Johnson v. Smith Bros. Ins. LLC, SUPREME COURT DOCKET NO. 2020-101

Case DateSeptember 04, 2020
CourtUnited States State Supreme Court of Vermont

Michael Johnson* & Joseph M. Finnigan II* v. Smith Brothers Insurance LLC & Scott J. Garcia


Supreme Court of Vermont

September 4, 2020

Note: In the case title, an asterisk (*) indicates an appellant and a double asterisk (**) indicates a cross-appellant. Decisions of a three-justice panel are not to be considered as precedent before any tribunal.



Superior Court, Chittenden Unit, Civil Division

DOCKET NO. 1062-12-18 Cncv

Trial Judge: Helen M. Toor

In the above-entitled cause, the Clerk will enter:

Plaintiffs appeal the civil division's orders granting defendants summary judgment and denying plaintiffs' motion to amend their complaint with respect to their contractual and tortious claims against defendants concerning a professional liability insurance contract. We affirm.

The following material facts are taken from the civil division's summary judgment order, defendants' statement of undisputed material facts, and plaintiffs' responses to that statement. See Madowitz v. Woods at Killington Owners' Ass'n, 2010 VT 37, ¶ 9, 188 Vt. 197 ("[S]ummary judgment is appropriate only when the record clearly shows that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law." (quotation omitted)); see also V.R.C.P. 56(a). Plaintiffs Michael Johnson and Joseph M. Finnigan II are the sole owners of the Vermont law firm Johnson & Finnigan. The law firm's areas of practice include real estate, business formations, civil litigation, commercial and corporate litigation, and estate and probate work. Defendant Smith Brothers Insurance LLC is an insurance agency with its principal place of business in Connecticut, and defendant Scott J. Garcia is an agent employed by Smith Brothers.

On June 11, 2014, plaintiffs attended a continuing-legal-education (CLE) seminar presented by the Vermont Attorneys Title Insurance Corporation. Garcia, though not listed as a speaker at the seminar, gave a presentation on professional liability insurance allegedly focusing on cybersecurity issues, including fraudulent wire scams. Finnegan averred that he spoke to Garcia after the presentation and "expressed an interest in securing the proper malpractice insurance policy with cyber security coverage, including circumstances involving email scams resulting in fraudulent wire transactions." According to Finnegan, Garcia "generally indicated that he was going to have to review [plaintiffs'] current policy, but he felt confident that he could provide better coverage." Finnegan averred that before his firm purchased a professional liability policy through Smith Brothers a month later, he provided Garcia or "someone" from Smith Brothers a complete copy of his firm's then-current policy either by email or facsimile. Plaintiffs were not able to produce any record of having done so, however, and defendants claimed to have no record

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of having received the policy before plaintiffs purchased a new policy through Smith Brothers. Finnegan's conversation with Garcia was plaintiffs' only in-person communication with defendants, although there were subsequent written communications between plaintiffs and defendants—none of which discussed cybersecurity coverage—that were produced during discovery.

On July 17, 2014, more than one month after the June 11 seminar, plaintiffs submitted an online "Quick Quote" application for professional liability insurance through the Smith Brothers' website. The application neither referenced Finnegan's June 11 conversation with Garcia nor specifically requested cybersecurity coverage. In response to plaintiffs' application, defendants sent plaintiffs a Hanover Group Lawyers Professional Liability Insurance New Business Application. On July 23, 2014, plaintiffs emailed defendants the completed and signed Hanover Application. Plaintiffs' email indicated that they were still trying to "track down" their then-current professional liability insurance policy. Two days later, on July 25, Garcia emailed plaintiffs a proposal in response to their Hanover Application and requested a copy of the Declarations Page of plaintiffs' then-current policy to make sure there was no gap in coverage. That same day, plaintiffs emailed Garcia a copy of their existing Certificate of Liability Insurance but did not send a copy of the policy. On July 29, 2014, Smith Brothers emailed plaintiffs a Hanover Lawyers Professional Liability Policy covering a one-year period from July 28, 2014, to July 28, 2015. That correspondence stated: "Once you have an opportunity to review your policy, please let me know if you have any questions or feel that a change is required." The policy included a provision entitled, "Network or Information Security Breach Coverage," which provided coverage of up to $10,000 for losses resulting from a network or security breach in the performance of professional services. On July 29, 2014, plaintiffs acknowledged receipt of the Hanover policy, indicating that they would review the policy and respond with any questions or changes.

Plaintiffs did not communicate further with defendants regarding the policy, which they renewed the following two years. In an August 2, 2016 email containing plaintiffs' renewed policy for 2016-2017, defendants included a bulletin entitled, "Email Wire Fraud Scam Affecting Lawyers and Law Firms." The four-page bulletin warned of the dangers of email wire fraud scams, provided tips for avoiding such scams, stated that coverage for losses resulting from such scams was not a given, and advised attorneys to discuss with their insurance agent coverage as to potential scenarios described in the email. There is no indication in the record that plaintiffs discussed with defendants their Hanover policy's coverage with respect to potential wire fraud scams.

On September 16, 2016, plaintiffs conducted a residential real estate closing, representing the buyers. At the closing, plaintiffs provided the sellers with a $100,744 check for the net proceeds of the sale. That same day, plaintiffs received an email purportedly from the sellers' attorney stating that the sellers wanted the buyers to stop payment on the check and instead have the money wired to their bank in Texas. Plaintiffs complied with the request that same day. On September 25, 2016, the sellers' attorney called plaintiffs to inform them that the sellers had not received the money. During the ensuing conversation, plaintiffs learned that the sellers' attorney had never asked plaintiffs to send the money to a Texas bank. A subsequent investigation revealed that plaintiffs were the victim of a wire fraud scam. Plaintiffs sought coverage under the Hanover policy. Hanover initially denied coverage but eventually paid $50,000 as part of a settlement of the sellers' lawsuit against plaintiffs.

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On December 5, 2018, plaintiffs filed a complaint against defendants, alleging breach of contract, negligent misrepresentation, and violation of the Vermont Consumer Protection Act (VCPA). Following discovery, defendants moved for summary judgment. In addition to opposing defendants' motion,...

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