Insurance Agents & Brokers Liability

Services v. Harleyville Insurance Co.

There has been a noticeable increase in claims against insurance brokers over recent years, with plaintiffs beginning to frame coverage disputes as actions sounding in negligence and negligent misrepresentations. In this ever-shifting world, disputes regarding coverage have devolved into claims that brokers failed to secure, explain, or accurately advise as to coverage. Such claims, requiring no proof of intent, allow insureds facing scrutiny to look beyond the spoken word of brokers and into the text of standard transaction documents.

Pennsylvania’s Superior Court’s decision in Penn Outdoor Servs., LLC v. Harleysville Ins. Co. of New Jersey, 323 A.3d 231 (Pa. Super. Ct. 2024), reargument denied (Sept. 6, 2024), highlights the evolution of the misrepresentation claims against brokers. There, Penn Outdoor Services, LLC subcontracted for snow removal services at an apartment complex it owned with Longford Landscape and Excavation. The contract between Penn and Longford included a hold harmless clause in favor of Penn with respect to the services to be provided by Longford, which specifically stated:

Subcontractor agrees to indemnify and save and hold harmless Penn and Penn's clients/customers from and against all claims for damages arising out of the performance of Subcontractor's duties under this Agreement and agrees to, at Subcontractor's expense, defend any suit or action brought against Penn or Penn's clients/customers on account of such claim or damage.

Consistent with the parties’ agreement, Longford’s insurance broker, Wharton, Lyon & Lyon provided Penn with a certificate of insurance, naming Penn as an additional insured under Wharton’s insurance policy with Harleysville Insurance Company. Specifically, the subject policy included an endorsement relating to Penn’s coverage as an additional insured, endorsement CG-7524, which provided,

If specifically required by the written contract or agreement referenced in Paragraph A above, any coverage provided by this endorsement to an additional insured shall be primary and any other valid and collectible insurance available to the additional insured shall be non-contributory with this insurance.

While the contract between Penn and Longford was in effect, a woman was injured in a slip and fall at the complex where Longford provided snow removal services. The woman filed suit and named Penn as a defendant. With the impression it was an additional insured under Longford policy, Penn sought a defense in the matter from Longford and Harleysville; a request that was denied because, as per Harleysville, the coverage provided under Penn’s policy was excess coverage, not primary.

After settling the underlying action and incurring extensive legal fees in the course of the same, Penn filed an action against Harleysville and Wharton, including a claim for negligent misrepresentation against Wharton. After a jury verdict was rendered in favor of Penn, Wharton filed a motion for j.n.o.v. arguing that the evidence established that it made no negligent misrepresentation. The trial court disagreed, pointing out that the contract between Penn and Longford required Penn to be named as an additional insured, however, it did not specify that such coverage be primary as required by the applicable endorsement to the Harleysville policy. Wharton’s representative testified that she did not review the complete language of the endorsement in question, thus creating the negligent misrepresentation.

By providing the COI naming Penn as an additional insured, Wharton represented that to be the status of insurance extended to Penn. The endorsement of the Harleysville policy provided that “if specially provided” by the contract between the parties, the coverage afforded would be primary, correlating with the text of the COI. The contract in question, however, did not specifically call for the coverage to be primary. Therefore, it was not.

While reading like a choose your own adventure novel, Penn Outdoor highlights the need for attention to detail in the issuance of COI’s by brokers. In a world where a broker’s spoken word can get them into hot water, the case casts a light on a new potential pathway to broker liability. While the COI in the present matter contained the necessary buzz words, i.e. “additional insured,” that language alone could not carry the day. Penn Outdoor evidences how critical it is for brokers to choose their words wisely, but also carefully ensures the text of the COI, policy language, and other transaction documents provide the coverage reasonably expected by the insured. By making it ones practice to always reconcile the policy language with the COI, and any applicable contracts, brokers can avoid potential liability in an increasingly litigious world.