In San Diego Assemblers, Inc. v. Work Comp for Less Insurance Services, Inc., which was published on October 28, 2013, the California Court of Appeal (Fourth Appellate District) affirmed the dismissal of a lawsuit against an insurance broker for two reasons. First, the lawsuit was barred due to the superior equities doctrine. Second, the broker had no duty to procure prior completed work coverage for its business client.
Work Comp for Less Insurance Services, Inc. (Insurance Services) is an insurance broker that procures insurance for businesses. San Diego Assemblers (Assemblers), a remodeling contractor, contracted with Insurance Services to procure the least expensive liability insurance policy. Insurance Services procured a policy with a prior completed work exclusion. Assemblers’ president read the policy and never asked for different coverage.
Assemblers performed work on a restaurant in 2004. In 2008, the restaurant was damaged as a result of an explosion and fire. The restaurant’s insurer, Golden Eagle, paid for the damages and then pursued a claim against Assemblers. Assemblers sought coverage from its liability insurer. The insurer informed Assemblers that the insurer’s policy did not cover Golden Eagle’s claim because the policy included a prior completed work exclusion.
Assemblers petitioned for bankruptcy and assigned any claims Assemblers had against Insurance Services to Golden Eagle. Golden Eagle brought a lawsuit against Insurance Services in Assemblers’ name, alleging that Insurance Services failed to procure adequate coverage to cover the restaurant fire. The trial court granted Insurance Services’ motion for summary judgment. The Court of Appeal affirmed the trial court’s decision.
The Court of Appeal noted that Golden Eagle filed the lawsuit against Insurance Services as Assemblers’ assignee. An insurer’s rights in this situation are subject to the superior equities doctrine. According to that doctrine, an insurer must establish that its equitable position is superior to the position of the party charged in the lawsuit. The court ruled, “An insurer cannot establish its position is equitably superior to the party to be charged if the party is not the wrongdoer whose act or omission caused the underlying loss or is not otherwise legally responsible for the loss.” In this case, there was no evidence that Insurance Services caused the restaurant fire. Thus, Golden Eagle could not establish that its position was equitably superior to Insurance Services’ position.
The Court of Appeal went on to rule that even if Assemblers’ claim was not barred by the superior equities doctrine, Insurance Services had no duty to Assemblers to procure liability insurance with prior completed work coverage. The court concluded that imposing such a duty on a broker is the function of the Legislature, not the courts. Quoting from one of its earlier decisions, the court explained, “If imposing a broad duty on brokers to affirmatively determine and procure insurance to meet an insured’s coverage needs, or mandating prior completed work coverage in all contractor general liability policies, ‘is in the interest of the public …, the people of California, by initiative or through the Legislature, can create that duty.’”
The Court of Appeal’s opinion is available at www.courts.ca.gov