Bnccorp v. Hub
1 CA-CV 15-0708
| Ariz. Ct. App. | Jul 11, 2017Background
- BNC (BNCCORP and its subsidiary BNC National Bank) contracted HUB as its exclusive insurance broker under a 2007 Purchase and Sale Agreement (PSA) after HUB acquired BNC’s insurance agency business; the PSA included an express jury-trial waiver.
- BNC used mortgage-loans-in-transit (MLT) arrangements (first Concord, then AMS) allowing third-party originators to use BNC funds; BNC added "servicing contractor" coverage to its fidelity/bond policies but did not obtain manuscript endorsements specific to AMS or otherwise disclose the AMS MLT agreement to HUB.
- AMS had prior regulatory sanctions (2006), which BNC did not investigate or disclose to HUB.
- In 2010 BNC discovered AMS had executed a fraudulent lapping scheme causing about $26 million loss; Colonial/Travelers denied coverage, BNC settled with insurers for $7.5 million, then sued HUB for negligence alleging HUB failed to obtain/advise appropriate coverage.
- The trial court struck BNC’s jury demand based on the PSA waiver and entered judgment for HUB after finding HUB did not breach the applicable standard of care or proximately cause BNC’s loss; the Court of Appeals affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity/scope of jury-trial waiver in PSA | Waiver does not extend to BNC’s negligence claim; The Bank was not a signatory so cannot be bound | PSA’s broad clause covers actions "arising out of or related to" the agreement; affiliates like The Bank are bound under contract/estoppel principles | Waiver applies to the negligence suit; The Bank (as an affiliate) and BNCCORP are bound; jury demand properly stricken |
| Existence of duty / applicable standard of care for broker | Broker owed broad duty to advise on what insurance to buy and to identify risks (including fraud risks from AMS) | Broker’s duty limited to exercising reasonable care, skill and diligence in procuring coverage the client requested; no obligation to independently identify unknown risks absent agreement/information | Duty recognized (broker-client relationship) but standard is the Darner reasonable-care standard tailored to the engagement; no special heightened duty to identify unspecified risks absent specific request/agreement |
| Breach — did HUB fail to obtain or recommend appropriate coverage for MLT risks | HUB failed to investigate AMS, identify risks, recommend endorsements or manuscript coverage specific to the AMS MLT program | HUB matched or improved upon requested coverages, solicited marketplace options, presented proposals, and obtained servicing-contractor coverage that arguably covered AMS fraud | No breach: evidence supports trial court finding HUB acted within the applicable standard and obtained coverage consistent with BNC’s requests (including bond language covering servicing-contractor fraud) |
| Causation / damages — did HUB’s conduct proximately cause BNC’s loss | HUB’s alleged negligence caused BNC’s inability to recover full insurance proceeds and resulting business losses | Insurers contested coverage; BNC settled with insurers; even if insurers initially denied coverage, HUB obtained the requested coverage and any coverage questions are insurer issues; BNC failed to show proximate causation from HUB’s acts | No proximate causation established; trial court’s damages rulings affirmed (including limits on recoverable amounts and exclusions like commissions and certain interest/fees) |
Key Cases Cited
- Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383 (establishes default reasonable-care standard for insurance brokers/agents)
- Sw. Auto Painting & Body Repair, Inc. v. Binsfield, 183 Ariz. 444 (addresses role of expert evidence and distinguishes duty from breach in insurance-agent cases)
- Webb v. Gittlen, 217 Ariz. 363 (reinforces that questions about advising on additional coverage concern breach, not existence of duty)
- City of Phoenix v. Geyler, 144 Ariz. 323 (appellate standard: affirm where any reasonable view supports trial court)
- Smith v. Pinnamaneni, 227 Ariz. 170 (non-signatories may be bound to contract terms, including arbitration/waiver clauses, under certain doctrines)
- Duenas v. Life Care Ctrs. of America, Inc., 236 Ariz. 130 (explains theories for binding non-signatories and limits thereof)
- Harrington v. Pulte Home Corp., 211 Ariz. 241 (discusses standards for evaluating purported waivers and arbitration-related principles)