KB Home Tucson, Inc. v. Charter Oak Fire Insurance
236 Ariz. 326
| Ariz. Ct. App. | 2014Background
- KB Home contracted with subcontractor GRG to perform work on a Tucson subdivision; GRG maintained general liability policies issued by Charter Oak (and by Evanston) that contained blanket additional-insured endorsements conditioned on a "written contract or written agreement."
- KB repeatedly sent written insurance requirement letters stating KB "must be named as an Additional Insured"; GRG directed its brokers (Drachman Leed and American E&S) to provide Certificates of Insurance listing KB as an additional insured.
- City and homeowners later sued KB for defects; KB tendered defense to Charter Oak and Evanston, both insurers disclaimed coverage arguing KB was not an additional insured because no written contract/requirement executed prior to loss obligated GRG to name KB.
- KB sued Charter Oak for declaratory relief and breach claims; KB sued Drachman Leed and American E&S for negligence, negligent misrepresentation, and fraud related to certificates/endorsements. Superior court granted summary judgment for all defendants; KB appealed.
- The appellate court reversed summary judgment as to Charter Oak, finding triable issues whether KB and GRG had an executed written agreement (or incorporated "rules and requirements") obligating GRG to name KB as additional insured; affirmed summary judgment for Drachman Leed and American E&S on negligence, negligent misrepresentation, and fraud grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether KB qualified as an "additional insured" under GRG's Charter Oak policies (written contract/agreement requirement) | KB: KB's written insurance requirement letters plus GRG's conduct (directing brokers to issue certificates) and the subcontract's "rules and requirements" clause together created an executed written agreement obligating GRG to add KB as additional insured | Charter Oak: No executed written contract/agreement required GRG to add KB; KB attempted to unilaterally modify the subcontract after execution | Reversed as to Charter Oak — fact issue whether KB and GRG had an executed written agreement or incorporated requirement to add KB as additional insured; remanded |
| Whether Drachman Leed owed a duty of care to KB (negligence) | KB: Broker's issuance of certificates and endorsements to KB created duties to KB | Drachman Leed: No duty to third-party non-client absent special circumstances; acted as broker to GRG and provided accurate certificates | Affirmed for Drachman Leed — no duty established; summary judgment proper |
| Whether brokers committed negligent misrepresentation by supplying insurance information to KB | KB: Certificates/endorsements misrepresented coverage to KB | Brokers: Certificates expressly state they confer no rights and do not alter policies; no false information shown | Affirmed — no duty plus no misrepresentation proven |
| Whether brokers committed fraud by falsely representing additional-insured status | KB: Certificates/endorsements were false or not authorized and induced reliance | Brokers: Statements accurately reflected that additional-insured status depended on a written contract; KB cannot show a knowingly false statement or reliance on American E&S | Affirmed — no false statement or actionable representation (American E&S not involved with Evanston policies) |
Key Cases Cited
- Lennar Corp. v. Auto-Owners Ins. Co., 214 Ariz. 255 (discusses that indemnity clauses alone do not create insurance obligations)
- Mid-Am Builders, Inc. v. Federated Mut. Ins. Co., 194 F. Supp. 2d 822 (construing contemporaneous communications and certificates together can satisfy a written-contract requirement for additional-insured status)
- Gipson v. Kasey, 214 Ariz. 141 (elements and duty analysis for negligence)
- Napier v. Bertram, 191 Ariz. 238 (no duty by insurance agent to third-party non-client absent special circumstances)