In Liberty Surplus Insurance Corporation v. First Indemnity Insurance Services, Inc., ____ So.3d ____ (Fla. 4th DCA March 10, 2010) a proposed insured provided its insurance broker with an application for insurance which contained 14 different supplement pages describing 14 prior claims during the past 5 years. The broker then submitted the application to Liberty, however the broker only included 3 of the 14 claims with the application. Liberty issued the policy. Later, when the insured was sued, Liberty defended and ultimately paid to settle that case. However, during the course of the case Liberty learned about the prior claims.
Liberty sued the insurance broker alleging that it would not have issued the policy had it known of the prior claims. Liberty’s complaint alleged three basic causes of action:
First, that First Indemnity intentionally failed to disclose all the claims supplements; second, that it negligently failed to disclose all the claims supplements; and third that Liberty is entitled to common law indemnity from First Indemnity.
The broker moved to dismiss the complaint claiming, among a myriad of various defenses, that Liberty could not sue it because of the general rule that an insurance broker is the agent of the insured, and as the agent of the insured it owed no duty to Liberty. The trial court granted the motion to dismiss.
The 4th DCA ruled first that "the fact that First Indemnity, as a broker, was the agent of the insured, does not preclude its liability for negligent or fraudulent conduct." In support of its position, the Court noted the Section 522 of the Restatement (Second) of Torts has been adopted in Florida by the Florida Supreme Court in Gilchrist Timber Co. ITT Rayonier, Inc., 696 So.2d 334 (Fla. 1997). The 4th then held that Section 552 was applicable to insurance brokers. Section 552 states:
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
The Court then held that:
By our application of section 552 to the facts of this case, we hold that an insurance broker is liable for its own negligence in supplying false information on which an insurer justifiable relies in issuing a policy and suffers pecuniary loss.
The Court thus allowed the negligence and fraud counts to proceed against the broker. However, the Court found that the common law indemnity claim failed to state a cause of action because "Liberty was obligated to pay based on a contractual liability not a vicarious liability for the acts of First Indemnity."