CSI dropped the ball. The insurance brokerage company knows it made a mistake, it admits it, and in all likelihood, it'll be held accountable for it. But the question is: will that accountability come via the tort of negligence or for breach of contract?
When National Pastime, a company that runs promotions for Major League Baseball teams, contacted CSI about a series of Kids Nights at the Cleveland Indians baseball park, they explicitly stated that an inflatable slide would be used. CSI instead procured a policy that didn't cover inflatables, and when the slide collapsed onto two nearby people (killing one), the team was left without coverage.
The parties signed a contract, CSI failed to live up to its end of that contract, and the remedy would presumptively lie in contract. Instead, for reasons not expressed in the Sixth Circuit opinion, the team was also seeking a remedy in tort, a remedy denied by the lower court but reinstated by the Sixth Circuit.
CSI knew that it was procuring insurance for the Indians as well as for National Pastime, it knew exactly what dates and events the insurance was for, it knew that the Indians had paid the premium and that CSI had issued a Certificate of Insurance to the Indians indicating that the policy was in effect. CSI was well aware that the Indians could be harmed if the proper insurance was not procured.
Okay, we're looking at foreseeability, but is that enough?
CSI also argues that foreseeability alone is not enough and that there must be some additional 'special relationship' that would make CSI liable to the Indians in this case. That special relationship certainly exists here.
What relationship? Even the majority opinion never really puts a label on it. They cite the fact that the Cleveland Indians were a named additionally insured party, and were a named certificate holder, and therefore foreseeable. They also mention that one who acts negligently can be held liable to a foreseeable third party, even without privity or a fiduciary relationship.
But, as the dissent points out, there is no common law duty between insurer and an additional insured party, nor is such a duty found in case law. In fact, the dissent makes a great argument for why the only remedy here should be in contract.
In Loweke, a case also cited by the majority (yet interpreted differently), the Michigan Supreme Court held that a defendant can only be liable to the plaintiff if "aside from the contract, the defendant owed any independent legal duty to the plaintiff."
Here, the defendant CSI failed to perform its contractual promise of obtaining adequate insurance. In Loweke, the defendant performed its contractual duties (contractor work) but did so negligently, leading to the injury of a second contractor due to a piece of falling cement.
The contractual duties and the injury were two separate things in Loweke, whereas in this case, the mishandled insurance brokerage was the contract. "[A]lthough a tort can grow out of a contract, in general, a tort is a 'wrong independent of the contract.'"
- Cleveland Indians Baseball Co. v. N.H. Ins. Co., et al. (Sixth Circuit Court of Appeals)
- 6th Desperately Needs En Banc Clarification in Wack Crack Cases (FindLaw's Sixth Circuit Blog)
- Breached Sign Sales Deal Brings Return of 1L Contracts (FindLaw's Sixth Circuit Blog)