan M. Sabaratnam

A three-justice panel of the Illinois Appellate Court, First District affirmed the dismissal of a landlord’s suit for professional negligence and tortious interference against a tenant’s insurance broker, agreeing that the landlord’s allegations could not give rise to a professional duty of care as an additional insured, or as a foreseeable third-party.

Facts

The underlying dispute concerns a property insurance claim for damage to leased retail space that landlord, Santa Rosa Mall, LLC (“Santa Rosa”) leased to Sears for the operation of a Sears department store in Bayamon, Puerto Rico (“Store 1915”).

The Santa Rosa and Sears Lease Agreement included an insurance provision requiring Sears to procure and maintain property insurance for Store 1915. The Lease also required that Sears deposit any insurance proceeds received under the property insurance into an account in Santa Rosa’s name.

Pursuant to a 2011 Master Service Agreement and attached statements of work (“SOWs”), Aon Risk Services Central, Inc. (“Aon”) served as Sears’ risk manager and broker, which included establishing Sears’ $440 million dollar property insurance program (“Policy”) with a consortium of 20 different insurance carriers (“Insurers”). Aon drafted the Policy terms, which included a requirement that payments of claims under the Policy be paid to Sears directly or as Sears directed. The Policy only named Sears as its insured.

After Hurricanes Maria and Irma struck Puerto Rico in September 2017, Sears hired Aon for claim preparation services for all of Sears’ claims for hurricane-related damage to Sears stores. Sears directed Aon to issue Santa Rosa a certificate of insurance (“COI”) under the Policy, which identified Santa Rosa as a ‘loss payee.’ Days after receiving the COI, Santa Rosa wrote the Insurers requesting that Santa Rosa be notified of claims processed under the Policy and that payment of claims for Store 1915 be deposited per the Lease Agreement. Santa Rosa alleged it never received a response.

In a letter dated June 1, 2018, Sears allegedly changed its position on compliance with the Lease’s insurance mandate. Sears previously identified property coverage for Store 1915 was maintained through third-party insurance carriers and, therefore, the Lease required it to deposit insurance proceeds in an account under Santa Rosa’s name. Sears’ position subsequently became that it was a self-insurer and, under the Lease, Sears had no duty to deposit the insurance funds into an account for Santa Rosa. Sears stated it would continue making repairs itself.

On October 15, 2018, Sears filed for Chapter 11 Bankruptcy. Sears and the Insurers reached a settlement for the outstanding payment of claims under the Policy, which the bankruptcy court approved.

Pursuant to the settlement, the Insurers paid $59.6 million into Sears’ bankruptcy estate as full settlement of all claims under the Policy. Sears agreed to indemnify and defend the Insurers against actions or claims under the Policy. Sears also represented it was the only party of interest under the Policy.

On September 5, 2021, Santa Rosa filed its lawsuit against Aon to recover the claim proceeds for damages to Store 1915 based on theories of professional negligence and tortious interference with contract. Santa Rosa’s damages were alleged to be $20 million, but that amount had ballooned to almost $50 million from interest and costs by the time of appeal.

Analysis

In an opinion by Justice Mary L. Mikva, the First District affirmed dismissal of Santa Rosa’s lawsuit under Section 2-615 of the Illinois Code of Civil Procedure for failing to allege sufficient facts to state a cause of action for either professional negligence or tortious interference with contract.

The Court of Appeals first disagreed with Santa Rosa’s argument that it sufficiently alleged Aon owed a professional duty to Santa Rosa as an ‘additional insured’ under the Policy. It explained that an insurer owes a duty to an additional insured, but the distinction between a loss payee and an additional insured is immaterial to the existence of a professional duty of a broker, such as Aon, who is not a party to the insurance contract. It agreed with Aon’s citation to the general rule in Illinois that an insurance broker owes no post-procurement duties to an additional insured.

The Court was unpersuaded by Santa Rosa’s contention Aon had a duty of ordinary care to protect Santa Rosa from foreseeable harm. The Court found that the Complaint only alleged acts of Aon’s client, Sears, causing foreseeable harm to Santa Rosa, not acts by Aon. The Court distinguished cases cited by Santa Rosa, all of which involved allegations of foreseeable harm from a broker’s own failures in fulfilling its job procuring adequate insurance for its client. Thus, dismissal was proper for failure to allege facts from which to infer the existence of duty.

Finally, the Court similarly found Santa Rosa’s claim of tortious interference with contract was properly dismissed for failing to allege facts of inducement. The Court held that a tortious interference claim requires allegations that a defendant instigated another’s breach of contract. The Court found that Santa Rosa’s allegations, at most, gave rise to an inference of Aon’s knowledge of Sears’ intent to breach, participation in Sears breach, or that Aon had an opportunity to induce a breach (e.g., that Aon was in a position as Sears’ insurance broker and adviser to convince Sears to breach the Lease Agreement).

The Court accordingly affirmed dismissal of the professional negligence and tortious interference claims against Aon.

Key Points

• Illinois courts apply the general rule that an insurance broker owes no post-procurement duties to an additional insured.
  
• A claim for a broker’s duty based on a foreseeable harm to a third party must allege failures related to a broker’s duty to procure insurance pursuant to the client’s instructions.