When Insurance Fails, Can you Look to Your Broker?

Business clients are always managing risk.  Just about everything they do is overshadowed by risk assessment and risk management.

Appropriate insurance, both as to kind and amounts, is sometimes a critical tool for business risk management.  But buying insurance can be complicated and businesses frequently do so though the use of an insurance broker.  When the broker “gets it right”, the client is adequately protected.  When the broker “gets it wrong”, the client suffers the non-insured risk.  When insurance fails, clients will typically look to their broker to see if he or she is at fault.  Instructing your broker correctly, and documenting the relationship, are critical if a claim against the broker ever needs to be asserted.

In the latest case law pronouncement of the nuances involving broker liability, California’s Third District Court of Appeal held this week that while a broker may be liable for misrepresenting the nature, scope, or extent of coverage, he has no duty to ascertain the financial soundness of the insurer or to advise an insured of adverse changes in the insurer’s financial capability.  An insurance broker’s duty is no greater than to use reasonable care and diligence in procuring insurance. Thus, a broker who obtained coverage for a client through a self-insurance program that failed was NOT liable to the client for placing that coverage.

The case is Mark Tanner Construction, Inc. v. Hub International Insurance Services, Inc. – filed March 10, 2014, Third District Court of Appeal, California.

Public Disclosure of Private Facts:

Public Disclosure of Private Facts: California Court of Appeal Holds that Spoken Words Can Support a Privacy Based Tort Claim.

An employee’s right to protect his or her personal information has become strengthened by a recent California Appeal Court case. In Ingat v. Yum! Brands, Inc., the California Court of Appeal (March 18th, 2013, Case No. G046343) has held that the privacy-based tort of public disclosure of private facts does not have to be predicated on the disclosure being in written form; an oral disclosure is sufficient to support the claim.

In the case, an employee alleged damage based on her employer’s verbal disclosure of a bi-polar disorder. The case was dismissed because the disclosure was not in writing. The dismissal was overturned.

The Court noted that the requirement that disclosures must be written to support the claim of Public Disclosure of Private Facts stems back to the 1931 case of Melvin v. Reid, and then observed that “the concentration on written publications in cases cited in Melvin appears to be simply an accident of the kinds of privacy violations prevalent at the time,” and not based on any fundamental policy that required the disclosure must be in writing. With the advent of subsequent new technologies such as television, radio, visual broadcasts via the internet, etc., disclosures can easily take not written form and the California Court of Appeal felt that any notion that the disclosure had to be written to support a claim no longer applies.

The Court stated: “[w]e conclude that limiting liability for public disclosure of private facts to those recorded in writing is contrary to the tort’s purpose, which has been since its inception to allow a person to control the kind of information about himself available to the public-in essence, to define his public persona.”

Clients who are employers now need to be specially aware that in the course of their ongoing diligence insuring the privacy of employee information, a risk of verbal disclosure must not be considered and managed.