Insurance brokerage failed to tender a lawsuit to one of plaintiff's insurers. $4.3M. Los Angeles County.

Facts and Background

• Facts and Background:

  The matter arose from a federal action brought in 2018 against plaintiffs and certain of their affiliated entities, by Grasshopper House, LLC, the proprietor of a drug and alcohol abuse rehabilitation center called Passages Malibu. That lawsuit was entitled: *Grasshopper House, LLC v. Clean and Sober Media LLC et al.* (Case No. 2:2018cv00923).

  After receipt of the complaint for the federal action, plaintiffs’ then-counsel tendered the action to certain of their then-in-place insurance carriers, one of which provided independent counsel to defend plaintiffs under a reservation of rights. Plaintiffs’ then-counsel also turned to their insurance broker, HUB, to tender the complaint to plaintiffs’ historic insurers given that the allegations in the complaint went back several years. HUB failed to tender notice of the federal action to one of plaintiffs’ historic insurers: Hiscox. After failing to tender notice of the federal action, HUB negligently represented to plaintiffs that Hiscox had denied the claim when in fact HUB never contacted Hiscox regarding the federal action at all.

  HUB further misled and falsely let plaintiffs believe that the basis of the alleged denial was that the claim was not made within the policy period and the allegations in the federal action were outside the retroactive date. In reality, Hiscox never had any notice of the underlying complaint because HUB did not send any notice of the federal action, contrary to what it had promised plaintiffs. As a result of HUB’s failure to tender, plaintiffs were not reimbursed for the fees paid to outside counsel to represent them in the federal action, which was a bet-the-company, multimillion-dollar litigation against a powerhouse law firm. As a result of HUB’s actions and the necessity for the plaintiffs to hire outside counsel, the plaintiffs spent millions in litigation fees in the federal action.

  Six months after the lawsuit ended, HUB’s failure to tender notice of the federal action, and subsequent fraudulent cover-up were discovered. After plaintiffs were sued in federal court by one of their insurers, USIC, in March 2020, plaintiffs filed a third-party complaint against all of its carriers, including Hiscox, and against HUB for professional negligence. Once plaintiffs settled with all of their insurers, plaintiffs filed suit against HUB for several causes of action for negligent misrepresentation, professional negligence, intentional misrepresentation, concealment and constructive fraud.

• Plaintiff's Contentions:

  Plaintiffs contended that HUB failed to uphold their duties when they failed to tender notice of the federal lawsuit to plaintiffs’ historic insurance carrier Hiscox. As a direct result of HUB’s failure and subsequent concealment, plaintiffs incurred millions of dollars of damages by having to hire outside counsel to defend them in a bet-the-company case.

• Defendant's Contentions:

  Defendant contended that their failure to tender the complaint to Hiscox, even if HUB agreed to do so and represented that it had done so when in fact it had not, and fabricated reasoning for Hiscox’s non-existent denial, was negligent at most and did not arise to the level of intentional fraud.

  Defendant further contended that there was no alleged concealment because HUB was actively investigating the failure for a mere seven weeks before disclosing the facts to plaintiffs. Defendants consistently prior to and during trial contended that there was no evidence that plaintiffs ever requested for HUB to tender the complaint to Hiscox, while alternatively contending that if there was a duty, there was causal connection between HUB’s breach and plaintiffs’ claimed damages because plaintiffs could not prove that Hiscox would have rejected coverage on the issue which would have entitled plaintiffs to recover its reimbursement defense fees in a breach of contract lawsuit against Hiscox.