On January 21, 2020, the Fourth Circuit affirmed a district court order granting summary judgment to an insurance broker on a claim that the broker had failed to procure the coverage necessary to protect a non-profit organization from losses associated with a charity golf tournament. While many businesses rely on a broker to place appropriate insurance coverage for the organization, this decision highlights the importance of understanding what is in your organization’s policies—and policy applications—rather than relying solely on a broker to ensure coverage responds appropriately.
Charity Contest Gone Awry
In 2015, fans won big at the Greenbrier Classic, a golf tournament in West Virginia on the PGA Tour. Old White Charities, Inc., the entity which operates the tournament, promised fans at the 18th hole $100 each if a player were to sink a hole-in-one and $500 if players were able to make a second. Professional golfers George McNeill and Justin Thomas each shot holes-in-one on the 18th hole from a distance of 137 yards, which led to a payout to fans of nearly $200,000.
Insurance has long been available to protect charitable organizations that sponsor contests where winners may collect grand prizes, such as expensive vacations, cars, or cash. Its use in golf tournaments is so common that this “prize indemnification insurance” is often colloquially known as “hole-in-one insurance.” Hole-in-one insurance, when properly obtained, allows contest sponsors to draw crowds and encourage donations or purchases while simultaneously protecting themselves from the risk of a large payout.
Underlying Coverage Action
When McNeill, and then Thomas, landed their shots, West Virginia Governor (and Greenbrier owner and chairman) Jim Justice handed out one hundred dollar bills to the lucky winners of the “Hole-In-One Fan Jackpot.” Unfortunately, when Old White Charities attempted to collect from its insurer, it realized that a misstep during the policy application process had sunk its claim.
The insurance policy application—which a broker completed on Old White’s behalf—required a minimum yardage of 150 yards for the hole to be used in the contest. In response to this restriction, the broker included an addendum noting that the 18th hole played an average of 175 yards, but represented to the insurer that Old White had no knowledge or control over the length of the hole on any given day of the tournament because the PGA determined the placement of the tee boxes and pins. Without securing the insurer’s agreement to any modified terms, a representative of Old White signed the application, and the policy ultimately provided that the hole needed to be at least 170 yards for coverage to apply.
Because the holes-in-one were shot from a distance of 137 yards, the insurer disclaimed coverage, and the parties litigated the issue. The U.S. District Court for the Southern District of West Virginia granted summary judgment on the insurers’ declaratory judgment claim, citing the unambiguous policy language restricting coverage to holes greater than 170 yards in length. Mem. Op. & Order, Talbot 2002 Underwriting Capital Ltd. v. Old White Charities, Inc., No. 5:15-cv-12542 (S.D. W. Va. Jan. 6, 2017), ECF No. 246 at 9. The Fourth Circuit affirmed the district court’s decision. All Risks, Ltd v. Old White Charities, Inc., 715 F. App’x 274, 277 (4th Cir. 2017). In doing so, the Fourth Circuit agreed with the district court that the policy yardage restriction was unambiguous and that Old White failed to show it had a reasonable expectation of coverage. Id. at 275-76.
Broker Negligence Action
In response to the loss in the coverage action, Old White brought suit against its broker, Bankers Insurance, LLC, asserting state law claims of negligence, reasonable expectations, and misrepresentation. The district court granted summary judgment to Bankers on each of these claims and again the Fourth Circuit affirmed. Old White Charities, Inc. v. Bankers Ins. LLC, No. 18-1914, 2020 WL 290664 (4th Cir. Jan. 21, 2020).
In this suit, Old White argued that Bankers had violated the doctrine of reasonable expectations and that, as a result, Old White’s “objectively reasonable expectations . . . regarding the terms of insurance contracts [should] be honored even though painstaking study of the policy provisions would have negated those expectations.” Id. at *2 (citing State ex rel. Universal Underwriters Ins. Co. v. Wilson, 825 S.E.2d 95, 100 (W. Va. 2019)). The Fourth Circuit disagreed, noting that this doctrine applies only when the terms of the insurance contract are ambiguous. Here, the distance warranty in the application was clear, even when considering the broker’s “addendum” to the application.
The Fourth Circuit also concluded that the district court correctly determined that Old White failed to establish the elements of duty and proximate causation in regard to its negligence claim and likewise failed to establish a claim for fraud or negligent misrepresentation against Bankers. Old White Charities, Inc. v. Bankers Ins. LLC, No. 18-1914, 2020 WL 290664 at *2 (4th Cir. Jan. 21, 2020). In West Virginia—along with many other jurisdictions—a broker has a duty to obtain the coverage requested by its client or inform the client if it is unable to do so. See Wilson Works, Inc. v. Great American Ins. Grp., No. 1:11-CV-85, 2012 WL 12960778, at *2 (N.D.W. Va., June 28, 2012). However, because the organization had read and signed the application—which included the unambiguous yardage restriction—the district court held that “Bankers owed Old White no duty to secure an insurance policy outside the bounds of that application language.” Old White Charities, Inc. v. Bankers Ins., LLC, 325 F. Supp. 3d 681, 691 (S.D.W. Va. 2018).
Old White Charities, Inc. v. Bankers Ins. LLC presents a cautionary tale to organizations that rely on insurance brokers to obtain adequate coverage. Not only must the responsible representative carefully read any policies obtained on its organization’s behalf, he or she should also scrutinize any restrictions put forward in the policy application. While this may not seem efficient, given that brokers are typically retained precisely for their special expertise in these areas, this decision demonstrates the potential risks involved with taking a hands-off approach to your organization’s coverage.