No Harm, No Foul, Agent Who Failed to Acquire Insurance Caused No Damage

No Reason to Rely Upon a Certificate of Insurance Issued as a Matter of Information Only

An action to recover damages for personal injuries, and a third-party action to recover damages for breach of contract resulted in an appeal. The trial court order granted those branches of the third-party defendants’ cross motion which were for summary judgment dismissing those third-party causes of action. In Devair Da Silva v. Champ Construction Corp., A. Logan Insurance Brokerage, et al., 2020 NY Slip Op 04379, 2017-10174, Supreme Court Of The State Of New York Appellate Division, Second Judicial Department (August 5, 2020) the Appellate Division was asked to impose liability on an insurance agent who did not purchase workers’ compensation insurance.

FACTS

The plaintiff commenced this action to recover damages for personal injuries he allegedly sustained in a construction-site accident that occurred on August 14, 2013. The amended complaint alleged violations of Labor Law §§ 200, 240, and 241(6). At the time of the accident, the plaintiff was employed by the defendant Champ Construction Corp. (hereinafter Champ Construction).

Champ Construction commenced a third-party action against an insurance broker, A. Logan Insurance Brokerage (hereinafter Logan). Champ Construction alleged that  Logan, had agreed to procure workers’ compensation coverage for the construction project, yet failed to do so.

Champ Construction moved for summary judgment on the third-party causes of action to recover damages for breach of contract to procure insurance, negligent failure to procure insurance, and fraud relating to the failure to procure insurance.

The third-party defendants cross-moved for summary judgment dismissing those third-party causes of action. The trial court denied Champ Construction’s motion to recover damages for breach of contract to procure insurance, negligent failure to procure insurance, and fraud relating to the failure to procure insurance, and granted those branches of the third-party defendants’ cross motion which were for summary judgment dismissing those third-party causes of action. Champ Construction appeals.

ANALYSIS

An insurance broker may be held liable under theories of breach of contract or negligence for failing to procure insurance upon a showing by the insured that the agent or broker failed to discharge the duties imposed by the agreement to obtain insurance, either by proof that it breached the agreement or because it failed to exercise due care in the transaction.

Here, Champ Construction did not show, prima facie, the existence of an agreement by the third-party defendants to procure workers’ compensation insurance for this project, nor that the third-party defendants specifically undertook a duty to procure such an insurance policy. Furthermore, the third-party defendants showed that any failure to procure insurance did not proximately result in damages to Champ Construction. The third-party defendants established that notwithstanding the lack of workers’ compensation insurance, the plaintiff received benefits from the general workers’ compensation fund relating to this occurrence. Champ Construction produced no evidence to the contrary.

Champ Construction asserts that as a result of the third-party defendants’ failure to procure insurance, its general liability carrier disclaimed coverage as to a contractual indemnification cross claim asserted by the general contractor for this project. However, the record shows that its general liability insurance carrier disclaimed coverage for that claim based on a policy exclusion for claims relating to injuries incurred in the scope of a claimant’s employment. Moreover, as the trial court determined in a related declaratory judgment action, the indemnification contract was not validly executed.

Under these circumstances, the record showed, as a matter of law, that any failure to procure insurance did not proximately cause damages to Champ Construction. Accordingly, the trial court’s determination to grant the third-party defendants’ cross motion for summary judgment dismissing the third-party breach of contract and negligence causes of action, and to deny those branches of Champ Construction’s motion which were for summary judgment on the issue of liability on those causes of action

In addition, the trial court’s determination to grant that branch of the third-party defendants’ cross motion for summary judgment dismissing the third-party fraud cause of action, and to deny that branch of Champ Construction’s motion which was for summary judgment on the issue of liability on that cause of action. Champ Construction failed to show, prima facie, that the third-party defendants made a material misrepresentation of fact as to the procurement of insurance.

Moreover, the certificate of insurance that was purportedly issued by the third-party defendants provided that it was “issued as a matter of information only and confer[red] no rights upon the certificate holder.” (emphasis added)

Accordingly, it was unreasonable to rely on that certificate for coverage in the face of that disclaimer language.

ZALMA OPINION

Certificates of insurance, at best, describe available insurance at the moment of issue and do not promise more. Since a certificate is issued only as a matter of information it confers no rights on the person who receives the certificate. No one can reasonably rely upon a certificate of insurance. Further, since the injured person received the workers’ compensation benefits to which he was entitled the failure to produce a workers’ compensation policy caused no harm to the plaintiff contractor. No harm, no damage, no chance to recover anything.


© 2020 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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