4th Circuit Holds No Duty to Defend Insurance Broker In Bodily Injury Suit

In its recent decision in Houston Cas. Co. v. St. Paul Fire & Marine Ins. Co., 2011 U.S. App. LEXIS 24157 (4^th Cir. Dec. 6, 2011), the United States Court of Appeals for the Fourth Circuit, applying South Carolina law, considered whether a general liability insurer had a duty to defend its insured, an insurance broker, in connection with an underlying construction site injury lawsuit.

The insured, McGriff, Seibels & Williams, Inc. (“McGriff”), was the broker of record for an owner-controlled insurance program (“OCIP”) issued to provide coverage for claims arising out of dam construction project.  As part of its services, McGriff distributed a document called “Manual of Insurance Procedures” to the various contractors covered under the OCIP policy.  The Manual expressly stated that McGriff, in conjunction with the project’s general contractor, would have various safety-related responsibilities in connection with the project. 

McGriff was named as a defendant in a suit brought by an individual who suffered catastrophic injuries while working on the project.  Plaintiff alleged causes of action for negligence and breach of contract against McGriff on the basis that it had assumed responsibiliy for performing inspections at the work site to ensure that it was reasonably safe, but failed to perform these inspections.  McGriff’s professional liability carrier, Houston Casualty Company, undertook McGriff’s defense.  St. Paul, however, which was McGriff’s general liability carrier denied coverage on the basis of an “Insurance and Related Work” endorsement, stating:

We won't cover injury or damage or medical expenses for which the protected person may be held liable because of:

• any obligation assumed by any protected person in connection with an insurance contract or treaty; [or]

• any failure to carry out, or improper carrying out of, any contractual or other duty or obligation in connection with an insurance contract or treaty.

Houston brought a contribution action against St. Paul, alleging that St. Paul had a duty to defend and McGriff in the underlying suit.  The trial court granted summary judgment in St. Paul’s favor, agreeing that the exclusion applied because McGriff was sued “in connection with an insurance contract.”  On appeal, Houston argued that McGriff’s safety-related duties in connection with the project existed independent of the insurance contract, and thus did not fall within the scope of the exclusion.  More specifically, Houston argued that plaintiff’s negligence claim against McGriff was based upon a common law duty arising from a voluntary undertaking of various safety-related duties, and that plaintiff’s breach of contract claim did not allege breach of an insurance contract.

The court rejected Houston’s broad reading of the complaint, pointing out that the exclusion applied to any failure to carry out any contractual or other duty in connection with an insurance contract.  As such, the court explained, the exclusion would apply to a breach of any contract claim, even one other than the insurance policy itself, so long as the additional contractual obligation arose “in connection with” an insurance contract.  The court further explained that as long as McGriff’s common law obligations would fall within the exclusion as long as those obligations arose “in connection with” an insurance contract.

Looking to the complaint, as well as the Manual, the court concluded that McGriff’s contractual and common law obligations were related to and stemmed from its efforts to issue the OCIP.  While McGriff assumed various obligations outside of the OCIP, it did so as part of its efforts to broker the program, and thus arose “in connection with” the policy.  As such, the Fourth Circuit affirmed the grant of summary judgment, finding persuasive the lower court’s statement that “there is no allegation or suggestion in the complaint that McGriff assumed any safety-related duties except in this role [i.e., as the broker of record].”