Faced with an issue of first impression in California, the Court of Appeals held that a broker was not liable for failing to reveal the insurer's insolvency occurring after issuance of the policy. Pacific Rim Mechanical Contractors, Inc. v. Aon Risk Ins. Serv. West, Inc., 2012 Cal. App. LEXIS 232 (Cal. Ct. App. Feb. 28, 2012).
The developer for a construction project in downtown San Diego retained Aon as its broker to secure coverage. Aon procured a general liability policy for the project with Legion Indemnity Company. Legion was solvent when it issued the policy.
The developer hired Pacific Rim ("PacRim") as one of several subcontractors on the project. The parties entered into a contract in which the developer agreed to provide PacRim with liability insurance through anOwner Controlled Insurance Program ("OCIP"). Aon was not a party to the contract and PacRim was never its client. PacRim, however, enrolled in the OCIP by contacting Aon and providing all necessary paperwork.
During the construction project, an Illinois court entered an order of liquidation of Legion, finding it was insolvent. Aon informed the developer, but not PacRim. PacRim alleged that had it been informed of Legion's insolvency, it would have suspended work and insisted that the developer obtain alternative coverage for the project.
After completion of the project, the homeowners association filed a complaint for construction defects against the developer and its subcontractors. The developer filed a cross-complaint against PacRim and the other subcontractors seeking indemnity. PacRim then filed a cross-complaint against the developer and Aon for declaratory relief, breach of contract, negligence and other claims. PacRim alleged Aon had breached its duty of care by negligently or intentionally failing to disclose Legion's insolvency. The trial court sustained Aon's demurrer and PacRim appealed.
The Court of Appeal determined Aon did not have a duty to inform PacRim of Legion's post-issuance insolvency. PacRim was asking the court to create a new legal duty of notification of the insolvency after the policy was procured, and to apply the ruling retroactively against Aon. But Aon had no legal duty to provide notice of the discontinuation of coverage caused by legion's insolvency. PacRim did not allege that Aon failed to use reasonable care in procuring the policy. Instead, PacRim sought to impose upon brokers a new legal duty of notification after the policy was procured of the insolvency of an insurance company. That duty rested with the insurer.
