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BREACH OF AN AGREEMENT TO PROCURE INSURANCE - IT’S NOT A THROW AWAY CLAIM FOR SELF-INSUREDS

The failure to procure such insurance is often ignored in the defense of a bodily injury tort case.  In the situation where the party seeking the relief is self-insured, there is a valid argument that the breach of an insurance procurement clause should result in an Order directing the breaching party to pay for all resulting damages, including final judgments against the promisse, settlement funds, and defense costs.

Often, contractual provisions will require one party to the agreement to obtain insurance coverage to benefit another.  The coverage procured under the contract usually includes coverage for the promisee’s own liability, if any, to plaintiff, as well as the costs of defending the action (i.e. attorney’s fees).  The promisor’s failure to adequately provide such coverage arguably entitles the promisee to partial summary judgment for indemnity and all attorney’s fees.

The above argument is often blunted by case law that holds that the measure of damages should be limited to the cost of premiums where other insurance is available.  However, an important distinction exists when the promisee aggrieved is self-insured, or does not have other insurance (perhaps coverage disclaimed for other reasons or never procured).  A strong argument can be made that a promisee that insures itself does not have “other insurance” available.  Therefore, a promisee that insures itself would be entitled to all consequential damages, indemnity and attorney’s fees.

A failure by a promisor to procure insurance for the benefit of the promisee, pursuant to an insurance procurement provision, constitutes a breach of contract by the promisor.  Moreover, breach may also occur when insurance has been procured, but the insurance procured does not match the coverage promised in the insurance procurement agreement, meaning the policy procured does not provide primary coverage, or the limits are less than required by agreement or there is a self-insured retention where none should exist. 

An agreement that obligates one party to a contract to procure insurance for the other party is valid and enforceable in New York.  An agreement to procure insurance is not an agreement to indemnify or hold harmless and the distinction between the two is well recognized.  Thus, the bar of the New York General Obligations Law that exists in certain circumstances for one party to indemnify for the negligence of another is inapplicable.   

Therefore, in situations where the promisee does not have insurance coverage from dollar one, a claim should be made for damages based in breach of contract.  The damages are arguably the amount of damages to be paid to plaintiff by promisee/defendant and the cost of the defense incurred.  In effect, the damages sought are indemnity from the promisor.

Related practice areas:

General Liability
Insurance Coverage