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Pacific Rim Mechanical Contractors, Inc v. Aon Risk Insurance Services West

February 28, 2012


(Super. Ct. No. 37-2009-00089657- CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed.

The opinion of the court was delivered by: Nares, J.


In this case we are presented with an issue of first impression in California: Does an insurance broker, after procuring a policy of insurance for a developer on a construction project, owe a duty to apprise a subcontractor that was later added as an insured under that policy of the insurance company's subsequent insolvency? We conclude that, absent the assumption of a contractual duty to do so, insurance brokers owe no such duty.

Cross-complainant Pacific Rim Mechanical Contractors, Inc. (PacRim) appeals from a judgment entering dismissal of its cross-complaint against cross-defendants Aon Risk Insurance Services West, Inc., and Aon Reed Stenhouse, Inc. (together, Aon) after sustaining Aon's demurrer to all causes of action PacRim asserted against it. We affirm.


Because we are reviewing a judgment following the sustaining of a demurrer, we take the factual background largely from PacRim's cross-complaint against Aon and Bosa.

A. The Construction Project and Insurance

The underlying litigation relates to a construction project (the project) in downtown San Diego, which was completed in 2002. In June 1999 the project's developer, cross-defendant Bosa Development California, Inc. (Bosa),*fn1 engaged Aon as its insurance broker to obtain insurance for the project. Aon procured a general liability insurance policy (the policy) for the project with Legion Indemnity Company (Legion) at the request of its client, Bosa. Legion was solvent at the time it issued the policy.

In 2000 Bosa hired PacRim as one of several subcontractors to work on the project. The parties entered into a contract (the contract) in which Bosa agreed to provide PacRim with liability insurance through the policy for its work on the project. Aon, however, was not a party to the contract and PacRim was never its client.

The policy was a unified, blanket insurance policy known as an Owner Controlled Insurance Program (OCIP) that provided liability insurance for every contractor and subcontractor on the project. The OCIP provided up to $25 million in liability coverage for ten years after the construction was completed─the duration of California's 10-year construction defect statute of limitations.

PacRim became an enrolled party in the OCIP by contacting Aon and providing all necessary paperwork, and in October 2000 Aon provided PacRim with a "Certificate of Liability Insurance," indentifying PacRim as an insured, and Legion as the primary insurer.

In April 2002, during the construction project, the Illinois Department of Insurance obtained an order of conservation against Legion. In 2002, the construction project was completed.

In April 2003, after the project was complete, the Circuit Court of Cook County, Illinois, entered an order of liquidation with a finding of insolvency against Legion.

In April 2002 Aon informed Bosa that Legion had been placed into rehabilitation. However, according to PacRim, neither Bosa nor Aon notified PacRim of Legion's financial condition. PacRim alleges that had Bosa or Aon informed it of Legion's "financial condition" PacRim "could and would have immediately suspended work and insisted that Bosa obtain alternative insurance coverage for the Project."

B. The Construction Defect Lawsuit and PacRim's Cross-complaint

In May 2009 the project's homeowners association filed a complaint for construction defects against Bosa and its subcontractors, including cross-complainant PacRim.*fn2 Bosa filed a cross-complaint against PacRim (and its other subcontractors) seeking indemnity. PacRim then filed a cross-complaint against Bosa and Aon for declaratory relief, breach of contract, negligence, fraudulent concealment, and negligent concealment. As against Bosa, PacRim alleged that Bosa breached the contract by failing to provide and maintain insurance as required by the contract. PacRim further asserted that Bosa breached the contract by "failing to provide the required written notice of a modification or discontinuation of the required coverage."

As against Aon, PacRim asserted that it "owed a duty of reasonable care to procure and maintain [the insurance policy] in PacRim's favor," which Aon breached by negligently or intentionally failing to disclose "Legion's deteriorating financial condition and eventual insolvency." Thus, PacRim explains its "claims against [Aon] are negligence based, not contract based."

Aon demurred to all of PacRim's causes of action, alleging (1) PacRim expressly asserted in its cross-complaint it was not a party to the contract and thus Aon had no liabilities to it, and (2) even if PacRim were a party to the contract, PacRim (a) waived all rights of recovery against Aon for any coverage limitation or failure in the contract, and (b) Aon had no affirmative duty to notify PacRim of Legion's insolvency post-issuance of the policy.

The trial court sustained Aon's demurrer with 10 days leave to amend. The trial court found it "unnecessary to impose" on Aon a "duty to notify an insured of an insurer's post-issuance insolvency" because (1) Bosa was contractually obliged to notify PacRim of Legion's insolvency; and (2) Kotlar v. Hartford Fire Ins. Co. (2000) 83 Cal.App.4th 1116 (Kotlar), which "addresses the issue of a broker's duty," was analogous and controlling. The court cited Kotlar for the proposition that the duty of a broker is " 'to use reasonable care, diligence, and judgment in procuring the insurance requested by its client.' " The court went on to note that PacRim "fails to provide California authority imposing on a broker a duty to notify an insured of an insurer's post-issuance insolvency" and declined to impose such a duty.

The court entered a judgment of dismissal of PacRim's cross-complaint against Aon because it sustained the demurrer as to all of the causes of action. PacRim elected to file this ...

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