As a business owner, it is absolutely vital that your certificate of insurance actually represents the coverages obtained. Your insurance agent owes a duty to you and the various additional insureds it knows or should know will rely on the certificate. Failure to get the insurance promised by the certificate can be very expensive to you, the business owner, and the agent who misrepresented a material fact on the certificate.
For example, in Cleveland Indians Baseball Co., L.P v. New Hampshire Insurance Co., the defendant, CSI Insurance Group, failed to obtain the insurance procured by the Cleveland Indians and, as a result, were held negligently liable for a tragic accident that occurred at a Cleveland Indians baseball game. On June 12, 2010, Douglas Johnson and David Brown were attending the game and as they were looking at an exhibit outside the Kids Zone, a large inflatable slide collapsed on them, resulting in Mr. Johnson’s death nine days later.
A lawsuit was filed against the Cleveland Indians by Mr. Brown and the estate of Mr. Johnson in federal court for compensatory and punitive damages. The issue on appeal was whether the insurance broker who failed to obtain the insurance that would have covered the accident, could be held liable in negligence. The case was decided under Michigan law.
To establish that the defendant was in fact negligent, a plaintiff must establish: (1) that a duty existed; (2) that the duty was breached; (3) causation between the breach and the injury; and (4) damages. The insurance company owed a duty to the victims of the accident since, according to Michigan common law, a contracting party owes a separate and distinct duty of care to all those whom the party knew or reasonably should have foreseen would be injured by the party’s negligent acts or omissions. In this case it was reasonably foreseeable to the insurance company that the Indians will be harmed if they failed to procure the intended covered.
The insurance company argues that the law should not allow them to be held liable to a “virtually limitless class of claimants” who are relative strangers to the relationship between the insurance agency and the Cleveland Indians. However, that is not the case here. The insurance company knew that it was procuring insurance for the Indians, it knew exactly what dates and events the insurance was for, and that a certificate was issued to the Indians indicating that the policy was in effect. The insurance company knew that the Indians would be harmed if the proper insurance was not in effect.
If an insurance agent could have foreseen the possibility of injury to some third party, it can be held liable for a negligent misrepresentation as well. Under this interpretation, the court found that the plaintiff must show whether the agent had any reason to know that a third party might be using the information and whether the agent knew that the third party would be relying on said information; the element of foreseeability was conceded by the insurance company.
To summarize, it is not enough that a business procure insurance in order to protect itself from foreseeable negligence. The business must also diligently ensure that the insurance procured matches that described on the certificate and is actually in effect when needed.
This article was written by law clerk Roger Leshinsky. If you have any questions, please contact the attorneys of Demorest Law Firm, PLLC.
