Under Illinois statutory and common law an insurance broker owes a duty only to the named insured who has purchased insurance from the broker. Recently, the question arose under Illinois law regarding whether a sub broker, who played an administrative role in the placement of a large and complex risk involving a chain of brokers and subcontractors, but did not place any insurance on the behalf of the named insured or received commissions from the placement owed any type of duty to warn the named insured of potential "red flags" suggesting that the insurance company under which the program was placed was untrustworthy and that its polices issued might be worthless.
The issue of whether a general contractor qualified as an additional insured under a sub contactor excess policy for a work related injury turned on whether there was evidence that the sub-contractor caused the claimants injuries according to the recent case of Advent Inc. v. National Union Fire Insurance Co. 6Cal AP 5th 443, 2016 WL7100489(6th Dist., December 6th 2016)
In Travelers' Property Cas. Co. of America v. Stresscon Corp., 370 P.3d 140 (Colo. 2016), the Colorado Supreme Court held that an insured contractor's settlement for a bodily injury claim that arose on a construction site where the subcontractor was working, without the insurance company's consent, violated the insurance policy's no-voluntary-payments clause and forfeited coverage as a matter of law irrespective of whether the insurer was able to prove that it was actually prejudiced by the settlement.
In S&S Paving and Constr., Inc. v. Berkley Regional Ins. Co., 239 Ariz. 512, 372 P.3d 1036 (Ct. App. 2016) , the Arizona Court of Appeals considered whether a surety could be sued by a subcontractor for bad faith failure to investigate when the surety issued a public works payment bond. This case involved a lawsuit brought by an unpaid subcontractor (S&S) for work done on a municipal construction project. S&S filed a claim against the payment bond issued by Berkley Regional Ins. Co. The bond had been issued in conformity with Arizona's Public Works Bonding Act, A.R.S. §§ 34-222-223. Although Berkley acknowledged receipt of the claim and requested more information, Berkley advised S&S that its initiation of an investigation would not toll the running of any statute of limitations period. After 13 months, S&S sued Berkley for breach of contract and bad faith. In turn, Berkley raised the one year statute of limitations on public payment bonds under A.R.S. § 34-223(B). The trial court dismissed both claims. The Arizona Court of Appeals affirmed the dismissal of the bad faith claim. In doing so, the Arizona Court of Appeals noted that S&S's attempt "to graft a common law remedy onto a statutory scheme that includes within its ambit both the availability of complete relief and specific conditions precedent to recovery" should be rejected. The Court found Arizona's Public Works Bonding Act was comprehensive regarding liability, remedies, and conditions for recovery. Therefore, allowing a common law remedy for bad faith conduct would be inconsistent with the express language of the statute which contained a provision stating that "all liabilities on this bond shall be determined in accordance with the provisions, conditions and limitations of [the Act]."
Putting a subcontractor's insurer on notice. An interesting case recently came out of New York. In Spoleta Constr., LLC v. Aspen Ins. UK Ltd., 27 N.Y.3d 933, 50 N.E.3d 322 (N.Y. 2016), the Court held that a general contractor's insurance company's letter to a subcontractor requesting that the subcontractor provide a defense and indemnity under the subcontract agreement was adequate notice to the subcontractors insurer of the occurrence taking place.