Low, Ball & Lynch’s

WEEKLY LAW RESUME

January 19, 2026 Issue   By: Ray Coates

Insurance Coverage - Third Party Beneficiary

Business To Business Markets, Inc. v. Zurich Specialties, et al.

 (December 27, 2005)

Court of Appeal, Second District

The doctrine of third party beneficiary protects one for whose benefit a contract has been made. This case considered whether that doctrine has applicability to insurance contracts.

Business to Business Markets, Inc. (“B2B”) hired Tricon Infotech, an Indian software company, to write a custom-made computer program for B2B’s business. Under the contract, Tricon was required to carry errors and omissions coverage in the event that Tricon failed to deliver the promised software.

B2B contacted Hoyla, a retail insurance broker, in order to assist Tricon purchase insurance. Hoyla contracted Professional Liability Insurance Services, Inc. (“PLIS”), a surplus lines insurance broker, to place the insurance policy. PLIS contacted Zurich Specialties London Limited, which issued the policy to Tricon. Although Tricon was an Indian company doing business in India, the policy excluded coverage for any claim arising from or related to work performed in India.

Tricon failed to deliver usable software to B2B, and B2B sued Tricon for breach of contract. Based upon the exclusion for work done in India, Zurich Specialties refused to pay for Tricon’s defense, or to indemnify Tricon against B2B’s claim. A default hearing resulted in a judgment of $922,480.

B2B then sued PLIS for negligence in procuring the policy. PLIS demurred on the ground that it owed no duty of care to B2B. The trial court sustained PLIS’s demurrer without leave to amend. B2B appealed.

The Court of Appeal reversed. The Court noted that PLIS and B2B had no direct contact, were not in privity of contract, and that B2B was not named on the policy. The Court, however, felt there was a duty of care. Although the insurance contract named Tricon as named insured, the policy was purchased as a result of the contract with B2B for the purpose of protecting B2B against Tricon’s possible breach of contract. B2B’s injury from Tricon was foreseeable.

PLIS assumed the responsibility of securing insurance for Tricon. PLIS failed to meet that responsibility when it obtained a policy that excluded work done in India by Tricon.

Finally, the Court felt that B2B was an intended third party beneficiary under the insurance contract, and, as such, PLIS owed a duty of care to B2B. B2B made the initial phone call and contact with Hoyla, who then contacted PLIS. The software contract called for such a policy. PLIS was a professional entity rendering specialized services. Where injuries arise from the rendering of professional services, such a duty more naturally follows. Surplus lines insurance is a specialized niche market service. Clients rely on the broker to get the right type of policy. It is a highly regulated business. The Court felt that PLIS was in a position to prevent the injury that B2B suffered from Tricon’s inadequate coverage. The judgment was reversed, and the matter remanded to the trial court.

       
COMMENT

Normally, a third party has no cause of action against another party’s insurance broker for failing to secure coverage to provide compensation for an injury. This case, however, extends such a duty to a situation where, under the facts of this case, the Court felt a duty to the third party was owed.

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