Ward v. Certain Underwriters at Lloyd's of London

Background

Andre Ward and Roc Nation Sports sought a professional-athlete disability-insurance policy in 2015. The policy identified Ward as the insured person and Roc Nation Sports as the owner and beneficiary. It provided a $6.3 million lump-sum payment if Ward suffered a career-ending injury during the policy period from December 23, 2015, to December 23, 2016.

Ward injured his right knee in October 2016 and retired from boxing about a year later. After he submitted a disability claim, a claims administrator first evaluated the claim under a 2016–17 policy and denied it. The stated reasons included pre-existing or degenerative conditions and the absence of a single sudden and unexpected event. The denial was later affirmed on the different ground that the disability did not occur while the 2016–17 policy was in force. The claim was then referred to the different lead underwriter for the 2015–16 policy, which was still investigating the claim when plaintiffs sued.

Plaintiffs initially sued International Specialty Insurance, Inc., their wholesale insurance broker, and the lead underwriter on the 2015–16 policy. Their claims included breach of contract, breach of the implied promise of good faith and fair dealing, and breach of duties by an insurance broker. After plaintiffs amended their complaint, the underwriters asserted three claims against International Specialty: breach of contract, contractual indemnification, and common-law indemnification. International Specialty asserted two claims described as cross-claims against McLarens, Inc., Empirical Loss Management, LLC, and Melanie Thompson, seeking comparative equitable indemnity and declaratory indemnity. International Specialty later dismissed its claims against Thompson without prejudice.

Procedural Issues

International Specialty moved under Federal Rule of Civil Procedure 12 to dismiss all of the underwriters’ cross-claims. McLarens and Empirical Loss also moved to dismiss all claims against them. Because McLarens and Empirical Loss were not parties to the action, the court treated the claims against them as third-party claims under Rule 14 rather than cross-claims under Rule 13(g).

Rulings on the Underwriters’ Claims

The court held that each of the underwriters’ three claims against International Specialty was plausibly alleged, meaning the allegations were sufficient to allow the claims to proceed at the motion-to-dismiss stage.

For breach of contract, the underwriters alleged that a May 1, 2015, Binding Authority Agreement required International Specialty to notify the proper underwriter of complaints involving policies covered by the agreement. They alleged that International Specialty failed to provide timely notice of Ward’s claim and that this harmed the underwriters’ reputation and ability to investigate and adjust the claim. The court rejected International Specialty’s argument that the cross-complaint needed to attach the agreement, quote its terms verbatim, or satisfy a California state-court pleading standard. The court applied the federal pleading rules and denied the motion to dismiss this cross-claim.

The underwriters also asserted express indemnity and equitable indemnity. Express indemnity is a contractual obligation to reimburse or protect another party from specified losses. Equitable indemnity is a claim for allocating responsibility among parties who may be liable for the same injury. The court found both claims plausibly alleged. It accepted, at this stage, the allegation that International Specialty’s failure to notify the proper underwriter caused the underwriters to breach their agreement with Ward and Roc Nation Sports by failing to process the claim timely. The court denied the motion to dismiss both indemnity claims, while stating that allowing the claims to proceed did not excuse the underwriters’ own denials or refusals regarding coverage.

Rulings on the Third-Party Claims

The court granted McLarens and Empirical Loss’s motions to dismiss International Specialty’s third-party claims. The court reasoned that equitable indemnity generally requires the proposed indemnitor to be potentially liable to the injured plaintiffs. International Specialty did not identify a legal duty that the claims adjusters owed to Ward and Roc Nation Sports.

The court rejected International Specialty’s arguments based on alleged independent torts, agency law, and California Insurance Code section 790.03(h). It found no alleged facts indicating fraud, and it relied on California authority stating that an independent adjuster hired by an insurer generally owes no negligence duty to an insured with whom the adjuster has no contract. It also stated that agents are not liable to third parties for economic loss on the allegations presented here. Finally, the court concluded that section 790.03(h) does not create a private right of action and therefore did not establish the necessary duty. The declaratory-indemnity claim also failed because it duplicated other claims.

Disposition

Judge William Alsup denied International Specialty’s motion to dismiss the underwriters’ cross-complaint. The court granted Empirical Loss’s motion to join McLarens’s motion to dismiss and granted McLarens and Empirical Loss’s motions to dismiss to the extent stated. The court ordered an answer to the underwriters’ cross-complaint within fourteen calendar days.