Loss Payee ID’d in Certificate of Insurance Can Continue Claim
By Don R. Sampen, published, Chicago Daily Law Bulletin April 9, 2019
The U.S. District Court for the Northern District of Illinois recently held that a certificate of insurance issued by an insurance broker identifying a loss payee for first-party coverage paved the way for a potential claim against the broker for failing to communicate the loss payee’s status to the insurer.
The court, therefore, denied the broker’s motion for summary judgment. Vertex Refining, NV, LLC v. National Union Fire Insurance Co., 2019 U.S. Dist. Lexis 45445 (March 19, 2019).
The plaintiff loss payee, Vertex, was represented by Reinhart Boerner Van Deuren S.C. of Milwaukee. Tribler Orpett & Meyer P.C. represented the broker, Assurance Agency Ltd.
The dispute arose during a series of business transactions in which Vertex acquired the oil refining facilities and assets of three other entities, known collectively as Omega. Before the deal was struck, one of the oil facilities to be purchased by Vertex was damaged in an explosion. That facility was insured by National Union Fire Insurance Co. of Pittsburgh through a policy Omega purchased through Assurance.
During the course of negotiations, the parties agreed that, as part of the contemplated transactions, Vertex would provide certain loan financing to Omega and, in return, would become a lender’s loss payee on Omega’s business interruption coverage from National Union relating to the explosion.
Omega requested that Assurance arrange for Vertex to be added as such. Assurance then prepared a certificate of insurance naming Vertex as a lender’s loss payee as of April 30, 2014.
Assurance, however, did not notify National Union of the requested change in the policy. Thereafter, National Union began issuing checks to Omega reflecting insurance proceeds as early as June 2014 with the final payment being made in October 2014.
Vertex did not become aware of the insurance checks going to Omega until February 2015, when it began making inquiries. In that same month, National Union was informed of the policy change and issued an official endorsement listing Vertex as a lender’s loss payee.
Vertex brought suit against Assurance and National Union in 2016, although it later stipulated to National Union’s dismissal.
Vertex sought damages from Assurance for failure to effectuate its loss payee status. It sued on theories of negligence in carrying out duties to Vertex, negligent misrepresentation and breach of a contract with Omega of which Vertex was a third party beneficiary. Assurance moved for summary judgment.
In an opinion by U.S. District Judge Rebecca R. Pallmeyer, the court denied summary judgment. She initially addressed Assurance’s argument that the certificate of insurance it issued, by its express terms, did not amend, extend or alter the coverage afforded by the National Union policy.
Vertex countered that it was relying, not on the certificate as such, but on a clause in the policy that recognized that all parties to whom a certificate of insurance has been issued were to be automatically added to the policy as loss payees or other permitted status as the certificate provided.
Given the policy language, Pallmeyer agreed with Vertex that the court was obligated to honor the terms of the policy and that Vertex had been added as loss payee as of April 30, 2014, notwithstanding National Union’s lack of notice.
Assurance next took the position that, even if Vertex was a loss payee as of that time, the policy itself expired May 6, 2014, just seven days later, so that Vertex’s status terminated as of that time. Pallmeyer disagreed, observing that National Union sent Omega insurance proceeds checks after May 6 and nothing about that date would have precluded Vertex from receiving the checks as loss payee.
Assurance further argued that Vertex lacked standing to bring the suit because it was not a lender of Omega at the time of the explosion and loss. It claimed that National Union’s rules so required.
Again Pallmeyer disagreed. She noted that nothing in the policy itself, nor any other document, precluded Vertex from becoming a lender’s loss payee for a loss that occurred before it became a lender. Case law, moreover, suggested that it could.
She also rejected Assurance’s arguments based on claimed lack of damages, ratification, and duty, finding that they all gave rise to fact issues, thereby precluding summary judgment.
The court, therefore, denied Assurance’s motion for summary judgment.
Where policy language states that a loss payee will be recognized when identified as such in a certificate of insurance, a court will enforce such designation according to the policy terms.