In Johnson v. Doodson Insurance Brokerage, LLC, 2015 WL 4253850 (6th Cir. July 15, 2015), the US Court of Appeals for the Sixth Circuit, applying Michigan law, held that an insurance broker was not liable to the widow of a man killed in an accident at a Cleveland Indians pregame event for having failed to obtain appropriate insurance coverage for the amusement company that coordinated the event.
The Cleveland Indians hired National Pastime Sports to produce Kids Fun Day events at Indians baseball games. Id. at *1. The Fun Day events had children’s attractions, including an inflatable bounce house and inflatable slide. Id. The contract between the Indians and National Pastime required the latter to secure $5 million in comprehensive general liability insurance coverage. Id. To obtain the policy, National Pastime submitted an insurance application to the defendant insurance broker, stating on the application that the Fun Day events would include inflatable attractions. Id. The policy obtained by the broker, however, had what turned out to be a fatal gap – it excluded from coverage injuries caused by inflatable slides. Id.
In June 2010, the plaintiff’s husband attended an Indians game at Progressive Field in Cleveland. While admiring a display near the Kids Fun Day area, he was crushed by an inflatable slide that collapsed onto him. Id. When National Pastime informed the broker of the accident, the broker replied that accidents caused by inflatables were not covered under the policy. Id. The absence of coverage left plaintiff unable to collect a $3.5 million default judgment she had obtained against National Pastime in Ohio state court. Id.
Plaintiff subsequently sued the defendant insurance broker in the Eastern District of Michigan, alleging negligence and breach of contract for having failed to procure the appropriate coverage. Id.at 2. The insurance broker moved to dismiss for failure to state a claim and the district court dismissed both claims, holding that (1) the negligence claim failed under Texas law because plaintiff had not alleged privity of contract between the decedent and the broker as required by Texas law; and (2) the breach of contract claim failed under Michigan law because the decedent was not a third-party beneficiary of the contract between National Pastime and the broker. Id. Plaintiff appealed, arguing that Michigan law applied to both claims and that she had stated claims under Michigan law. Id.
The Sixth Circuit affirmed, holding that, even under Michigan law, both claims failed. Id. The court found that plaintiff failed to state a claim for negligence under Michigan law because the defendant broker owed no tort duty to the decedent. Id. The court noted that, under Michigan law, when a contracting party is sued by a non-contracting party for negligence, the critical inquiry is whether, “‘aside from the contract, the defendant owed any independent legal duty to the plaintiff.’” Id.(citing Loweke v. Ann Arbor Ceiling & Partition Co., 809 N.W.2d 553, 562 (Mich. 2011). The court held that “[f]ailing to perform a contractual obligation to procure insurance against suits by injured parties does not implicate a risk of harm that the broker had any common law duty to prevent.” Id.at *2. The court distinguished plaintiff’s claim from a similar case brought by the Indians against the broker because, unlike the decedent, the Indians were an additional insured and a named contractual beneficiary on the deficient insurance policy. Id. at *3.
The court also affirmed the dismissal of plaintiff’s contract claim, finding that the decedent was neither a party to nor an intended third-party beneficiary of the agreement to obtain insurance. Id.at *4. The court found that, under Michigan law, “because neither [the decedent] nor a class of which he was a member was directly referred to in the contract, his estate has not sufficiently alleged that he was an intended third-party beneficiary of the contract.” Id. The court found that the only possible third-party beneficiary class to the contract would be the public at large, which the Michigan Supreme Court had previously held is “too broad to qualify for third-party status.” Id.(citing Schmalfeldt v. North Pointe Ins. Co., 670 N.W.2d 651, 655 (Mich. 2003)).
The Sixth Circuit’s decision in Johnson thus recognizes, and is consistent with, the general principle that insurance agents and brokers are not liable in negligence to third parties injured by an insured. The opinion also emphasizes that courts should not expand the class of potential third-party beneficiaries to an insurance contract to include the “public at large.” Id. at 4.