Legal Question in Insurance Law in California

Insurer no harm no foul defense

I purchased a unique business insurance policy from a licensed insurance broker that turned out to be a fraudulent non existent policy. I purchased the policy to back a performance guaranty for a product I was selling to large users of electrical energy. Sales of my new product were dependant on the existence of this policy. After the fraud was discovered, the broker blamed a rouge employee for the fraud, and said that he couldn't find a replacement policy. I was referred to the broker's E&O carrier who also claimed that a replacement policy was not available. The E&O carrier stated that because the policy I had purchased did not actually exist, there was no detrimental reliance and the broker was not liable for damages related to the policy. On further investigation, I have learned that the actual position of the E&O carrier is that they acknowlege a fraud was commited, but they believe that there can't be a liability if a replacement policy is not available. In other words...no harm no foul.

My question: can an insurer claim no financial liability via ''no harm no foul'' defense when a fraudulent insurance policy is supposedly not replaceable with an actual insurance product?

--name removed--.


Asked on 3/31/06, 8:09 pm

3 Answers from Attorneys
Edward Hoffman Law Offices of Edward A. Hoffman

Re: Insurer no harm no foul defense

I don't agree with the explanation you recite (you relied on the representation that you had been insured and not on an actual policy), but it's not clear how you have been damaged. When a party to a contract breaches its obligations but the breach causes no damage to the other parties there is no liability.

I presume you've paid a premium for the phantom insurance policy; if so, you should be able to get a refund. Your case is stronger if the absence of the policy will harm your business going forward, but it is not clear form your question whether this is the case. If the risk is now over then there is no chance you will need the coverage you believed you had purchased.

One more issue to bear in mind: when a breach of contract suit alleges detrimental reliance on the defendant's promise, the reliance has to be reasonable. Did the broker give you documents which supposedly were the policy you had purchased? If not, a jury may feel it was unreasonable to believe you were insured. The same is true if you did receive a written document which does not describe the type of coverage you sought.

The strength of your case thus depends upon a number of details which you have not provided. You should probably consult with an attorney to learn more about your prospects.

Good luck.

Read more
Answered on 4/12/06, 2:22 pm
Steven Murray Steven W. Murray, APC

Re: Insurer no harm no foul defense

I don't believe that such policy is not available, as it appears to be similar to a representations and warranties policy. You can get just about any kind of coverage, with premium being the major barrier to purchase. If you can establish factually what you claim, then you legally might have a case for breach of fiduciary duty against the broker/agent who sold this to you. And maybe even against any insurer for which he was an agent.

Retain a lawyer and discuss this in depth with him or her.

Read more
Answered on 4/12/06, 2:54 pm
Jonathan Stein Law Offices of Jonathan G. Stein

Re: Insurer no harm no foul defense

You should also contact the Department of Insurance at www.insurance.ca.gov. The broker may have committed insurance fraud by collecting premium for a non-existant policy. This should be reported as there may be other victims out there.

Read more
Answered on 4/12/06, 6:49 pm


Related Questions & Answers

More Insurance Law questions and answers in California