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Following on the heels of the decision of the Illinois Appellate Court, First District in Santa Rosa Mall, LLC v. Aon Risk Services Central, Inc., 2023 IL App (1st) 221352, written about in this blog here on August 1, 2023, which held that no duty was owed to an additional insured in the handling of a claim following a hurricane, the Eighth Circuit in Boulevard RE Holdings, LLC v. Mixon Insurance Agency, 2023 WL 4631542 has held, under Missouri law, that the alleged failure of a broker to name a vendor as additional insured did not cause the plaintiff damage.
BMG Service Group, Inc. (“BMG”) operated a bar on a premises owned by Boulevard RE Holdings, LLC (“Boulevard”). Boulevard and BMG entered into a contract for deed for BMG to purchase the premises, and as part of the agreement, BMG agreed to obtain fire insurance in the amount of the purchase price, naming Boulevard as an additional insured, loss payee, and as mortgagee. BMG engaged Mixon to obtain the insurance. Mixon procured a policy that contained an endorsement that required a working sprinkler system. The policy did not named Boulevard as an additional insured.
A fire occurred, destroying the premises at a time when the sprinkler system was inoperative, and when BMG submitted the claim, it was denied by the insurer. The insurer filed suit against Boulevard, arguing that it did not owe coverage as Boulevard was not named as an additional insured and that under Missouri law, a contract for deed did not create a mortgage. In addition, the insurer argued that the breach of the endorsement that required a sprinkler system barred coverage.
In response to the insurer’s complaint, Boulevard filed a third-party action for breach of contract and negligent failure to procure insurance against Mixon, which was severed from the coverage action. The district court granted summary judgment to the insurer and against Boulevard.
Mixon moved for summary judgment on the basis that the coverage suit decided the issues of coverage and that the endorsement barred coverage and that as an insurance broker, it had no duty to investigate whether a mortgagee could be added to the policy. The district court granted the motion for summary judgment.
On appeal, the Eighth Circuit focused on whether Boulevard was damaged, holding that irrespective of whether Mixon owed a duty to Boulevard, the endorsement barred coverage. Boulevard tried to get around this problem, citing to Bell v. O’Leary, 744 F.2d 1370 (8th Cir. 1984) by arguing that if it had been named, it would have had the option to secure other coverage that did not have the endorsement. The court rejected this argument, finding that Boulevard’s damage was caused not by the failure to disclose an alternative, but by the noncompliance with the policy.
As complaints by third parties against professionals increase, defense of those professionals, particularly insurance brokers, will relate not only to whether there is a duty, but whether the conduct of the broker caused the alleged damage. In both Santa Rosa and Boulevard, the plaintiffs could not show that the damages were caused by the broker.