The California Court of Appeal has held that where an insurance agent or broker claims to have special knowledge of an insured’s business risks and exposures, the agent/broker assumes a special duty to obtain proper coverage, and can be liable to the insured for breach of that duty. ( Williams v. Hilb, Rogal & Hobbs Insurance Services of California, Inc. (2009) 98 Cal.Rptr.3d 910)
Facts
Rhino Linings USA, Inc. (Rhino USA) is a national franchisor. John Daniel Williams and Steven Stuart Simon formed a partnership and purchased from Rhino USA a franchised dealership known as Rhino Linings of Santa Fe Springs (Rhino SFS). The franchise was engaged in the business of installing spray-on linings onto the beds of pickup trucks. Williams provided most of the financing and Simon was responsible for sales and managing the business, including obtaining insurance.
Even though Williams was not the partner responsible for obtaining insurance, Rhino USA (the national franchisor) referred Williams to Robyn Thaw, who was then employed by the Robert F. Driver Company, an insurance agency/brokerage. At the time, Thaw had already procured coverage for between 50 and 100 other Rhino franchisees. Thaw represented that she knew the operations of Rhino Linings dealerships very well, that she had a custom-made insurance package specifically designed for Rhino Linings dealerships, and that she “was the go-to person to take care of the insurance needs for Rhino Linings dealerships.”
Williams called Thaw and asked to meet with her to review insurance needs for Rhino SFS, but Thaw told Williams a meeting would not be necessary, because she was already very familiar with Rhino Linings dealerships and programs. Williams did not request any specific type of insurance, and instead simply asked Thaw to obtain whatever insurance was needed to operate the business.
Thaw sent Williams a blank application form by fax, which indicated that the program was “designed specifically for Rhino Liners dealers.” Williams filled in basic information, leaving blank all portions relating to insurance coverages. He signed the application, and returned it to Thaw, who selected the insurance coverages. Thaw submitted the application to Travelers Insurance Company.
Thaw attended informational seminars for new dealers given by Rhino USA, and spoke at the seminars about the insurance needs of Rhino Linings dealerships. The package of insurance coverages Thaw participated in designing for Rhino Linings dealerships was not available through all Travelers’ agents; brochures with Thaw’s name on them were distributed at the Rhino USA seminars at which she spoke. Thaw represented and marketed the insurance package as having been specifically designed for Rhino Linings dealers.
After Thaw submitted Williams’ application to Travelers, she sent Williams an insurance proposal for Rhino SFS, which Williams accepted “as is.” The proposal included commercial general liability coverage, and Williams “scanned it briefly” and thought it was “complete and in order.” Although Williams believed he had “all the appropriate insurance coverages” needed to operate the business, the policy did not include workers compensation coverage.
By the time the Travelers policy expired, Thaw had changed her employment and had begun working for Hilb, Rogal & Hobbs Insurance Services of California, Inc. (HRH). Thaw continued to act as insurance agent for Rhino SFS after she began working for HRH. By this point, Travelers was no longer offering the Rhino Linings insurance package, so Thaw, while employed by HRH, created a new insurance package, underwritten by Hartford Casualty Insurance Company. Again, the package she created for Rhino SFS from Hartford did not contain workers compensation insurance.
A fire at the Rhino SFS premises caused severe burn injuries to Kendall Mann, one of Rhino SFS’ employees. When Williams called Thaw to report the fire, he learned for the first time that Rhino SFS did not have the necessary workers compensation coverage.
Mann brought a civil action against Rhino USA, Rhino SFS, Williams and Simon. Hartford provided Williams and Simon with a defense through Hartford-appointed defense counsel. The jury rendered a verdict against Rhino USA and Rhino SFS (the latter including Williams and Simon, jointly and severally) for approximately $11.3 million, finding Rhino USA and Rhino SFS each 50 percent at fault. Hartford paid $1 million in partial satisfaction of Mann’s judgment against Williams and Simon, leaving approximately $5.8 million outstanding on the judgment.
Williams and Simon filed a negligence action against HRH, seeking compensatory damages in the amount outstanding on the Mann judgment. A trial judge, sitting without a jury, rendered a verdict in favor of Williams and Simon against HRH for the full amount of the $5.8 judgment. HRH appealed, arguing that the evidence was not sufficient to support the judgment and arguing that the suit was time-barred by a two-year statute of limitations.
Holding
First, the Court of Appeal held that the evidence was more than ample to support the court’s finding that Thaw, when employed by HRH, failed to use the skill and care a reasonably careful insurance professional would have used in similar circumstances. Among other things, the Court relied on the fact that Thaw specifically held herself out as understanding the specific insurance needs of Rhino Linings franchisees, and that Thaw (and, therefore, HRH) therefore assumed a duty of care that was greater than might ordinarily have been owed.
Second, the Court held that the action was not barred by the applicable two-year statute of limitations (Code Civil Procedure Section 339, subd. 1.) The Court held that the statute did not begin to run on the date the employee was injured in the fire, but instead began to run when the jury rendered a verdict in excess of the $1 million Hartford policy. As such, the suit against Thaw and HRH was timely.
Comment
An insurance producer (whether an agent or a broker) does not have a duty to volunteer to an insured that the latter should procure additional or different insurance coverage. Thus, ordinarily producer only has a duty to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured. The rule changes, however, when any one of the following three things occurs: (a) the producer misrepresents the nature, extent or scope of the coverage being offered or provided; (b) the insured requests (or at least inquires) about a particular type or the extent of coverage; or (c) the producer assumes an additional duty by either express agreement or by representing that he or she has expertise in a given field of insurance being sought by the insured.