Insurance Brokers’ Duties Remain Within the “Reasonable Care” and “Diligence” Standards
Mark Tanner Construction, Inc. v. HUB International Ins. Services, Inc.
(2014) 224 Cal.App.4th 574 (3rd App. Dist.)
In Tanner, the Third Appellate District examined an insurance broker’s duties and followed case precedent that the duties to an insured generally remain within the standard of “reasonable care” and “diligence.” A “fiduciary duty” was not specifically found, except when a broker receives and holds premiums or premium refunds. Thus, Tanner does not expand a broker’s duties owed to an insured.
Facts: A company (CRM) administered a self-insured workers’ compensation program for contractors (CAP). Insurance brokers (Diversified), later acquired by defendant HUB International, marketed and sold the self-insured workers’ compensation program (CAP) to plaintiff contractors. CAP later failed, lost its certificate from the Department of Industrial Relations to self-insure, and was placed into conservatorship, CAP’s failure left the plaintiff contractors exposed to substantial workers’ compensation liability.
Procedure: The contractors sued HUB (brokers) for professional negligence and constructive fraud, alleging, among other things: (1) the broker failed to provide sufficient information to the contractors regarding CAP’s poor financial condition; (2) failed to engage in reasonable inquiry and investigation of CAP; (3) failed to disclose the broker’s contractual relationship with CRM, the administrators of the workers’ compensation program, and; (4) the broker was in a “fiduciary relationship” with the plaintiff contractors. The defendant broker filed a motion for summary judgment and prevailed.
Holding: The appellate court confirmed the broker’s summary judgment motion. The court reiterated a broker’s general duties as only a “limited duty” to use reasonable care and diligence in procuring insurance requested by an insured. That duty is not breached unless (1) the broker misrepresents the nature, extent or scope of the coverage being offered or provided; (2) there is a request or inquiry by the insured for a particular type or extent of coverage; or (3) the broker assumes an additional duty either by express agreement or by “holding himself out” as having expertise in a given field of insurance being sought by the insured. Id. at 584.
The court further reiterated that a broker “owes no duty to its clients to investigate the financial condition of an insurer before placing insurance with it on their behalf.” Id. at 584. Rather, the Insurance Commissioner “has the continuing duty to oversee that financial condition,” rendering any alleged duty or action by the broker in that regard “superfluous” and unnecessary. Id.
Turning to the issue of whether a fiduciary duty exists between an insurance broker and insured, the court declined to affirmatively state such a duty existed, except when a broker holds premiums or premiums refunds for an insured. Outside that limited exception, the court (relying on California case law) repeated a broker’s duty is “no greater than the duty to use reasonable care and diligence in procuring insurance.” Id. at 587. The court further stated plaintiff’s “constructive fraud” cause of action failed because such cause of action “depends on the existence of a fiduciary relationship of some kind,” and there is “no authority…that any fiduciary duty owed by an insurance broker [in handling premiums] would extend to areas beyond the recognized duty to use reasonable care and diligence in the procuring of insurance at the insured’s request.” Id. at 588 (emphasis added).
Defense Must Show Prejudice to Reverse an Incorrect Trial Court Decision to Admit Full Medical Bills
Romine v. Johnson Controls, Inc. (2014)
224 Cal.App.4th 990 (2nd App. District)
In Romine, the Second Appellate District recently ruled that although the trial court improperly admitted the full medical bills into evidence, the defendant failed to show “prejudice” in the judgment as a result. Therefore, the damages award in the judgment remained intact.
Facts: Plaintiff’s vehicle was rear-ended in a multiple vehicle, chain-reaction car accident in Los Angeles. Plaintiff suffered paralysis and sued the other drivers, as well as the manufacturers and sellers of the car seat in her Nissan Frontier truck. After multiple settlements, plaintiff proceeded to trial solely on her strict products liability cause of action.
Procedure: Defendants filed an in limine motion before trial to exclude evidence of the billed amounts for plaintiff’s medical care and to admit evidence of the amount her medical providers accepted as payment in full, pursuant to Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 (“Howell”). The motion was denied. Thereafter, the parties entered and presented a stipulation to the jury that plaintiff’s medical treatment was “reasonable and necessary” and the past medical bills totaled $777,905. Thus, this amount was submitted to the jury, which awarded plaintiff the full amount and a total damages award of $24,744,764. The past medical specials portion of the judgment was reduced after trial pursuant to stipulation by the parties to $462,608.68.
Defendants appealed claiming the jury’s overall award was improperly inflated because the court erroneously admitted evidence of the full amount billed for plaintiff’s past medical care, rather than the amount plaintiff’s medical providers accepted as payment in full.
Holding: The appellate court held the trial court did erroneously admit the total amount billed for plaintiff’s medical expenses. However, the defendants failed to show the error was “prejudicial” to the defendants. Thus, the jury award was affirmed. However, there are aspects of this case which are good for tort defendants.
For example, plaintiff’s argument the defendants waived appeal of the issue due to their stipulation to the past medical bills amount was rejected by the appellate court. Although defendants stipulated to the amount after their motion in limine was denied, the appellate court held defendants did not waive their right to appeal the motion denial. “That is, by stipulating that the billed cost of plaintiff’s past medical care was a certain sum, defendants did not forfeit their claim that the jury should not have heard that sum.”
The appellate court also affirmed Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308, which it said “addressed the issues left open by the court” in Howell, namely, that the evidence of the full amount billed for a plaintiff’s medical care is not relevant to damages for future medical care or noneconomic damages and its admission is error. Corenbaum, 215 Cal.App.4th at 1319, 1330. Thus, admission of the full medical bills remains error. However, even though the admission of the full billed amount was in error in Romine, the defendants failed to show any evidence the plaintiff’s claims for noneconomic damages of future medical expenses were based on or influenced by the stipulation that the past medical care totaled $777,905.
In sum, the Romine court affirmed the holdings of Howell and Corenbaum. We suspect the court’s finding of no prejudice was due to the huge jury award of $24 million, of which the stipulated past medical specials comprised less than 5%. Also, the post-verdict stipulation to reduce the past medical specials to $462,608 also mitigated any claimed “prejudice” to defendants.
ABOUT THE AUTHOR: Mark Petersen is senior counsel at Tyson & Mendes LLP. He specializes in personal injury, insurance coverage, and bad faith litigation. Contact Mark at 858.263.4111 or firstname.lastname@example.org.
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