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Insurance Law

Insurance Broker Was Not Liable for Failing to Timely Tender an Insured’s Claim Because the Policy Would Not Have Covered the Claim Even if it Were Timely Tendered

Ecolite Concrete USA, Inc. v. G.S. Levine Ins. Services, Inc., 2014 Cal. App. Unpub. LEXIS 9271 (Cal. App. Dec. 31, 2014), [enhanced version available to subscribers].

In Ecolite Concrete, the California Court of Appeal affirmed the trial court’s ruling that an insurance broker was not liable for failing to timely tender an insured’s claim because coverage for the underlying lawsuit would have been precluded by operation of an insured vs. insured exclusion in the applicable policy. Accordingly, the insured suffered no damages by virtue of the delinquent notice to the carrier.

Ecolite arose out of an underlying securities fraud action brought by RQ Construction, Inc. (“RQ”) against Ecolite Concrete, U.S.A., Inc. (“Ecolite”). Prior to filing the lawsuit, RQ officers, George Rogers (“Rogers”) and Mike Patterson (“Patterson”), joined the Ecolite board of directors. After a business dispute arose between Ecolite and RQ, Rogers and Patterson resigned from the Ecolite board. Thereafter, Rogers, in his capacity as CEO of RQ, sent emails to Ecolite stating that RQ was prepared to file suit against Ecolite. Ecolite then forwarded these emails to its insurance broker, who failed to notify Ecolite’s insurer of these emails because the lawsuit had not yet been filed. After RQ filed suit against Ecolite, the insurer refused to defend Ecolite on the grounds of late notice. As a result, Ecolite filed a lawsuit against the insurance broker claiming negligence based on its failure to timely notify the insurer of RQ’s claim.

After a bench trial, the trial court ruled in favor of the insurance broker, finding that no damages could have resulted from the broker’s alleged negligence because coverage would have ultimately been barred by operation of an insured vs. insured exclusion contained in the policy, which excluded coverage for claims “brought or maintained by, on behalf of, in the right of, or at the direction of any Insured in any capacity.” 2014 Cal. App. Unpub. LEXIS 9271, at *9-10. In affirming the trial court’s ruling, the Court of Appeal held that the underlying lawsuit clearly fell within the scope of the insured vs. insured exclusion because the suit was brought at the direction of Rogers and Patterson, both of whom qualified as insureds under the policy due to their role as former Ecolite board members, and because the suit was brought against Ecolite, the named insured under the policy.

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