Black letter law 101: In order to sue someone for negligence, you need to show, among other things, that the supposedly negligent person was the “cause” of your injury. In September 2013, the District Court for the District of Maryland, in Boiardi v. Freestate, 2013 WL 5410131 (D.Md. 2013) issued an opinion explaining a broker’s liability – as it relates to “causation” – for failing to secure a homeowner’s policy on a home that then suffered catastrophic loss.
In 2000, Maureen Boiardi purchased a home in Maryland. In the insurance industry, homes and communities are assigned ratings based on their access to fire protection services. The Boiardi house was rated “Protection Class 10” (“PC-10”) – which is the worst rating a house can receive. Despite this, Boiardi obtained an insurance policy on the home and its contents from a policy issued by Chubb Insurance which was procured by her broker, Mark Freestate. In 2008, Chubb cancelled the policy for non-payment. Thereafter, Washington Mutual Bank, the mortgagee of the Boiardi’s home, ordered a lender-placed policy for the home, which cost nearly 50% more than the Chubb policy. Boiardi was informed of this lender-placed coverage, and further advised that such policy “will have significantly higher premiums than standard insurance premiums because our carrier has issued the policy without the benefit of normal underwriting guidelines . . . [and] does not provide any coverage for loss or damage to personal property . . .”
Upon learning that her Chubb policy had lapsed, Boiardi contacted Freestate to procure a more reasonable insurance policy, which also included coverage for loss or damage to personal property. Freestate handed the task off to Jaye Clough, the customer service representative responsible for the Boiardi account, requesting Clough to find a new insurance policy for Boiardi. Clough first contacted All Risks, a non-standard insurance carrier that generally is willing to insure risks that standard carriers will not. All Risks declined to provide coverage. Clough then contacted American International Group (“AIG”), and spoke to Michael Reid. Reid initially declined to offer coverage because of the home’s PC-10 rating. Thereafter, on January 23, 2009, Reid indicated that AIG would consider writing the policy and sent Clough a proposal. Clough failed to follow up with AIG, or Boiardi, about the proposal. On February 5, 2009, a fire broke out in Boiardi’s garage causing extensive damage to the house and its contents. The next day Clough sent an e-mail to the CEO of her (and Freestate’s) company stating,
. . . Boiardi had a terrible fire last night . . . We had Mrs. Boiardi insured through Chubb and she did not pay her renewal and they would not reinstate the policy . . . I have been working with AIG since late January to see about getting it insured, but had not gotten it secured!! It is a huge loss – I feel at fault because I had not gotten her place insured – HELP PLEASE!!
The lender issued Boiardi a check for $445,086.40 under the lender-placed insurance policy. This amount represented payment only for the structural damage to the House, but did not constitute payment for the plaintiff’s loss of personal property. The personal property loss was approximately $200,000.
Boiardi sued Freestate under several theories, including negligence. Freestate claimed that his actions were not the cause of Boiardi’s injuries. Freestate specifically argued that because of the house’s PC-10 rating, and Chubb’s previous cancellation of the policy for non-payment, no insurer would have provided plaintiff with an insurance policy. Accordingly, even if Freestate had acted diligently and honestly, Boiardi would have remained uninsured and would have suffered the same loss.
The Court disagreed, stating “in order to recover damages from a broker for failure to obtain an insurance policy, a plaintiff must show that the broker’s failure to obtain the policy was the proximate cause of her damages.” Under Maryland law, a plaintiff does not need to show that an insurance policy was obtainable in order to prove that a broker’s failure to procure such a policy caused her loss. Rather, availability of insurance is assumed unless the defendant proves its unavailability as an affirmative defense. “[A] broker cannot meet its burden of showing lack of proximate cause . . . merely by showing that the insurer which it approached would not supply the insurance in question. Testimony that a particular insurer cannot supply insurance ‘is a far cry from evidence demonstrating that such insurance is not available elsewhere.’”
The Court found on Boiardi’s behalf noting that Freestate did not foreclose the possibility that Boiardi could have secured an insurance policy. It was obvious that Boiardi previously had the ability to obtain insurance on the house, as it was insured for years with Chubb. Moreover, the Chubb policy was cancelled for nonpayment, not because of any concern that the house posed an undue risk. Additionally, AIG, armed with the knowledge that the house had a PC-10 rating, specifically indicated to Clough that AIG would provide coverage. Finally, Washington Mutual was able to obtain lender-placed insurance coverage (albeit expensive coverage) for the home. Based on all of this, Freestate failed to show that insurance was unavailable for the home.
The importance of this case is that, in order for a broker to prove his actions of failing to secure a policy were not the proximate cause of a client’s loss, he likely must prove that the property is uninsurable – not that a specific insurer would not supply the insurance in question. As you might imagine, this type of inquiry is very fact-specific to each individual case.
Frank Cragle is a trial lawyer and a member of Hirschler Fleischer’s Insurance Recovery Team. He handles a variety of commercial business disputes, including insurance recovery and policyholder claims. Frank also devotes a substantial portion of his time to business tort litigation and intellectual property claims. For more information, contact Frank at 804.771.9515 or fcragle@hf-law.com.
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