Beacon Industries, Inc. v. Walter Kaye Associates, Inc., 292

• Decision Date: 30 April 1986
• Docket Number: D,No. 292,292
• Citation: 789 F.2d 172
• Parties: BEACON INDUSTRIES, INC. and Harvard Precision Components, Inc., Plaintiffs-Appellees, v. WALTER KAYE ASSOCIATES, INC., Walter Kaye, Larry Kamerman, Carol Varveris and Lumbermens Mutual Casualty Company, Defendants. Appeal of WALTER KAYE ASSOCIATES, INC., Defendant-Appellant. ocket 85-7083.
• Court: U.S. Court of Appeals — Second Circuit

Page 172

789 F.2d 172

BEACON INDUSTRIES, INC. and Harvard Precision Components Inc., Plaintiffs-Appellees, v. WALTER KAYE ASSOCIATES, INC., Walter Kaye, Larry Kamerman Carol Varveris and Lumbermens Mutual Casualty Company, Defendants Appeal of WALTER KAYE ASSOCIATES, INC., Defendant-Appellant.

No. 292, Docket 85-7083.

United States Court of Appeals Second Circuit.

Argued Oct. 21, 1985.

Decided April 30, 1986.

John W. Breen, Jr., Chabot, Breen & DuBorg, Hamden, Conn., for defendant-appellant.

Sally S. King, Robinson & Cole, Hartford, Conn., for plaintiffs-appellees.

Before OAKES, NEWMAN and KEARSE, Circuit Judges.

PER CURIAM:

This appeal in a diversity case concerns the duty of an insurance broker to obtain favorable rates for its client. Defendant-appellant Walter Kaye Associates, Inc. ("Kaye"), an insurance broker, appeals from the judgment of the District Court for the District of Connecticut (M. Joseph Blumenfeld, Judge) awarding $26,086.11 to plaintiff-appellee Beacon Industries, Inc. ("Beacon"), the insured. The amount awarded, less prejudgment interest, represents what the District Court concluded was an overpayment of approximately $17,000 charged to Beacon for its workers' compensation insurance due to the failure of Kaye to obtain a more favorable premium rate. Since we conclude that in the circumstances of this case no duty existed to obtain the more favorable rate, even if it was available, we reverse.

Rates for workers' compensation insurance are set by determining into which of several hundred classifications the employer's jobs fall and then rating the employer's claims history within the appropriate classification. The classifications are defined in a manual published and periodically revised by the National Council on Compensation Insurance. The Northeast Council on Compensation Insurance, a regional office of the National Council, issues opinions on the proper classification of particular employees at the request of insurance companies, insurance brokers, and insureds.

Kaye acted as the broker for Beacon's workers' compensation insurance for several years prior to April 10, 1979, at which time Beacon shifted its workers' compensation coverage to another broker, the Frank B. Hall Agency ("Hall"). During the years that Kaye handled Beacon's account, Beacon's machinists were classified under code 3632, applicable to general machinists, rather than code 3629, applicable to precision machinists, which would have resulted in a lower premium. Code 3629 was applicable to machinists of a business with "exclusive" involvement in armaments and aircraft work and where tolerances were not greater than .0001 of an inch. Sometime after Kaye lost Beacon's account, the National Council promulgated a written revision of the code 3629 classification, applying it more generously to companies where at least 50 percent of all machinists' operations are held to tolerances of no more than .001 of an inch. Beacon qualified under the revised code 3629, with its lower premium rate.

While Kaye still had the Beacon account, an employee of Hall solicited the workers' compensation insurance business from Beacon. He said that if he got the account, he would check with the Northeast Council to see if Beacon's machinists could be classified under code 3629. Kaye's personnel did not attempt to secure from the Northeast Council a favorable interpretation of code 3629. It was this failure that resulted in the imposition of liability for the difference in premium rates between codes 3632 and 3629. After Hall secured the account, it sought...