BNCCORP Inc. v. HUB Int'l Ltd, __Az. Adv. Rep.__ (App. Div. I, July 11, 2017) (J. Thompson)

CONTRACTUAL WAIVER OF RIGHT TO JURY TRIAL INCLUDED CIVIL CLAIMS OF NEGLIGENCE & AFFILIATE TO PARTY TO CONTRACT IS BOUND BY WAIVER/INSURANCE BROKER STANDARD OF CARE DOES NOT REQUIRE ASSESSMENT OF RISKS TO INSURED WHERE SOPHISTICATED BUSINESS INSURED COULD NOT FORSEE RISKS ITSELF

Plaintiffs' suffered substantial uninsured losses as a result of fraud  all arising out of aa complex commercial tangle of contractual arrangements between financial, insurance and insurance broker institutions The principal parties included BNNCCORP, Inc. [BNC] its affiliate BNC National Bank N.A. [The Bank] and HUB Int'. Ltd. [HUB)].  Declaratory Relief actions were filed by the parties seeking a determination of liability under a bond and negligence regarding the procurement of insurance.  The trial court found  the parties had contractually waived the right to a jury trial, that The Bank was bound by the waiver despite not being a party to the contract and  that HUB did not violate the standard of care in failing to assess plaintiffs' risks and recommend proper insurance coverage..   BNC appealed and the Arizona Court of Appeals affirmed.

The Arizona Constitution expressly states, a right to a jury trial “may be waived by the parties in any civil cause.” Ariz. Const. art. 6, § 17. Where the contract between the parties provided for such a waiver “arising out of or related to this agreement or any of the transactions contemplated hereby” claims for negligence that could only arise from the contractual relationship between the parties would be included. The provision of broker services, which HUB is alleged to have negligently provided in procuring insurance, arose out of and was a “transaction contemplated” by the purchase sale agreement [PSA] which was the subject of the litigation. Likewise, since The Bank is an affiliate obtaining broker services from HUB pursuant to the PSA, The Bank is bound, and could have reasonably expected that it would be bound, by the terms of the jury trial waiver in the PSA.

Next addressing the question of negligence, the court focused upon the standard of care. In essence the claim was that HUB had failed to properly advise plaintiffs' of the nature and extent of the business risks the plaintiffs were undertaking and consequently failed to recommend proper coverage. 

We recognize that in deciding whether a broker has breached similar standards of care, the general rule is that “brokers have no [obligation] to advise insureds about the adequacy or appropriateness of the insurance coverage they purchase, or to inform them about optional coverage that might be available. BNC cites no Arizona authority that has held that in complying with Darner's standard of care, a broker, or other insurance professional, ordinarily must identify risks and recommend alternative or additional coverage than the client actually sought or requested. Moreover, we agree with the trial court that it would be incongruous to impose upon an insurance broker “a duty to identify risks resulting from a client's business operations that the client itself was unable to foresee despite the sensitive and highly regulated nature of the client's business.” Given the highly-regulated nature of the banking industry, it is reasonable that risk identification should be deemed a bank's obligation; of course, unless a broker agrees to take on such obligations on behalf of the bank.