Brokers Causation Defense

One of the most frustrating aEUR" and dangerous -- problems for the insurance broker is the unexpected and, in the brokeraEUR(TM)s opinion, wrongful denial by the clientaEUR(TM)s insurer of a claim under the policy procured by the broker. Such a denial often gives rise to a lawsuit by the insured client against the insurer for bad faith and, all too often, against the broker for negligence (and worse). At a minimum, it creates tension between the broker and his/her client as well as between the broker and the insurer. When the broker is sued by the client for negligence that the client alleges caused or contributed to the denial, the broker and his/her counsel must avoid a knee-jerk reaction that can often prejudice the brokeraEUR(TM)s position and, more importantly, ruin profitable relationships among the insurer, broker and client without accomplishing anything constructive. The first task should be to examine the policy, the application, and the facts of the claim to make a preliminary determination whether the denial by the insurer was improper. Sometimes, the broker can persuade the insurer to change its position. The denial might have been based upon an incorrect assumption by the insurer, for instance that a premium was not timely paid, which the broker can dispel with the proper documentation (e.g. email confirmations). Often, the insurer will cite an inaccuracy in the application that the broker can correct by demonstrating that the application was correct or that the insurer knew or should have known of the shortcoming. On rare occasions, where the claim is not large, the insurer might change its position to accommodate the broker to preserve an important source of business for the insurer. Where the broker cannot at the outset of the claim change the insureraEUR(TM)s mind, the broker must decide how to respond to the clientaEUR(TM)s claim of negligence. The broker will assert that (i) his/her actions did not fall below the standard of care of brokers (i.e. the broker was not negligent) and (ii) the insureraEUR(TM)s denial is wrongful and not the result of any negligence of the broker even if such negligence exists. A victory on either point would result in a verdict in favor of the broker; the issue is how mechanically should the broker assert that argument? The obvious first choice is to allow and help the client to assert that position. That is best for the broker because (i) the client has the best and most sympathetic claim against the insurer, (ii) the clientaEUR(TM)s claim is much stronger than any claim the broker could make, because the client will have the threat of actual and punitive damages for bad faith if the insureraEUR(TM)s coverage determination is ultimately found to have been incorrect, (iii) the client does not have the relationship with the insurer to protect and thus can be more aggressive than the broker in asserting this claim, (iv) the client will usually want, and often need, the broker as an ally in his effort to attack the insurer, and a claim that the broker was negligent will tend to excuse the insureraEUR(TM)s denial, and (v) the broker and his/her insurer can avoid the bulk of the expenses in attacking the insurer, but can just aEURoego along for the ride.aEUR? However, on occasion, the client chooses not pursue the insurer or does so ineffectively. While the clientaEUR(TM)s potential award might be smaller attacking the broker (no bad faith damages can be awarded), the client might feel he or she really does not have the ability or desire to battle a large and experienced insurer or just does not understand why the insureraEUR(TM)s denial is improper. In that event, the client seeks damages from the broker equal to the amount that the insurer would have paid had the claim been accepted and paid according to the policy. On these occasions, the onus of making the claim that the insureraEUR(TM)s denial was wrongful falls upon the broker. If required to take the laboring oar against the insurer, the brokeraEUR(TM)s first inclination will often be to cross-complain against the insurer. Such a cross-complaint might seek a declaration that the clientaEUR(TM)s claim is covered or claim that the insurer is obligated to the broker to pay a share of any judgment against the broker under the rubric of implied equitable indemnity. However, there are legal impediments to either theory. The insurer owes no duty to the broker; the insureraEUR(TM)s duty is to the brokeraEUR(TM)s principal, the client. It is thus unlikely that the insurer or the court will give credence to an affirmative claim for wrongful denial against the insurer by the broker. The claim for implied equitable indemnity is based upon the existence of joint liability aEUR" that is, the broker claims that he/she and the insurer are jointly liable for any damage to the client, so the insurer must bear its equitable share of any such liability (expressed as a percentage of negligence in the verdict). This theory too has legal shortcomings.

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