Negligent Broker Saved by Exclusion
Boulevard RE Holdings, LLC, (Boulevard) sued Mixon Insurance Agency,
Inc., (Mixon), alleging breach of contract and negligent procurement of
insurance only to find that if the policy had been issued protecting
Boulevard there would be no coverage because of a clear and unambiguous
exclusion requiring operative fire sprinkler systems.
In Boulevard RE Holdings, LLC v. Mixon Insurance Agency, Inc., No.
22-1895, United States Court of Appeals, Eighth Circuit (July 20, 2023)
the Eighth Circuit applied Missouri law to resolve the dispute.
FACTUAL HISTORY
Boulevard owned commercial property in which BMG Service Group, LLC,
(BMG) operated a bar (Property). Boulevard entered into a contract for
deed with BMG for the sale of the Property for $1,275,000. Under the
contract, Boulevard retained the Property's legal title until BMG paid
the purchase price in full. The contract also obligated BMG to obtain,
at its own expense, fire insurance in the amount of the purchase price.
The insurance was to be issued in Boulevard's name.
BMG asked its broker, Mixon, to have Boulevard listed as a "named
insured, loss payee, additional insured, and mortgagee" on the insurance
policy. Mixon procured the policy from Berkley Assurance Co. The policy
was issued and contained an endorsement called the Fire Protective
Safeguard Endorsement (Endorsement). The Endorsement required the
insured to maintain a working automatic sprinkler system on the
Property. The Endorsement also excluded all coverage for loss or damage
by fire if the sprinkler system was inoperative.
The policy, as issued, did not list Boulevard as a "named insured, loss
payee, additional insured, and mortgagee."
Approximately one year later, the Property was destroyed by fire. At the
time of the fire, the sprinkler system was inoperative.
Boulevard submitted a proof of loss to Berkley Assurance, claiming to
have an interest in the property as a "lender." The district court held
that Boulevard was not entitled to recover as a mortgagee because
sellers in a contract for deed are not mortgagees under Missouri law.
The district court also concluded that even if Boulevard was an insured
or a mortgagee, noncompliance with the Endorsement barred recovery.
BOULEVARD'S COMPLAINT AGAINST MIXON
The operative complaint raises two causes of action against Mixon:
negligent failure to procure insurance and breach of contract. Under
Missouri law, both causes of action require showing that the defendant
caused the plaintiff to suffer damages.
The Eighth Circuit noted that on the record facts, even if Boulevard had
been named as a mortgagee, coverage would still be barred because of
the Endorsement.
The Endorsement required the Property to have a working sprinkler
system. The Property was destroyed by a fire that occurred while the
Property lacked a working sprinkler system. Indeed, had Mixon procured
the Policy in precisely the manner requested by BMG, and had the Policy
issued with Boulevard listed as a mortgagee or other additional insured,
Boulevard would nonetheless be in the same position in which it found
itself.
If the policy had issued listing Boulevard as requested, the Endorsement
would still have barred coverage.
ZALMA OPINION
It is usual for insurers of restaurant and bar risks to require the
presence of fire sprinkler systems. The bar that burned had no operative
fire sprinkler systems and, as a result, had no available coverage for
damage by fire. Boulevard, who sold the property under contract tried to
avoid the condition precedent and its own negligence by failing to
review the policy or insist on the fire sprinklers, by suing the broker
for not naming it as an insured.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
