Four Seasons Health Care, Inc. et al v. Willis Insurance Services of Georgia, Inc.
(Georgia Court of Appeals, July 15, 2009)
Policyholders initiated this action alleging that broker failed to procure adequate directors and officers (D&O) liability insurance to cover claims arising out of a shareholder’s suit. The underlying suit involved claims by a shareholder’s group (owning more than 5%of the voting stock) that they were wrongfully frozen out of the opportunity to purchase foreclosure stock by the policyholder’s, one of whom was the chief executive officer and chairman of the board of the companies being liquidated. Specifically, the suit involved two policies of insurance issued by AIG, which disclaimed coverage under both policies relying on the fact that the policy excluded coverage for “prior acts” and that the policy excluded coverage for claims brought by shareholder owning more than 5% of the policyholder’s voting stock (i.e., 5% major shareholder exclusion).
The Court of Appeals held that the broker was appropriately granted summary judgment because the policyholders knew about, and requested, that the “prior acts exclusion” be included in the policy, against the specific advise and recommendation of the broker, and failed in their duty to read and discover the plain and unambiguous 5% major shareholder exclusion. On these findings, the policyholders were charged with knowledge of the exclusions and barred from recovery under the general rule cited in Atlanta Women’s Club, Inc. v. Washburne, 207 Ga. App. 3 (1992)(“where the agent procures the requested policy and the insured fails to read it to determine which particular risks are covered and which are excluded, the agent is thereby insulated from liability, even though he may have undertaken to obtain ‘full coverage’”). The court further concluded that, even assuming the broker acted in a fiduciary relationship and held itself out as an expert, (i.e., an exception to the general rule governing the broker/policyholder relationship), the exception did not apply because the policyholders had actual knowledge of the prior acts exclusion and the major shareholder exclusion was plain and unambiguous, thereby, making both exclusions “readily apparent.” Lastly, because there was a lack of evidence establishing that the broker could have procured the D&O policy without the shareholder exclusion, there was no evidence that the broker’s alleged negligence proximately caused the lack of coverage.
For a copy of the decision click here
By Paul C. Steck and Sharon Angelino