Cleveland Indians Baseball vs. New Hampshire Insurance: An Agent’s Duty to Additional Insureds

Insurance policies often include a category of insureds other than the named insureds, commonly referred to as “additional insureds.” This typically occurs in one of two ways. First, pursuant to a named insured’s request, an insurance company may permit specific individuals or entities to be added as additional insureds on the named insured’s insurance policy. Under this type of scenario, the insurance company will issue a specific endorsement expressly naming the individual or entity as an additional insured on the policy. See, e.g., Equilon Enterprises, LLC v. Great American Alliance Ins. Co., 132 Wash.App. 430, 434, 132 P.3d, 758, 759 (Div. 1 2006). On the other hand, a policy may contain a “blanket additional insured” endorsement that provides coverage to a limited category of individuals or entities without having to be expressly identified. See, e.g., National Abatement Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 33 A.D.3d 570, 824, N.Y.S.2d, 230, 232 (1st Dept.. 2006); Transport Intern. Pool, Inc. vs. Continental Ins. Co., 166 S.W.3d, 781, 787 (Texas App. 2005).

Irrespective of whether the additional insured is specifically named or merely falls under a blanket endorsement, coverage for an additional insured is typically limited to liability arising out of the named insured’s work or operations.

The process of adding insureds to an insurance policy, whether specifically by name or generally by blanket endorsement, involves the named insured’s broker in the transaction. This gives rise to the general question of whether the insurance agent/broker owes any duties to the additional insureds as the agent/broker of the transaction.

This issue was recently analyzed by the U.S. Court of Appeals for the Sixth Circuit.

Kids Fun Days

In Cleveland Indians Baseball Co. v. New Hampshire Ins. Co., 727 F.3d 633 (6th Cir. 2013), the event producer for “Kids Fun Days” brought an action against its liability insurer seeking a declaration that the insurer was required to defend and indemnify it in an underlying wrongful death action. In turn, the insurer counterclaimed against the producer and then also filed a complaint against Cleveland Indians Baseball Co., which was an additional insured under the policy, alleging that it was not required to defend or indemnify under the policy.

The specific facts revealed that four parties were involved in a series of transactions to obtain an inflatable slide for an event titled “Kids Fun Day” that was held before a Cleveland Indians’ baseball game. 727 F.3d at 635. The inflatable slide collapsed killing one of the patrons and injuring another. 727 F.3d at 635. A personal injury lawsuit was filed against the Cleveland Indians and other parties. As the litigation progressed, a question arose as to whether the insurance broker, CSI Insurance Group, who had mistakenly failed to obtain insurance for the additional insured, would resolve the underlying accident. 727 F.3d at 636.

Prior to the accident, National Pastime Sports entered into a contract with the Cleveland Indians Baseball Co. to produce “Kids Fun Day” events before several Cleveland Indians’ games. National Pastime agreed to provide the inflatable slide that ultimately collapsed. 727 F.3d at 635. National Pastime was required by an agreement with the Cleveland Indians to purchase a commercial general liability (CGL) policy naming the Cleveland Indians as an additional named insured. National Pastime engaged CSI Insurance Group to procure the required policy. 727 F.3d at 635. The insurance broker provided National Pastime with a proposal for a policy from New Hampshire Insurance Co., which National Pastime accepted. Six weeks before the accident actually occurred, a certificate of liability insurance was issued, which named National Pastime as an insured and the Cleveland Indians as the certificate holder. 727 F.3d at 635. Neither National Pastime nor the Cleveland Indians received a copy of the full policy by the time that the accident had occurred. 727 F.3d at 635-36.

After the accident, National Pastime contacted the broker to notify it of the accident. At that time, National Pastime learned that, despite its specific request on the application for insurance, the broker had mistakenly failed to procure a CGL policy that expressly covered inflatables like the slide involved in the accident. 727 F.3d at 636.

The tort lawsuit was submitted to New Hampshire for defense. New Hampshire in turn denied any responsibility to defend or indemnify National Pastime, or the Cleveland Indians based on an “amusement device” exclusion in the policy. 727 F.3d at 636.

National Pastime then sued New Hampshire seeking a declaration that it owed a defense and indemnity for the personal injury and wrongful death lawsuit. 727 F.3d at 636. New Hampshire then filed a counterclaim against National Pastime and a third-party claim against the Cleveland Indians stating that it was not required to defend or indemnify under the terms of the policy. 727 F.3d at 636. The Cleveland Indians, in turn, filed a counterclaim against New Hampshire and CSI, the insurance broker that failed to procure the insurance as requested. 727 F.3d at 636.

The trial court held that CSI owed no duty to the Cleveland Indians that was “separate and distinct” from CSI’s contractual duties to the party to which it “contracted,” National Pastime. 727 F.3d at 637-38. The diversity action involved Michigan law regarding the issue of the broker’s duty to an additional insured like the Cleveland Indians.

Independent Duty of Care

The court began its analysis of Michigan law by noting that Michigan courts had imposed “an independent duty of care” to be exercised by insurance brokers toward third parties where the harm was foreseeable and where the defendant had specific knowledge that its actions might harm a specific third party. 727 F.3d at 639. The court then concluded that it was reasonably foreseeable that additional insureds such as the Cleveland Indians would be harmed if an insurance agency or other intermediary failed to procure to intended coverage just as the primary insured would be harmed. 727 F.3d at 639. Michigan courts had repeatedly acknowledged that considerations of fairness, including the broker’s ability to prevent the harm, permitted a finding that the broker owed a duty of care to foreseeable third parties. 727 F.3d at 639. The facts demonstrated that CSI knew that it was procuring insurance for the Cleveland Indians as well as for National Pastime, and that it knew exactly what dates and events the issuance of the policy was for. 727 F.3d at 639.

CSI argued that foreseeability alone was not enough to establish liability and that there also needed to be some additional “special relationship” that would make CSI liable to the Cleveland Indians.

Instead of rejecting this argument, the court found that the special relationship asserted by CSI existed under the facts. CSI knew that the insurance was to cover the “Kids Fun Days” events hosted by the Cleveland Indians before baseball games. 727 F.3d at 639. Second, CSI sent a certificate of insurance directly to the Cleveland Indians listing them as an additional named insured. 727 F.3d at 639-40. Those facts created these special relationships that CSI asserted as being necessary to establish liability. 722 F.3d at 640.

The Sixth Circuit Court of Appeals has answered the question of what duty the insurance broker may owe to additional insureds to procure insurance covering the additional insureds. It is not enough that the agent simply adds the third party as an additional insured, but that by adding the third party as an additional insured, there is no specific exclusion that eviscerates the purpose of the insurance.

In the Cleveland Indians case, the agent had reason to know that the insurance policy in question was to cover a specific event, i.e., the use of an inflatable slide to be used as a promotional event for the Cleveland Indians. Many additional insured situations do not involve that level of specificity.

It is unclear whether the Sixth Circuit would have found the requisite “special relationship” in a more basic additional insured scenario, which might involve adding an additional insured general contractor to a subcontractor’s policy.

Standard commercial general liability policies contain a multitude of exclusions that address faulty workmanship type claims. Taken to its extreme, the Cleveland Indians case would suggest that if the insurance agent is aware that the named insured under the policy is a subcontractor, and the insurance agent is being asked to add the general contractor on the policy, that there will be various policy features that will limit or exclude coverage for the typical risks associated with faulty workmanship.

It is unlikely that the Cleveland Indians case will be read by other courts to involve more general additional insured type scenarios, as opposed to the very specific scenario involved in the case, i.e., a special event-type policy with a specific “amusement device” exclusion.