It’s ironic that a claim against an insurance and risk advisor, that it failed to procure adequate insurance for a client, resulted in a coverage action focusing on whether the insurance and risk advisor procured a policy that covered its own alleged negligence. 

The story in Bliss Sequoia Ins. & Risk Advisors, Inc. v. Allied Prop. & Cas. Ins. Co., No. 20-00256 (D. Or. Oct. 5, 2020) started this way.

Bliss Sequoia was an insurance and risk advisor.  A waterpark client sought professional advice on how to adequately insure itself.  After a young boy was seriously injured at the waterpark, and suit was filed, it was determined that Bliss Sequoia had sold the waterpark “woefully inadequate insurance.”

The waterpark sued Bliss Sequoia for misrepresentation and professional negligence. In the injury suit, the waterpark assigned its claims against Bliss Sequoia to the child’s family.  The family brought a third-party complaint against Bliss Sequioa.

Here’s the interesting part.  The court addressed coverage for Bliss Sequioa under its commercial general liability policy.  There is no discussion whether Bliss Sequioa had an insurance agents errors and omissions policy.  Maybe it did and the family was trying to get proceeds under both policies.  Or maybe it didn’t and this was the only coverage avenue that could be pursued.  Also, one wonders about the professional services exclusion was in the CGL policy.    

In any event, the policy provided coverage for any sums that the insured becomes legally obligated to pay “because of ‘bodily injury.’”

On its face, you could say that Bliss Sequioa would be legally obligated to pay sums “because of ‘bodily injury.’”  The young boy suffered a bodily injury.  It was because of that, that Bliss Sequioa was facing potential liability.  Indeed, the court noted that the parties agreed that “because of” means “by reason of” or “on account of.” 

However, the parties disagreed over “the object of the phrase.”  As Bliss Sequoia saw it, it faces liability “by reason of” a child’s injuries.  The insurer’s take was that Bliss Sequoia was facing liability not “by reason of” a child’s injuries, but “by reason” of its professional conduct in recommending inadequate insurance coverage.

The court agreed with the insurer, focusing on the “legally obligated” to pay damages aspect of the insuring agreement.  The court explained that “the damages sought from Bliss Sequoia are not because of bodily injury but are sought because of Bliss Sequoia’s poor performance of its contract. After all, the complaints allege the boy’s injuries were ‘caused by a lack of adequate lifeguards at the water park at the time of the near drowning of [the boy].’  Bliss Sequoia, however, was not involved in the waterpark’s daily operations. As Bliss Sequoia was not involved in the decisions regarding the appropriate number of lifeguards, it cannot be ‘legally obligated’ to pay damages for any bodily injury caused by inadequate staffing of lifeguards. Instead, Bliss Sequoia’s liability arises solely from its own negligence in providing professional services to the waterpark.”

Not a surprising decision.