Opinion ID: 1781291
Heading Depth: 2
Heading Rank: 2

Heading: Direct action against Tanda as the City's insurer.

Text: Next, Cherry attempts to avoid the exclusive remedy provision found at Ark. Code Ann. § 11-9-105 by claiming that Tanda was in fact the City's insurer such that he may maintain a direct action against Tanda as the insurer of an otherwise immune municipality. According to Ark.Code Ann. § 21-9-301 (Repl.1996), cities, such as Fort Smith, and other political subdivisions of the state are immune from suit for damages except to the extent that they may be covered by liability insurance. Although an immune entity is not required to carry insurance, if it does so then an injured party may sue the insurance carrier directly for the extent of the coverage. Ark.Code Ann. § 23-79-210 (Repl. 1992). Based on these two statutes, Cherry argues that the City of Fort Smith obtained insurance by executing the agreement whereby Tanda agreed to indemnify the City and obtain insurance to cover this indemnity responsibility. The basic flaw in Cherry's argument is that the Arkansas Insurance Code specifically defines an insurer as every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of insurance. Ark.Code Ann. § 23-60-101 (Repl.1994) (emphasis added). Tanda is in the business of construction, not insurance, and the indemnification agreement was a mere incidental obligation of its contractual relationship with the City as a contractor. In other words, Tanda is not in the business of entering into contracts of insurance as required by the statute, and thus, Cherry cannot maintain a direct action under Ark.Code Ann. § 23-79-210 against Tanda as an insurer of an immune entity. Moreover, the indemnity agreement was not an insurance agreement as provided by the statute which defines insurance as: any agreement, contract or other transaction whereby one party, the insurer, is obligated to confer benefit of pecuniary value upon another party, the insured of beneficiary, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event. Ark.Code Ann. § 23-60-102 (Repl.1994). In deciding whether a particular agreement fits this definition, this court has focused on the following three factors: 1) whether the plan is mandatory; 2) whether a profit motive exists in offering the plan; and 3) whether the plan is intended to be actuarially sound. Douglas v. Dynamic Enter. Inc., 315 Ark. 575, 869 S.W.2d 14 (1994); Waire v. Joseph, 308 Ark. 528, 825 S.W.2d 594 (1992). In this case, Tanda was not receiving money in exchange for its promise to indemnify nor was the plan actuarially sound. In fact, the indemnity plan was a liability, not an asset to Tanda. Finally, in the construction contract, the City agrees to obtain its own liability and property insurance. Hence, it is clear that the parties never intended Tanda to be the insurer of the City. Under these circumstances, we decline to construe the indemnity agreement as an insurance contract, and thus Cherry is not entitled to maintain a direct action against Tanda as an insurer of the City.