Case of the Week: Insurance Broker Has No Duty to Assess Risks to Clients

In BNCCORP, Inc. v. HUB Int’l Ltd., , 243 Ariz. 1, 400 P.3d 157 (Ct. App. 2017), the Arizona Court of Appeals determined that a parent may bind its subsidiary to a jury trial waiver, and that an insurance broker does not breach the duty of care by failing to perform independent risk evaluation in the absence of a specific request from the insured.

BNCCORP (“BNC”) was a bank holding company. BNC entered into a contract with a mortgage originator that allowed BNC funds to be used to originate the loans, which would then be serviced and sold on the secondary market. The mortgage originators defrauded BNC out of $26 million, which was discovered by BNC in April 2010.

BNC sued HUB for negligence in providing insurance brokerage services. The court first had to determine whether BNC had waived a jury trial for such a cause of action. BNC—the holding company—had a purchase and sale agreement with HUB that contained a term waiving a jury trial for any action “arising out of or related to this agreement or any of the transactions contemplated hereby.”  However, BNC National Bank, which was also a party to the suit, was not a party to this contract.

The court held that the jury waiver by a parent company also applied to its subsidiary. The subsidiary could reasonably expect to be bound by the jury trial waiver in the contract, and did not have to knowingly and voluntarily waive its right to a jury trial.

As to the issue of breach, BNC claimed that HUB failed to assess BNC’s business risks and to properly advise it of the adequacy of its insurance coverage, specifically as it related to the mortgage origination loans. However, the court refused to extend the duty of care for insurance brokers to this extent, stating that they have no obligation to assess the adequacy or appropriateness of the insurance coverage being purchased, or inform clients about optional coverage that may be available.  The bank failed to identify or foresee its own risks and made only a general request for coverage.

The bank had the responsibility for risk assessment and management, and the court would not impose such a duty on the broker absent a specific agreement to do so. This case shows that insured persons and businesses should be aware that they are generally responsible for assessing risks and paying for any liabilities that exceed their policy limits.

To receive updates on important cases and other news, follow the Chernoff Law blog or sign up for our newsletter.