In its recent decision in MultiCare Health System v. Lexington Ins. Co., 2013 U.S. App. LEXIS 17981 (9th Cir. Aug. 28, 2013), the United States Court of Appeals for the Ninth Circuit, applying Washington law, had occasion to consider whether a party with whom the insured contracted has standing to bring a misrepresentation claim against an insurer and broker for failing to disclose a policy’s self-insured retention in a certificate of liability insurance.

Lexington Insurance Company insured the Medical Staffing Network (“MSN”), a staffing company providing temporary nursing staff to hospitals, under a professional liability policy with limits of liability of $5 million.  MSN entered into a contract with Good Samaritan Hospital (the “GSH”) whereby MSN provided nursing personnel to GSH.  As part of this contract, MSN was required to provide GSH with a Certificate of Liability Insurance.  USI Insurance Services, on behalf of Lexington, subsequently provided MSN with an Acord form certificate describing the Lexington policy, and MSN in turn provided the form to GSH.  While the Acord form accurately described the policy’s limits of liability and the identity of the insurer, it did not identify the fact that the policy was subject to a $1 million self-insured retention.  Notably, the form is a standard pre-printed form that does not contain a space in which to enter information concerning deductibles or retentions.

GSH and MSN were named as defendants in a wrongful death suit alleging that a nurse provided by MSN injured the decedent while at GSH.  GSH’s counsel shared a copy of the Acord form with plaintiff’s counsel, who subsequently agreed to voluntarily dismiss GSH from the suit based on the belief that MSN had sufficient insurance to satisfy any judgment.  The matter proceeded to arbitration resulting in a judgment against MSN in the amount of $785,000 – an amount within the Lexington policy’s retention.  MSN subsequently filed for bankruptcy to avoid paying this amount.  Plaintiff thereafter successfully vacated its dismissal of GSH based on its argument that it would not have dismissed GSH in the first place had the Acord form identified the $1 million self-insured retention.  GSH subsequently sought a defense and indemnification from Lexington and USI based on theories of negligent misrepresentation and bad faith.  While GSH acknowledged that it did not qualify as an insured under the policy, it contended that the defendants had a duty to not misrepresent the terms of an insurance policy and that this duty was breached by failing to disclose the retention on the Acord form.  GHS argued, therefore, that as a result of this misrepresentation, Lexington and USI should be required to defend GSH in the underlying suit and pay for any resulting judgment.

The United States District Court for the Western District of Washington granted defendants’ motion to dismiss on the basis that GSH failed to properly state a cause of action for negligent misrepresentation On appeal, the Ninth Circuit affirmed, finding that the Acord form did not contain any false information that would support a misrepresentation claim.  The court rejected GSH’s assertion that defendants had an affirmative duty to disclose this information to GSH since no fiduciary relationship existed among the parties.  Notable for the court was that the Acord form contained no column for identifying retentions or deductibles, but that it is common knowledge that insurance policies typically impose such requirements on insureds.  As such, the Ninth Circuit concluded that:

We do not believe that the Washington Supreme Court would find a duty to disclose a self-insured retention amount on a certificate that summarizes insurance policies and does not contain a column for retention or deductible amounts. This is especially true in light of the fact that the hospital could have asked Medical Staffing for a copy of its insurance policy.

The Ninth Circuit also held that the lower court properly rejected GSH’s request for leave to amend its complaint to claim that third parties frequently rely on certificates of insurance in transacting business with insureds.  The court concluded that such an assertion would not establish a duty under Washington law for insurers or brokers to disclose a self-insured retention on a form that has no column in which to include such an amount.