Dear Coverage Pointers Subscribers:
The drought will soon be a distant memory. Like the swallows returning to Capistrano or the Cubs not going to the World Series, there are certain guarantees in life. One is that your Coverage Pointers staff, searching for reportable decisions, plays the role of Old Mother Hubbard looking for the proverbial bone in the issues just before and after Labor Day. The cupboard is bare, or almost so, and there's not much to report is this week's issue. However, dutiful we are, we are pleased to present this week's issue of Coverage Pointers, with a few interesting decisions for your review and education.
The appellate courts in our state take a summer hiatus and during this time of year, release a few cases involving election issues and a handful of criminal law decisions. However, most of the civil docket has been cleared for the September terms and we need to wait until mid-September for the action to begin anew.
FDCC Insurance Symposium - September 9- 11, 2009 - NYC
The Federation of Defense and Corporate Counsel is pleased to announce a symposium focused on novel issues that the insurance industry will be facing in the upcoming decade. The conference will take place in New York from September 9-11, 2009. This is an absolutely superb program with over 150 already registered to attend. More information is available on the FDCC Website, www.thefederation.org.
Long Island Insurance Community Gala to Honor Harleysville Leadership
There is still time to register for the Long Island Insurance Community Gala being held in East Meadow, Long Island, on September 24, 2009. The LIIC event honors business and community leaders who demonstrate a commitment to the community by improving the quality of life of their neighbors. This year the LIIC honors two well-deserving individuals, Dennis Otmaskin, Regional President, NE, Harleysville Insurance Company and Tom Glancy, Regional Vice President, NE Claims Service Center, Harleysville Insurance Company. We'll be there and hope you will join us. Tickets are available at the organizational website: http://www.l-i-i-c.org.
New Coverage Pointers Column Starting Next Issue:
For the most part, CP has reported on insurance decision from our state courts. As the result of a inquiry from one of our subscribers, we're expanding our focus to NY federal appellate decisions. Kathy Fijal will become a regular columnist reviewing New York federal coverage decisions from the Second Circuit Court of Appeals. Watch for Fijal's Federal Focus? to be joining Audrey's Angles, Peiper's Property (and Potpourri), Margo's Musings and Kohane's Coverage Corner.
Peiper a Papa:
We're happy to report that Steve and Kelly Peiper are the proud parents of a newborn baby boy. Mother and child are doing fine and Peiper the Papa is as well. And, he was able to get his column in anyway. Attaboy.
One Hundred Years Ago Today:
We were thinking of that US Senator who found himself in hot water because of the position of his feet. Apparently, he wasn't the first:
New York Times
September 4, 1909
ON BROADWAY CAR
W. H. Sauvage Knocked Unconscious
by Pyne, Who Objected
to Position of His Feet.
ASSAILANT IS ARRESTED
Women In Panic-Scream as Inventor
Falls to the Floor of the Car-
Change of Assault Made.
William H. Sauvage, an inventor of railroad appliances and a Director in the Sauvage Safety Brake Company of 20 Broad Street, was attacked, according to his story to the police, on a southbound Broadway surface car last night by Walter P. Pyne of 265 West Eighty-Eighth Street.
Sauvage was on his way downtown to meet Tody Hamilton, the noted circus manager. The alleged assault took place just as the car reached Seventy-Fifth Street.
Pyne, according to Sauvage's story, boarded the car several blocks north of Seventy-Fifth Street. Sauvage, says Pyne, objected to the position of .his feet. Sauvage moved his feet, but alleges that this did not please young Pyne, and he asserts that Pyne abused him, and finally, without any warning, struck him a violent blow in the face.
Sauvage fell to the floor of the car unconscious, and a number of women seeing the blood flow from a cut from the inventor's face, began to scream. The car was stopped and Traffic Policeman Hartridge, of Traffic Station C, who boarded it found the passengers in a panic: He arrested Pyne on the of assault charge.
Editor's Note: While we're not sure of the relationship between Sauvage and Tody Hamilton, we do note that Mr. Hamilton, press agent to P.T. Barnum, who passed away in 1916, is known for many circus-related accomplishments including (a) the creator of the modern circus poster and (b) the fellow who convinced the press to stop using the term "freak show" in the modern circus (replacing the term with "peerless prodigies of physical phenomenons.")
On a Sadder Note, We Report on the Passing of David Twomey:
We regret to report on the passing of one of our many subscribers, David F. Twomey, of Johnson City, New York, at the age of 70. A renowned chef, gardener and bird watcher, David was employed by Haylor Freyer & Coon Inc. in the Southern Tier. He spent seven years as an underwriter in both Personal and Commercial Lines and 32 years as a respected member in the insurance business. At the time of his passing, David was a contributing columnist for the statewide biweekly newsletter, the "IIAANY Insider" and a consultant in the Workers Compensation area for the Independent Insurance Agents' Association of New York (IIAANY). We express our sympathies to his wife of over 30 years, Betsy and his children and extended family.
In this Week's Issue:
KOHANE'S COVERAGE CORNER
Dan D. Kohane
- Insurance Broker Who Fails to Obtain Requested Coverage Can Be Liable Under Breach of Contract or Negligence Theories. Punitive Damages Unavailable for Simple Breaches or Ordinary Negligence
MARGO'S MUSINGS ON SERIOUS INJURY UNDER NEW YORK NO FAULT
Margo M. Lagueras
- Submission of a Hearsay Affirmation by Attorney, Standing Alone, Will Not Satisfy Burden
AUDREY'S ANGLES ON NO-FAULT
- Which Vehicle Is the Proximate Cause of the Accident?
PEIPER ON PROPERTY (and POTPOURRI)
Steven E. Peiper
- Acceptance of Partial Payment Does Not Bar Insured's Ability to Litigate Carrier's Coverage Position
Earl K. Cantwell, II
Insurer's Standing to Bring Legal Malpractice Claims
Thanks for subscribing and many thanks for your continued feedback. Hopefully, the judicial faucets will begin to open after Labor Day and we'll be back up to our usual healthy number of appellate decisions.
All our best to you for a wonderful Labor Day weekend.
Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York
Dan D. Kohane
INSURANCE COVERAGE TEAM
Dan D. Kohane, Team Leader
Michael F. Perley
Katherine A. Fijal
Audrey A. Seeley
Steven E. Peiper
Margo M. Lagueras
FIRE, FIRST-PARTY AND SUBROGATION TEAM
Andrea Schillaci, Team Leader
Jody E. Briandi
Steven E. Peiper
Audrey A. Seeley, Team Leader
Margo M. Lagueras
Jody E. Briandi, Team Leader
Scott M. Duquin
Index to Special Columns
Dan D. Kohane
9/1/09 Bruckmann, Rosser, Sherrill & Co., L.P., v. Marsh USA, Inc.
Appellate Division, First Department
Insurance Broker Who Fails to Obtain Requested Coverage Can Be Liable Under Breach of Contract or Negligence Theories. Punitive Damages Unavailable for Simple Breaches or Ordinary Negligence
A party who has engaged a person to act as an insurance broker to procure adequate insurance is entitled to recover damages from the broker if the policy obtained does not cover a loss for which the broker contracted to provide insurance, and the insurance company refuses to cover the loss. Claims for breach of the duty of loyalty and breach of fiduciary duty were properly dismissed. What is involved here is a dispute between insureds and their broker over whether the broker failed to obtain coverage requested and whether the broker is liable for damages as a result of that failure. Without a special relationship, an agent or broker does not have a continuing duty to advise, guide or direct a client to obtain additional coverage. Likewise, a claim for punitive damages is dismissed, since they are not recoverable for an ordinary breach of contract or for ordinary negligence.
MARGO’S MUSINGS ON SERIOUS INJURY UNDER NEW YORK NO FAULT
Margo M. Lagueras
8/28/09 McHugh v. Marfoglia
Appellate Division, Fourth Department
Submission of a Hearsay Affirmation by Attorney, Standing Alone, Will Not Satisfy Burden
The plaintiff was rear-ended by the defendant and brought a motion for partial summary judgment dismissing the defendants’ fourth affirmative defense which alleged that the plaintiff did not sustain a serious injury. The trial court denied his motion but the decision was reversed on appeal.
The plaintiff met his burden by submitting objective medical evidence that he suffered a disc herniation that required surgery. His treating neurosurgeon’s affirmation stated that the plaintiff’s injuries were permanent, significant and causally related to the motor vehicle accident. The plaintiff additionally submitted the affirmed report of the defendants’ examining neurosurgeon who quantified the plaintiff’s loss of range-of-motion (66% loss of extension and 50% loss of right rotation), and correlated it to the normal range of motion of the cervical spine.
In opposition, the defendants’ only submissions were the affirmation of their attorney and a surveillance video. As is well established, the affirmation of an attorney, without personal knowledge, is merely hearsay and will not serve to raise an issue of fact. As for the alleged surveillance video, it was properly disregarded by the court as the defendants concede that it was not authenticated. Even the defendants’ neurosurgeon concurred with the plaintiff’s treating neurosurgeon that the plaintiff’s cervical spine injury and surgery were causally related to the accident. As such, the plaintiff met his burden on the threshold issue of serious injury.
8/28/09 In the Matter of the Arbitration Between Applicant and State Farm Mutual Automobile Ins. Co., Progressive Northeastern Ins. Co., and Liberty Mut. Ins. Co.
Arbitrator Thomas J. McCorry (Erie County)
Which Vehicle Is the Proximate Cause of the Accident?
On the date of the accident, the Applicant, eligible injured person, was operating a motor vehicle insured by State Farm. The Applicant was driving in the Town of North Collins, southbound on Jennings Road, when he stopped his vehicle due to poor visibility because of blowing snow.
The Applicant stopped his vehicle approximately two car lengths behind vehicle 1, whose insurer was not involved in this arbitration. When vehicle 1 proceeded forward it fishtailed into the oncoming lane of traffic. Vehicle 2, a Progressive insured, happened to be traversing in the oncoming lane of traffic at the time and vehicles 1 and 2 struck each other.
As a result of that collision the Progressive insured vehicle spun back and struck the Applicant’s, State Farm insured, vehicle. The Progressive and State Farm insureds’ vehicles’ bumpers were stuck together due to this collision.
The Applicant testified that after that collision he was not injured. Okay so what’s the problem? Here is the rest of what occurred….
The Applicant exited his vehicle after the collision to see if anyone was injured as well as to determine whether he could free up his vehicle. As he was returning to his vehicle he heard a crash. He turned around and saw a tow truck, insured by Liberty Mutual, coming toward him. The Applicant, in an effort to avoid the tow truck, jumped onto the hood of the Progressive insured vehicle. The tow truck, insured by Liberty Mutual, struck the Progressive insured vehicle. The Applicant was thrown from the hood of the Progressive insured vehicle and landed in a nearby field.
The Applicant testified that is what caused his injuries.
First, the assigned arbitrator looked at the issue of whether he was a pedestrian or a passenger of the Progressive or Liberty Mutual vehicles. The assigned arbitrator held that the Applicant was a pedestrian, and not a passenger of any vehicle, with the Liberty Mutual insured vehicle being the proximate cause of his injuries. The arbitrator applied the Gholson test to reach this conclusion.
Then, the assigned arbitrator declined to accept Liberty Mutual’s argument that even if it were on the hook for no-fault benefits, the Applicant executed a General Release in his bodily injury action which released Applicant’s current claim. Any bets on whether that argument was accepted?
The assigned arbitrator, relying upon case law and arbitration awards, held that the General Release in this case did not release Liberty Mutual from paying statutorily mandated no-fault benefits. It was duly noted that those benefits in a covered person versus covered person third-party action cannot be recovered. Therefore, there was no windfall.
Finally, the assigned arbitrator appeared to be disturbed by the violation of the no-fault regulations which require, in a situation like this, to have an agreement between the insurers as to who will initially pay for the benefits then have the dispute submitted to intra-company arbitration. This apparently did not occur and, as a result, the Applicant was placed in a difficult financial situation in light of the fact that the amount of benefits claimed was in excess of $75,000.00. The assigned arbitrator awarded interest from the date of first notice and not the date that the Applicant filed for arbitration. So how many years of interest was awarded (yes I said years) – approximately 5 years.
Ultimately, the lesson that should be learned is that in the situation where the eligible injured person sustained severe injuries with extensive treatment to ensure that you follow the regulations.
Steven E. Peiper
08/25/09 Hopper v. McCollum
Appellate Division, Second Department
Acceptance of Partial Payment Does Not Bar Insured’s Ability to Litigate Carrier’s Coverage Position
In 2006, plaintiffs’ presented a claim under their homeowners’ coverage for damage to their garage. Soon thereafter, the carrier paid the policy limit under the coverage for damage to “other structures” which the garage fell under. The policy limit under the other structures was the actual cash value of the loss.
Although plaintiff could have rebuilt, and submitted a claim for replacement cost, no such claim was ever presented. Rather, nearly one year later, plaintiffs’ commenced the present action alleging that the carrier had breached the terms of the homeowners’ agreement.
The carrier moved to dismiss on the basis that plaintiffs’ acceptance of the ACV barred any future litigation. Although the trial court granted plaintiff’s application, the Second Department unanimously reversed by holding that the previous acceptance of coverage may serve as a set off of any award of future damages. However, acceptance of the ACV payment, in and of itself, does not bar plaintiff’s attempts to recover under the policy.
INSURER’S STANDING TO BRING LEGAL MALPRACTICE CLAIMS
The issue about whether insurance companies who retain counsel to defend an insured have standing to bring and maintain legal malpractice claims continues to bedevil courts all over the country. In a recent case, a Federal District Court, interpreting Florida law, held that an insurer that retains an attorney to represent an insured does have standing to sue the attorney for legal malpractice. Hartford Ins. Co. v. Koeppel, 2009 WL 1229250 (M.D. Florida 5/5/2009).
The Koeppel case involved a motor vehicle accident with a motorcyclist who sustained significant injuries where there was only a $100,000 policy limit. The insurer retained attorney Koeppel to accept a policy limit settlement offer and draft a release and settlement papers. The insurer alleged that the attorney did not draft the papers and obtain the release before the settlement offer expired. Eventually, the motorcyclist pursued the lawsuit and the case was settled for an amount substantially in excess of the policy limits.
The insurer sued Koeppel for malpractice for failing to accept the settlement offer and draft the release papers before the offer expired. The defendant moved to dismiss contending the insurer did not have standing to bring a malpractice claim because the parties were not in an attorney-client relationship. Applying Florida law, the court denied the motion.
One wrinkle in this case was that, on this retainer, the court noted that it could be argued the insurer retained the attorney actually to represent the insurance company’s direct interest. The court noted that, at least according to the allegations, the insurer retained the attorney for the express purpose of accepting the settlement offer and drafting documents to effectuate the settlement. In addition, the insurer had previously advised the insured to retain their own attorney. In these circumstances, there could be argued to be privity of contract between the insurer and the attorney based upon a special retainer-special assignment theory.
The court did address the issue of whether, generally, an attorney who is retained by an insurer to represent an insured may be liable to the insurer for malpractice since Florida courts had apparently not decided the question. The court reasoned that Florida would follow the alleged “majority rule” and hold that in the absence of a conflict of interest between the insurer and the insured, both the insurer and the insured have an attorney-client relationship with the attorney.
The basis for this “joint retainer” theory is that attorneys are allowed to represent both the insurer and the insured as long as their interests are not adverse. This seems to be a prevailing view in those cases and jurisdictions where the insurance company is held to have standing with the argument being that the insurance company is at least in part a client, especially where there is no conflict between representing the insurer and the insured. Note that this issue was able to be finessed somewhat in the Koeppel case because of the argument that there had been a special delegation or retainer by the insurance company to the attorney and that because of the policy limits in that case the insured had apparently been advised to retain their own counsel, which further indicated that the attorney was to act for the insurance company as opposed to the insured.
Several courts have considered whether an insurer may maintain a legal malpractice suit against defense counsel. In Uniguard Ins. Group v. O’Flaherty & Belgum, 38 Cal. App. 4th 1229 (1995), the court held that an insurer may maintain a legal malpractice agent where the insurer has not asserted a reservation of rights and the interests of the insurer and the insured are not in conflict. In such circumstances, courts have ruled that the insurer and the attorney have a sufficient attorney-client relationship.
However, a contrary result was reached in National Union Fire Ins. Co. v. Salter, 717 So.2d 141 (Fla. App. 1998), where the court held that an insurer did not become subrogated to the insured’s legal malpractice action. This court reasoned that the same policy considerations that preclude assignment of a legal malpractice claim, primarily the confidential nature of the attorney-client relationship, precluded a subrogation action. Here there was a distinction and instance drawn between representations of the insured as opposed to the carrier.
In Allianz Underwriters Ins. Co. v. Landmark Ins. Co., 2004 WL 290548 (N.Y. App. Div. 2004), the court that an excess insurer may maintain a legal malpractice claim against an attorney appointed by the primary insurer to defend the insured. However, a contrary result was reached in Federal Ins. Co. v. North American Specialty Ins. Co., 2007 WL 3306577 (N.Y. App. Div. 2007). Other recent cases have determined that an attorney appointed by an insurer to represent the insured owes no duty to the insurer. See, e.g., Pine Island Farmer Coop v. Erstad & Riemer, P.A., 649 N.W.2d 444 (Minn. 2002). (Attorney who is appointed by insurer does not have attorney-client relationship with the insured unless the insured expressly consents to dual representation after consultation with counsel).
Thus, it appears that this issue will continue to surface in various guises and is in a state of flux. Therefore, it is imperative to establish who defense counsel is representing, and whether there have been any disclaimers or reservations of rights that might indicate a distinction if not a conflict between counsel representing both the insured and the carrier’s interests. The issue may also come down to determinations with respect to what forum and jurisdiction will hear any legal malpractice claim since the rulings and primary holdings seem to differ and have significant nuances from state to state. It is not clear whether, for example, a court in a jurisdiction which would allow such a suit would feel bound by a forum selection clause holding that any suits or disagreements between the insurance carrier and counsel would be subject to the law of another jurisdiction which might bar or preclude such claims.
Of course the real solution is for defense counsel to mount an aggressive and effective defense on behalf of the insured which should serve to satisfy everyone’s interests.
Editor’s Note: Your editor, along with Beth Fitzpatrick at Lewis, Johs in Long Island, crafted an article on this self-same subject which appeared in the May 2009 edition of DRI’s publication, For the Defense. If you are interested in reading it, click here.
8/25/09 Hinton v. Beck
California Supreme Court
Court Found that Insurer Could Not Intervene in a Case After it Had Denied Coverage and a Refused to Defend the Insured.
Plaintiff commenced personal injury action in 1994. In her original complaint, she alleged the Defendant was the lessee of real property and that the Plaintiff was helping the Defendant gather and sort cows and calves on the property. The Plaintiff was trying to keep a gate closed when a cow ran into the gate, taking the gate off of its hinges causing it to strike the Plaintiff and seriously injure her. Defendant’s insurance carrier denied coverage for the Plaintiff and refused to defend. The Plaintiff agreed not to execute any judgment against the Defendant is return for an assignment of the Defendant’s rights against his insurance company, Grange. After the Plaintiff could not get a judgment against Grange, the Plaintiff served judgment on the Defendant and Grange moved to intervene. The Supreme Court held that the issue here was whether an insurer may deny coverage and a defense to its policyholder when the policyholder is sued by an injured plaintiff, and later intervene in the action between the plaintiff and the policyholder. In response to this issue, the court found that the insurer had waived its opportunity to litigate fault or damages when it denies coverage and refuses to defend. Therefore, the court affirmed the Plaintiff’s motion to strike the insurer’s motion to intervene because the insurer had no direct interest in the litigation.
Submitted by: Michael D. O’Connell, Erin A. Mutty, & Michael P. Pohorylo, O’Connell, Flaherty & Attmore, LLC
8/24/09 21st Century Insurance Company v. Superior Court of San Diego County
California Supreme Court
Court Found that the Made-Whole Provision in Insurance Contracts Does Not Include Liability for Attorney’s Fees But are Still Subject to a Separate Equitable Apportionment Rule
Silvia Quintana was injured in an automobile accident with a third party. She maintained an auto insurance policy with 21st Century Insurance Company that included first party, no-fault medical payment (med-pay) insurance coverage in case of an accident. 21st Century paid Quintana $1,000 under her insurance policy’s med-pay provision. Quintana then separately pursued a damages claim against the third party and settled the action for $6,000, which sum represented her total damages. In obtaining the settlement, she incurred approximately $2,000 in attorney fees and costs. Quintana’s policy had a provision requiring her to reimburse her insurer for monies she recovered from a third person that duplicated her recovery under her policy. Quintana filed a class action lawsuit asserting that: (1) 21st Century could not lawfully require any reimbursement under its policy terms because she had not been made whole by the third party damages settlement ($6,000) and medical payments received from the insurer ($1,000) when her attorney fees of $2,106.50 were included as part of her made whole recovery; and (2) that insurance companies are not entitled to reimbursement of payments they made under med-pay policy provisions unless the insured has been reimbursed for 100% of its attorney fees. The court found that although the made-whole rule applies in the med-pay insurance context, and the insured must be made whole as to all damages proximately caused by the injury, liability for attorney fees is not included under the made-whole rule. Those fees instead, the court found, are subject to a separate equitable apportionment rule (or pro rata sharing) that is analogous to the common fund doctrine. The court affirmed the Court of Appeal’s judgment because it found 21st Century had properly discharged its obligation to pay its pro rata share of attorney fees and ensured that Quintana had been made whole.
Submitted by: Michael D. O’Connell, Erin A. Mutty, & Michael P. Pohorylo, O’Connell, Flaherty & Attmore, LLC
McHugh v. Marfoglia
Appeal from an order of the Supreme Court, Erie County (John F. O'Donnell, J.), entered October 29, 2008 in a personal injury action. The order denied the motion of plaintiff seeking partial summary judgment and seeking to dismiss the fourth affirmative defense.
CELLINO & BARNES, P.C., BUFFALO (BRIAN A. GOLDSTEIN OF COUNSEL), FOR PLAINTIFF-APPELLANT.
LAW OFFICE OF DANIEL R. ARCHILLA, BUFFALO (TIMOTHY R. HEDGES OF COUNSEL), FOR DEFENDANTS-RESPONDENTS.
It is hereby ORDERED that the order so appealed from is unanimously reversed on the law without costs, the motion is granted and the fourth affirmative defense is dismissed.
Memorandum: Plaintiff commenced this action seeking damages for injuries he allegedly sustained when the vehicle he was driving was rear-ended by a vehicle driven by defendant Arica L. Marfoglia and owned by defendant A.J. Marfoglia. We agree with plaintiff that Supreme Court erred in denying plaintiff's motion seeking partial summary judgment on the threshold issue whether he sustained a serious injury as a result of the accident under the permanent consequential limitation of use and significant limitation of use categories within the meaning of Insurance Law § 5102 (d) and seeking to dismiss the fourth affirmative defense, which alleges that plaintiff did not sustain a serious injury. Plaintiff met his burden with respect to those two categories by submitting objective evidence that he suffered a disc herniation at C6-C7 that required surgical intervention, and by submitting the affirmation of his treating neurosurgeon who concluded that, based upon his examination and treatment of plaintiff and his review of plaintiff's medical records, plaintiff's injuries were significant, permanent, and causally related to the accident (see LaForte v Tiedemann, 41 AD3d 1191, 1192; see generally Toure v Avis Rent A Car Sys., 98 NY2d 345, 353). Plaintiff also submitted the affirmed report of the neurosurgeon who examined him at defendants' request. That neurosurgeon quantified the degree of loss of range of motion in plaintiff's cervical spine, including a 66% loss of extension and a 50% loss of right rotation, and correlated that loss to the normal range of motion in the relevant areas of plaintiff's cervical spine (see Toure, 98 NY2d at 350; see also Harris v Carella, 42 AD3d 915, 916-917; Strong v ADF Constr. Corp., 41 AD3d 1209, 1210).
We further conclude that defendants failed to raise a triable issue of fact sufficient to defeat the motion with respect to the issue of serious injury or causation. Defendants submitted only an attorney's affirmation and a copy of an alleged surveillance videotape, which they concede was not authenticated and thus was properly disregarded by the court. It is well settled that, "where the moving party has demonstrated its entitlement to summary judgment, the party opposing the motion must demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action . . ., and the submission of a hearsay affirmation by counsel alone does not satisfy this requirement" (Zuckerman v City of New York, 49 NY2d 557, 560). Moreover, the neurosurgeon who examined plaintiff at defendants' request concurred with the conclusion of plaintiff's treating neurosurgeon that plaintiff's cervical spine injury and the resulting surgery were causally related to the accident (see LaForte, 41 AD3d at 1192; Ellithorpe v Marion [appeal No. 2], 34 AD3d 1195, 1196).
Finally, we note that the record establishes that defendants have expressly withdrawn their second affirmative defense, concerning the alleged failure of plaintiff to wear his seatbelt, having conceded that it lacks merit.
Anderson Kill & Olick, P.C., New York (Marshall Gilinsky of
counsel), for appellants-respondents.
Willkie Farr & Gallagher LLP, New York (Christopher J. St.
Jeanos of counsel), for respondents-appellants.
Order, Supreme Court, New York County (Milton A. Tingling, J.), entered December 19, 2008, which granted defendants' motion for summary judgment dismissing the complaint, modified, on the law, to reinstate the causes of action for negligence and breach of contract, and otherwise affirmed, without costs.
The second cause of action for breach of contract should be reinstated. "Under New York law, a party who has engaged a person to act as an insurance broker to procure adequate insurance is entitled to recover damages from the broker if the policy obtained does not cover a loss for which the broker contracted to provide insurance, and the insurance company refuses to cover the loss" (Long Is. Light. Co. v Steel Derrick Barge "FSC 99," 725 F2d 839, 841 [2d Cir 1984]; Landusky v Beirne, 80 App Div 272 , affd 178 NY 551 ). Plaintiffs' settlement of their underlying claim against the insurer, under circumstances in which the merits of the claim for coverage were equivocal, did not break the chain of proximate causation with respect to their claim against their broker for failure to procure appropriate coverage (see Bernstein v Oppenheim & Co., 160 AD2d 428, 430 ). Resources Fin. v National Cas. Co.(219 AD2d 627 ), upon which the motion court relied, is distinguishable because the insured there settled its claim against the insurer despite having prevailed against the insurer on the underlying coverage issue.
An insurance agent or broker can be held liable in negligence if he or she fails to exercise due care in an insurance brokerage transaction. Thus, a plaintiff may seek to hold a defendant broker liable under a theory of either negligence or breach of contract (Bedessee Imports, Inc. v Cook, Hall & Hyde, Inc., 45 AD3d 792, 793-794 ; see also Hersch v DeWitt Stern Group, Inc., 43 AD3d 644, 644-645 ; Katz v Tower Ins. Co. of N.Y., 34 AD3d 432 ). On this appeal, defendants did not argue that the negligence claim should be dismissed as duplicative of the breach of contract claim, and it is clear that plaintiffs allege a breach of duty independent of the contract itself. Specifically, plaintiffs maintain that defendants' failure to exercise due care is shown, inter alia, by their failure to include in the binder a reference to the tie-in provision and to timely review the draft policy and alert plaintiffs to the potential for a reduction in the limits of liability. Thus, the first cause of action for negligence should be reinstated.
The third and fourth causes of action for breach of the duty of loyalty and breach of fiduciary duty were properly dismissed. What is involved here is a dispute between insureds and their broker over whether the broker failed to obtain coverage requested and whether the broker is liable for damages as a result of that failure. "[T]he law is reasonably settled . . . that insurance agents have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so; however, they have no continuing duty to advise, guide or direct a client to obtain additional coverage" (Murphy v Kuhn, 90 NY2d 266, 270 ). Thus, absent a special relationship, a claim for breach of fiduciary duty does not lie (see e.g. People v Liberty Mut. Ins. Co., 52 AD3d 378, 380 ; Sutton Park Dev. Corp. Trading Co. v Guerin & Guerin Agency, 297 AD2d 430, 431-432 ). Punitive damages are not available, since they are not recoverable for an ordinary breach of contract (Rocanova v Equitable Life Assur. Socy. of U.S., 83 NY2d 603, 613 ) or for ordinary negligence (Munoz v Puretz, 301 AD2d 382, 384 ).
All concur except Tom, J.P. and Nardelli, J., who dissent in part in a memorandum by Nardelli, J. as follows:
NARDELLI, J. (dissenting in part)
I agree with the majority that the cause of action for breach of contract should be reinstated and that the causes of action for breach of the duty of loyalty and breach of fiduciary duty should not. I respectfully dissent, however, from the majority's determination to reinstate the first cause of action for negligence, which I view as duplicative of the cause of action for breach of contract.
I recognize, as the majority observes, that an aggrieved client can proceed against a broker in negligence or contract. I do not believe, however, that, in the circumstances presented, plaintiffs can proceed simultaneously under both contract and negligence. "It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated" (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389 ). "This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract" (Teller v Bill Hayes, Ltd., 213 AD2d 141, 144 , lv dismissed in part, denied in part, 87 NY2d 937 ).
The majority concludes that the failure to include in the binder a reference to the tie-in provision, or to conduct a review of the insurance policy issued, constitutes the breach of duties independent of the original contract to obtain insurance. I submit, respectfully, that these claims of negligence duplicate the contractual claims. Defendant brokers were retained to obtain specified insurance, and apparently failed to do so. That the appropriate coverage was not obtained because defendants failed to read the terms of the policy which was procured is irrelevant - plaintiffs did not get the coverage requested. The proof that defendants breached the contract to procure specific coverage will track the proof that they were negligent in performing their duties to procure that coverage.
Thus, since plaintiffs can be made whole by proof that defendants breached their contract to obtain the requisite insurance, I believe that only the second cause of action need, or should be, reinstated.
Carl F. Lodes, Carmel, N.Y., for appellants.
Wilson, Bave, Conboy, Cozza & Couzens, P.C., White Plains,
N.Y. (Robert Gironda of counsel), for
DECISION & ORDER
In an action to recover damages for injury to property, the plaintiffs appeal from an order of the Supreme Court, Putnam County (O'Rourke, J.), dated July 14, 2008, which, in effect, converted the defendant's motion pursuant to CPLR 3211(a)(5) to dismiss the complaint into one for summary judgment dismissing the complaint, and granted the motion.
ORDERED that the order is modified, on the law, by deleting the provision thereof granting the converted motion for summary judgment dismissing the complaint and substituting therefor a provision denying the converted motion; as so modified, the order is affirmed, with costs to the appellants.
On January 18, 2006, the plaintiffs' garage was damaged when portions of an allegedly decayed and fractured tree located on the defendant's adjacent property fell onto it. The plaintiffs made a claim under their homeowners' insurance policy and were paid the policy limit, defined as the actual cash value of the loss under the policy provision entitled "Other Structures Protection." While the plaintiffs could have sought additional reimbursement from their insurance carrier if they submitted proof that they repaired, rebuilt, or replaced the garage within 180 days of payment, they did not do so. In February 2007 the plaintiffs commenced this action against the defendant. Approximately one month later, the defendant interposed a verified answer. In June 2008 the defendant moved to dismiss the complaint pursuant to CPLR 3211(a)(5) on the ground that the plaintiffs had received payment through their homeowners' insurance policy and were not entitled to any additional recovery from her. The Supreme Court, in effect, converted the motion to dismiss into one for summary judgment dismissing the complaint and granted the motion. We modify.
The Supreme Court properly, in effect, converted the motion to dismiss to one for summary judgment since it was made after issue had been joined (see Fischer v RWSP Realty, LLC, 53 AD3d 594, 595; Schultz v Estate of Sloan, 20 AD3d 520; Tufail v Hionas, 156 AD2d 670, 671), and the parties clearly charted a summary judgment course by laying bare their proof and submitting documentary evidence and evidentiary affidavits (see Myers v BMR Bldg. Inspections, Inc., 29 AD3d 546; Jamison v Jamison, 18 AD3d 710, 711). However, upon such conversion, the Supreme Court erred in granting the defendant's converted motion for summary judgment dismissing the complaint. Contrary to the defendant's contention, the plaintiffs are not precluded from maintaining this action against the defendant simply because they received payment from their insurance carrier (see generally Fisher v Qualico Contr. Corp., 98 NY2d 534, 538; Spectra Audio Research, Inc. v Chon, 62 AD3d 561; Corsa v Pacific Indem. Co., 52 AD3d 450, 451; Winkelmann v Hockins, 204 AD2d 623, 623-624). If the trier of facts in this matter finds the defendant liable and awards damages to the plaintiffs, then the plaintiffs' receipt of the insurance payment may be relevant as a possible setoff against the damages award (see CPLR 4545[c]; Fisher v Qualico Contr. Corp., 98 NY2d at 539-540).
The remaining contentions either are without merit, are improperly raised for the first time on appeal, or have been rendered academic in light of our determination.
RIVERA, J.P., DILLON, BALKIN and AUSTIN, JJ., concur.