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Law360 (March 29, 2021, 4:57 PM EDT ) A California judge tossed a hair salon owner's suit alleging that its insurance broker failed to help it obtain pandemic or virus-related coverage, holding that the insurance agent has no duty to warn a policyholder of unforeseen risks such as the pandemic.
Judge Randall S. Stamen said Thursday that VStyles Inc., which operated several hair salons in California, failed to allege that its broker Arthur J. Gallagher & Co took on any extra obligation to help it predict unforeseen risks, such as the COVID-19 outbreak, which has not been seen for over 100 years.
"While the court also accepts as true the allegation that the insurance industry was generally aware that a potential pandemic could result in significant business losses, there is no legitimate argument that insurance brokers such as Gallagher should have anticipated the COVID-19 pandemic and its far-reaching impact on the business world," the judge said.
Although the salon owner claimed Gallagher should have alerted it of the importance of virus or pandemic coverage, it could not show Gallagher made any misrepresentation about its policy or that it ever requested any virus or pandemic-related coverage, Judge Stamen said.
"Nothing in Gallagher's sales pitch […] amounts to an express agreement to assume duties greater than an insurance agent's general duties," the judge said.
According to court records, Gallagher helped the salon to buy a policy from Continental Casualty Co., Inc in 2019. VStyles brought the carrier and broker to court last year, alleging that Continental wrongly denied coverage and that Gallagher negligently performed its duties as an insurance broker.
The court subsequently held that the salon's policy does not cover losses caused by a virus, and VStyles has maintained that Gallagher owes it a duty of care. The salon-owner claimed that the broker failed to mention that its policy does not cover viruses and did not alert it of the need for virus coverage.
VStyles argued that Gallagher's agents presented themselves as experts of insurance, claiming that the broker wrote multiple detailed pages of VStyles' existent policy and future insurance needs. The owner has argued that Gallagher can't escape liability by asserting that the COVID-19 pandemic was unforeseeable, pointing out that the broker "issued a bulletin discussing pandemic risk in 2016, and offered pandemic coverage even before then."
"As a general rule, however, an insurance agent does not have a duty to advise an insured to procure additional or different insurance coverage," Judge Stamen said on Thursday.
A broker's duty is to make sure that the insurance coverage is in force and notify the policyholder of a cancelation, the judge said. Their duty to monitor risks and update coverage does not extend to advising policyholders of unforeseen circumstances, he added.
Representatives for the parties could not be immediately reached for comment on Monday.
VStyle is represented by Robert Shapiro, Patricia Glaser and Sean Riley of Glaser Weil, and Thomas J. Johnston and Nicholas M. Hutchinson of Johnston & Hutchinson LLP.
The broker is represented by Amanda L. Groves, Shawn R. Obi, Stephen V. D'Amore, Scott P. Glauberman, Brian Nisbet and Katherine D. Hundt.
The case is VStyles Inc. v. Continental Casualty Co. et al., case number RIC2003415, in the Superior Court of California, County of Riverside.
--Editing by Amy Rowe.
For a reprint of this article, please contact reprints@law360.com.
