SMS Services LLC v. HUB International Northwest, LLC, No. 2:2011cv00336 - Document 56 (W.D. Wash. 2012)
Court Description: ORDER granting 34 Defendant's Motion for Summary Judgment; the Court therefore need not reach Plaintiff's 40 Motion for Partial Summary Judgment by Judge Marsha J. Pechman.(MD)
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SMS Services LLC v. HUB International Northwest, LLC Doc. 56 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 9 10 SMS SERVICES LLC, a Delaware limited liability company, 11 Plaintiff, 12 CASE NO. 11-cv-00336-MJP ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION v. 13 14 HUB INTERNATIONAL NORTHWEST, LLC, a Washington limited liability company, 15 Defendant. 16 17 This matter comes before the Court on Defendant’s motion for summary judgment and 18 Plaintiff’s motion for partial summary judgment. (Dkt. Nos. 34, 40.) Having reviewed the 19 motions, the oppositions (Dkt. Nos. 44, 48), the replies (Dkt. Nos. 51, 53), and all related papers, 20 the Court GRANTS Defendant’s motion for summary judgment and declines to reach Plaintiff’s 21 motion for summary judgment. 22 23 24 ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION- 1 Dockets.Justia.com 1 2 Background In August 2008, SMS’s sole member, Steven Shindler, purchased a 2007 Dassault Falcon 3 2000EX EASy aircraft (the “Aircraft”). (Compl. at ¶¶ 6-7.) The same day, he sold the Aircraft to 4 Vesey Air, LLC (“Vesey”), a subsidiary of GE Capital Corporation, and Vesey leased the 5 Aircraft back to SMS for a 64-month term. (Id. at ¶ 7.) 6 The lease agreements placed the entire risk of loss of the Aircraft on SMS, and required 7 SMS to obtain insurance coverage for the Aircraft, including “hull coverage.” (Ross Decl., Dkt. 8 No. 36-3 at 2.) As part of its agreement with Vesey, SMS was required to maintain a policy limit 9 of at least $33 million. (Id. at 8-9; Howenstine Decl., Dkt. No 41, Ex. 2 at 31.) 10 SMS hired NII Holdings, Inc. to manage the Aircraft and NII Holdings then chose HUB 11 as the insurance broker. (Compl. at ¶ 7.) In 2008, HUB’s broker Sue Carroll (“Carroll”) procured 12 insurance for the Aircraft with a hull policy limit of $33 million. (Ross Decl., Dkt. No. 38-3 at 13 3.) The following year, HUB and NII entered into a written agreement (“Service Plan”). The 14 Service Plan was drafted by HUB and stated that HUB would “review contracts to assure 15 adequacy of coverage in relation to exposures and contract requirements, as needed.” 16 (Howenstine Decl., Dkt. No. 43 at 58 (Service Plan).) In 2009, when the first annual policy on 17 the Aircraft expired, HUB, with the approval of NII and Shindler, reduced the insurance 18 coverage to $27 million. (Id. at 62-63.) 19 In February 2010, the Aircraft was totaled when the roof of the hangar it was parked in 20 collapsed during a snowstorm. (Compl. at ¶ 20.) SMS paid Vesey $30 million in damages; 21 however, per the insurance contract, SMS recovered only $27 million in insurance proceeds. (Id. 22 at ¶ 21.) SMS alleges that as a result of being negligently underinsured it lost $6 million, 23 24 ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION- 2 1 consisting of the $3 million it had to pay to Vesey, and the $3 million it would have received had 2 HUB kept the policy limits at $33 million as required by Plaintiff’s lease agreements. (Id.) 3 Analysis 4 1. Standard 5 Summary judgment is proper if the pleadings, depositions, answers to interrogatories, 6 admissions on file, and affidavits show that there are no genuine issues of material fact for trial 7 and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). 8 Material facts are those “that might affect the outcome of the suit under the governing law.” 9 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The underlying facts are viewed in 10 the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith 11 Radio Corp., 475 U.S. 574, 587 (1986). The party moving for summary judgment has the burden 12 to show initially the absence of a genuine issue concerning any material fact. Adickes v. S.H. 13 Kress & Co., 398 U.S. 144, 159 (1970). Once the moving party has met its initial burden, the 14 burden shifts to the nonmoving party to establish the existence of an issue of fact regarding an 15 element essential to that party's case, and on which that party will bear the burden of proof at 16 trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). 17 2. Negligence 18 Plaintiff’s sole cause of action is negligence. To recover against an insurance broker 19 based on negligence, the insured must prove: (1) the broker had a duty of care to protect the 20 insured against a certain risk, (2) the broker breached that duty, and (3) that the breach was the 21 proximate cause, (4) of the insured's damages. Peterson v. Big Bend Ins. Agency, 150 Wn. App. 22 504, 515 (2009). 23 Defendant argues it did not owe a duty to Plaintiff to advise it of the adequacy of 24 insurance coverage. The Court agrees, and finds summary judgment appropriate. ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION- 3 1 2 The existence of a duty is a question of law for the court, to be considered in light of 3 public policy considerations. Suter v. Virgil R. Lee & Son, Inc., 51 Wn. App. 524, 528 (1988). 4 Generally, a broker has no duty to procure a policy affording the client complete liability 5 protection. Id. It is the insured’s obligation to advise the broker of the insurance that he or she 6 wants, including the limits of the policy to be issued. Id. However, if the broker assumes 7 additional duties by contract, holds herself out as possessing an extraordinary skill, or has a 8 special relationship with the buyer, the broker has a duty to advise the buyer of the adequacy of 9 insurance. Peterson, 150 Wn. App. at 515; Hardt v. Brink, 192 F. Supp. 879, 881 (W.D. Wash. 10 1961). Whether or not an additional duty is assumed will depend upon the particular relationship 11 between the parties. Hardt, 192 F. Supp at 881. 12 Plaintiff argues a duty existed based on either contract or a special relationship. The 13 Court disagrees with both arguments. 14 Plaintiff claims that Defendant had a duty to ensure adequate coverage based on the 15 Service Plan. Plaintiff’s argument is unpersuasive. The Service Plan is between Defendant and 16 third party NII and states that Defendant would “review contracts to assure adequacy of coverage 17 in relation to exposures and contract requirements, as needed.” (Howenstine Decl., Dkt. No. 43 18 at 58 (Service Plan).) This language is vague and does not constitute a promise to review 19 contracts all the time, without prompt. Rather, the language suggests that the insured will request 20 such review when it is needed. During the two years Plaintiff procured insurance through 21 Defendant, Plaintiff never requested that Defendant review its leases to determine the adequacy 22 of Plaintiff’s coverage. (Id. at 28 (Carroll Dep.).) Thus, Defendant did not owe a duty to Plaintiff 23 based on the Service Plan. 24 ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION- 4 1 Plaintiff alternatively argues that the parties’ special relationship gave rise to a duty. This 2 argument is also unpersuasive. 3 Absent a special relationship, an insurance broker has no obligation to recommend 4 liability limits higher than those chosen by the insured. Gates v. Logan, 71 Wn. App. 673, 678 5 (1993). A special relationship exists if either (1) the broker holds herself out as an insurance 6 specialist and receives compensation for consultation separate from the premiums paid by the 7 insured, or (2) the broker and insured have a longstanding relationship that includes interactions 8 on the question of coverage, and the insured relied on the expertise of the broker to his or her 9 detriment. Suter, 51 Wn. App. at 528. 10 Here, a special relationship does not exist under either prong. First, Plaintiff did not 11 compensate Defendant for consultation and advice separate from the premiums paid by Plaintiff. 12 Plaintiff argues it paid a higher price to retain Defendant’s expertise, however, this fact 13 establishes only that Plaintiff paid Defendant a premium, not that it separately paid for 14 Defendant’s consultation and advice about Plaintiff’s insurance limits and lease requirements. 15 (Howenstine Decl., Dkt. No. 43 at 23 (Carroll Dep.); Howenstine Decl., Dkt. No. 41-1 at 72-73 16 (Cardwell Dep.).) Therefore, Plaintiff has not established a special relationship under the first 17 test. 18 Second, Plaintiff and Defendant do not have a longstanding relationship nor did they 19 discuss the adequacy of insurance coverage. At the time of the loss, Defendant had been 20 Plaintiff’s broker for only two years. (Carroll Decl., Dkt. No. 35-1 at 5); See, e.g., AAS-DMP 21 Mgmt., L.P. Liquidating Trust v. Acordia Northwest, Inc., 115 Wn. App. 833, 840 (2003) 22 (finding a longstanding relationship where broker sold insurance to insured and managed all of 23 insured’s policies over a 10-15 year period). Furthermore, a special relationship does not exist 24 ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION- 5 1 because, during the two years Plaintiff was Defendant’s client, Plaintiff never consulted with or 2 received advice from Defendant concerning the adequacy of Plaintiff’s coverage. (Howenstine 3 Decl., Dkt. No. 43 at 28 (Carroll Dep.)); See, e.g., Lipscomb v. Farmers Ins. Co. of Washington, 4 142 Wn. App. 20, 28-29 (2007) (no special relationship exists where the insured never consulted 5 with the agent about the adequacy of coverage and the agent never gave the insured any advice). 6 Plaintiff contends that its management company, third party NII, has had a relationship with 7 Defendant since 2004 and this should be considered the required relationship. Plaintiff has cited 8 no Washington authority, however, that holds that a special relationship is established via a third 9 party. Therefore, Plaintiff fails to establish a special relationship under the second test. 10 Because Plaintiff did not pay Defendant for consultation and advice about coverage, did 11 not consult or seek advice from Defendant about coverage, and did not have a longstanding 12 relationship with Defendant, no special relationship exists and Defendant did not have a duty to 13 ensure Plaintiff was adequately covered. 14 Conclusion 15 The Court GRANTS Defendant’s motion for summary judgment. The Court finds 16 Plaintiff’s negligence claim fails because Defendant did not owe a duty to Plaintiff, based on 17 either contract or special relationship, to advise Plaintiff of the adequacy of insurance coverage. 18 The Court therefore need not reach Plaintiff’s motion for partial summary judgment. 19 The clerk is ordered to provide copies of this order to all counsel. 20 Dated this 5th day of March, 2012. A 21 22 Marsha J. Pechman United States District Judge 23 24 ORDER GRANTING DEFENDANT’S SUMMARY JUDGMENT MOTION- 6
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