In Travelers Property Casualty Company v. Superior Court, 215 Cal.App.4th 561 (2013), the California Court of Appeal held that an investor who obtained ownership of a condominium development and sustained a loss that was not covered by the insurance policy purchased by the original developer had no remedy at law against the developer’s insurance broker because the broker owed no duty of care to the investor.
Joy Investment Group (Joy) obtained a construction loan from East West Bank (EWB) to develop a condominium building in Los Angeles. The terms of the loan required Joy to purchase a construction insurance policy through broker Koram Insurance Center, Inc. (Koram). Joy defaulted on the loan while the insurance policy was still in effect. EWB thereafter sold the loan note and assigned its deed of trust to investor Michael Braum. After the assignment, but before the foreclosure sale, Joy represented to Koram that a homeowners association had been created and, therefore, on Koram’s suggestion, Joy replaced its expiring construction policy with a condominium policy from Travelers for the homeowners association. The policy contained a vacancy exclusion.
In February 2009, shortly after the Travelers policy was issued, the condominium building was vandalized. Joy subsequently filed for bankruptcy and Braum foreclosed on the property. In September 2010, Braum submitted a claim to Travelers for the purported vandalism loss but, because the building was not yet occupied, Travelers denied coverage due to the vacancy exclusion (which voids coverage if a structure is vacant for a defined period of time before the loss).
The Court of Appeal vacated the trial court’s denial of Koram’s and Travelers’ respective motions for summary judgment and instructed the court to grant the motions. The Court of Appeal determined that the vandalism loss was not covered due to the vacancy exclusion, as there was no dispute that the building was vacant for 60 days prior to the loss. The court also held that Koram, the broker, did not owe a duty to Braum, the investor, as a loss payee. The court concluded that there is no general rule that a broker owes a duty to the victim (or loss payee) of an insured whenever a claim is denied pursuant to an exclusion or limitation for which the insured reasonably contracted.
Daniel Dehrey contributed to this article.