Proven Results · Insurance · Insurance broker negligence, settled before trial
Favorable Settlement in a California Insurance Broker Negligence Case Over a Vacancy Exclusion
Summary: Fernald & Zaffos represented a California retail business in a professional negligence case against its insurance broker after a property insurer denied a fire claim under a vacancy exclusion. The claims were professional negligence, negligent misrepresentation, breach of contract and declaratory relief. The broker denied liability and moved for summary judgment, arguing that the named plaintiff lacked an insurable interest in the building. The court allowed the plaintiff to substitute an affiliated named insured as the plaintiff over the broker’s objections, and the broker then took its motion off calendar. The case settled favorably before trial, so no court or jury decided whether the broker was at fault.
About this result. This case settled before trial. No court or jury found that the broker was negligent, and the settlement terms are not described on this page.
Prior results do not guarantee, warrant, or predict a similar outcome in any future matter. This result depended on the facts of this case, and results will differ on different facts.
Case at a glance
Case type
Insurance broker professional negligence (failure to procure suitable coverage and failure to advise)
Court
California state trial court (civil)
Our role
Litigation counsel for the plaintiff, from after the complaint was filed through settlement
Our client
A California business that operated many retail locations, and its affiliated entities, which were named insureds on the policy
Opposing party
The insurance broker that placed the commercial property policy
Claims presented
Professional negligence; negligent misrepresentation; breach of contract; declaratory relief
Outcome
Settled favorably before trial. No finding of liability. Terms are not described on this page.
Background and what was alleged
The facts below are our client’s position as stated in the court filings. They are allegations, and no court or jury decided them.
- Our client relied on its long-time insurance broker to place commercial property insurance covering more than 100 locations and more than 20 affiliated insureds.
- The policy the broker placed excluded loss to any property that had remained vacant or unoccupied for 60 days or more.
- A building our client planned to convert into a retail location was damaged by a fire while it was vacant. The insurer denied the claim based on the vacancy exclusion.
Our client alleged that the broker:
- Never asked whether the properties it was insuring were occupied before placing the policy.
- Did not tell our client that coverage for vacant property was limited, even though the broker knew from a long relationship that our client needed broad vacancy coverage.
- Represented that the policy was adequate and materially similar to the prior year’s policy, when it was not as to vacant property.
The broker denied responsibility. It also moved for summary judgment under Code of Civil Procedure section 437c, contending that the named plaintiff did not own the building and therefore had no insurable interest in it and no damages.
How the case resolved
The plaintiff responded in two ways. It moved to substitute an affiliated entity that held title to the building, and that was also a named insured on the policy, as the plaintiff. It also argued, in the alternative, that the operating business had its own insurable interest as the tenant that was required to insure the building.
The court granted the motion to substitute over the broker’s objections. It found that substituting the affiliate would not add a distinct injury or new claims and would not prejudice the broker. The broker then took its summary judgment motion off calendar, so the court never ruled on it.
The case continued through discovery, depositions and settlement discussions, and settled favorably shortly before the scheduled trial, nearly five years after the complaint was filed. The settlement is not an admission of liability by any party, and the allegations above remain allegations.
What this case shows
- Brokers can face professional negligence claims over coverage gaps. Depending on the facts, a broker may be responsible for failing to obtain requested coverage or to advise a client of significant limits on it.
- Vacancy and unoccupancy clauses can eliminate coverage. A policy term that excludes property vacant for a set number of days can defeat a fire claim, so businesses with vacant or pre-development properties should review it before a loss.
- Ownership, leases and named insureds can decide who may recover. Who holds title, who leases and who is named on the policy can affect who has an insurable interest and who should bring a claim.
- Courts may allow a party to be substituted when the claims do not change. Under Code of Civil Procedure section 473(a), a court can allow an amendment that changes the named plaintiff in the interest of justice, depending on the facts.
- A settlement is not a finding of liability. No court or jury decided whether the broker was at fault.
Frequently asked questions
Did this case go to trial?
No. The case settled before trial, nearly five years after the complaint was filed. No court or jury decided whether the broker was negligent, so the allegations on this page remain allegations.
What is a vacancy exclusion in a commercial property policy?
A vacancy exclusion is a policy term that removes coverage for loss to property that has been vacant or unoccupied for a set period. In this matter, the policy excluded loss to property vacant or unoccupied for 60 days or more, and the insurer denied the fire claim on that basis.
Can an insurance broker be sued for failing to warn about a vacancy exclusion?
A broker can face a professional negligence claim if it fails to use reasonable care in obtaining requested coverage or in advising a client of significant limits on that coverage. Whether a broker is liable depends on the facts, including what the client asked for and what the broker knew. In this matter, our client alleged that the broker did not ask about occupancy or warn that vacancy coverage had narrowed, and the broker denied responsibility.
What is an insurable interest, and why did it matter here?
Under California Insurance Code section 281, an insurable interest is any interest in property of a kind that a covered peril could directly damage the insured. The broker argued that the named plaintiff did not own the building and so had no insurable interest and no damages. The plaintiff responded that an affiliated entity that held title was also a named insured, and, in the alternative, that the operating business had its own interest as the tenant required to insure the building.
Can a different plaintiff be substituted after a lawsuit is filed?
Sometimes. Code of Civil Procedure section 473(a) lets a court, in furtherance of justice, allow a party to amend a pleading to add or strike a party’s name. In this matter, the court granted the plaintiff’s motion to substitute an affiliated named insured, finding no distinct injury, no new claims and no prejudice to the broker. The result in any other case depends on its own facts.
How long did the case take?
About five years from the filing of the complaint to settlement. The trial date was continued several times by stipulation while the parties completed discovery, depositions and settlement discussions.
Does this result guarantee the same outcome in another case?
No. Prior results do not guarantee, warrant, or predict a similar outcome in any future matter. This result depended on the facts of this case, and results will differ on different facts. You should speak with an attorney about your own situation.
About the legal team
Fernald & Zaffos represented the plaintiff as litigation counsel in this insurance broker negligence matter.
Responsible attorney: Adam P. Zaffos, Fernald & Zaffos APC, Encino, California.
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Attorney advertising. Prior results do not guarantee, warrant, or predict a similar outcome in any future matter. This result depended on the facts of this case, and results will differ on different facts. Names of the parties, the court and locations have been omitted. The description reflects our client’s position and the court filings; no court or jury made findings on the merits, and the settlement is not an admission of liability by any party. This page is general information and is not legal advice.