Maclaren Europe Ltd. v. Ace Am. Ins. Co.

• Decision Date: 05 November 2012
• Docket Number: No. 11 Civ. 4688(HB).,11 Civ. 4688(HB).
• Citation: 908 F.Supp.2d 417
• Parties: MACLAREN EUROPE LIMITED, Plaintiff, v. ACE AMERICAN INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

908 F.Supp.2d 417

MACLAREN EUROPE LIMITED, Plaintiff,

v.ACE AMERICAN INSURANCE COMPANY, Defendant.

No. 11 Civ. 4688(HB).

United States District Court,

S.D. New York.

Nov. 5, 2012.

Paul Scott Hugel, Clayman & Rosenberg, New York, NY, for Plaintiff.

Joseph K. Powers, J. Gregory Lahr, Sedgwick LLP, Thomas Robert Orofino, Sedgwick, Detert, Moran & Arnold LLP, New York, NY, for Defendant.

OPINION & ORDER

HAROLD BAER, JR., District Judge.

Maclaren Europe Limited (“MEL”) and ACE American Insurance Company (“ACE”) each move for summary judgment. The principal issues before the Court are whether MEL's prepayment of the 2006 renewal premium to its retail broker, Indebir Sahni, is in fact payment to ACE, and, if not, whether ACE properly canceled the 2006 policy for nonpayment. Under English law, there is no dispute that ACE would prevail. Under New York law, the parties dispute nearly every section of New York insurance law applicable to the facts here. For the following reasons, New York law applies, and ACE is charged with receipt of the premium.

Background¹

In April 2006, ACE renewed the insurance policy it had previously issued to MEL and Maclaren Hong Kong, a related entity. The renewal was procured by a New York retail insurance broker, Sahni, who used a New York wholesale broker (or sub-broker), Program Brokerage Corporation (“PBC”), to negotiate and obtain the renewal from ACE. ACE delivered the renewal policy to PBC in New York, which in turn delivered it to Sahni in New York. Before the then-existing policy expired (but before ACE issued the 2006 renewal), MEL wired an anticipated renewal premium to Sahni's bank account in New York. Sahni never remitted the premium to PBC or ACE. ACE subsequently mailed a cancellation notice to MEL at Maclaren USA's address in Connecticut.

Discussion

A district court may not grant summary judgment if there exists a genuine issue of material fact. See Cotarelo v. Vill. of Sleepy Hollow Police Dep't, 460 F.3d 247, 251 (2d Cir.2006) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). “For summary judgment purposes, a ‘genuine issue’ exists where the evidence is such that a reasonable jury could decide in the non-moving party's favor.” Cambridge Realty Co., LLC v. St. Paul Fire & Marine Ins. Co., 421 Fed.Appx. 52, 53 (2d Cir.2011) (internal citations omitted). The parties point to no disputed issues of material fact, and the Court finds none. Below, I begin with a discussion of the prepayment of the premium under New York law. I find that MEL is entitled to summary judgment, and, because this conflicts with English law, I end with a choice-of-law analysis and determine that New York law controls.

I. Under New York Law, MEL's Prepayment of the Renewal Premium to Sahni was Charged to ACE at the Moment PBC Delivered the Policy to SahniA. Insurance Agents and Brokers

It is common for an insured and an insurer to negotiate and enter into a contract of insurance through intermediaries. A “broker” is the representative of the insured,² and an “agent” of the insurer. ³See Bohlinger v. Zanger, 306 N.Y. 228, 117 N.E.2d 338, 339 (1954). While agency principles are bound up with each type of relationship, the law of agency and the duties of an insurance agent are not necessarily identical. In the instant case, Sahni and PBC are both brokers acting on behalf of MEL. Therefore, neither Sahni nor PBC have the authority to represent ACE, unless there is some other reason to treat them as agents of ACE. See 3 Couch on Ins. § 45.5 (revised 3d ed. 2011) (“[Absent] the existence of special circumstances ... a broker may not be converted into an agent for the insurer without some action on the part of the insurer or the existence of some facts that indicate that the broker has the authority to represent the insurer.”).

B. New York Insurance Law Section 2121

Section 2121 of the New York Insurance Law contains such an exception to the general rule that an insurance broker is the agent only of the insured.

Any insurer which delivers in this state to any insurance broker ... a contract of insurance pursuant to the application or request of such broker, acting for an insured other than himself, shall be deemed to have authorized such broker to receive on its behalf payment of any premium which is due on such contract at the time of its issuance or delivery or payment of any installment of such premium or any additional premium which becomes due or payable thereafter on such contract, provided such payment is received by such broker within ninety days after the due date of such premium or installment thereof or after the date of delivery of a statement by the insurer of such additional premium.

N.Y. Ins. Law § 2121(a) (McKinney 2012). Section 2121(a) is “designed to relieve the insured from all risks stemming from a broker's possible dishonesty or insolvency.” Bohlinger, 117 N.E.2d at 342 (Fuld, J., dissenting). When an insurer gives a policy to a broker for delivery to the insured, the insurer in effect extends credit to the broker, and the broker is thereby held to be an agent of the insurer for the purpose of the payment of the premium on that policy. See Evvtex Co., Inc. v. Hartley Cooper Assocs. Ltd., 911 F.Supp. 732, 739 (S.D.N.Y.1996), aff'd,102 F.3d 1327 (2d Cir.1996); Globe & Rutgers Fire Ins. v. Lesher, Whitman & Co., 126 Misc. 874, 215 N.Y.S. 225, 228–29 (City Ct.1926). Thus, while a broker is typically in privity solely with the insured, the insurer “impliedly consents to [the broker's] collection of the premium by delivering the policy of insurance to [the broker].” Lezak v. Nat'l Grange Mut. Ins., 233 N.Y.S.2d 607, 609 (Sup.Ct.1962). The effect of § 2121 is therefore to place a broker in a dual role. See Globe Indem. Co. v. Gilligan, 73 Misc.2d 27, 341 N.Y.S.2d 18, 20 (Dist.Ct.1973) (“[The broker] is agent for insured for obtaining insurance coverage and he becomes agent for insurer for purpose of receiving payment.” (citing Bohlinger, 117 N.E.2d 338)); see also C & F Fishing Corp. v. Dome Ins., No. 81 CIV. 5474(PNL), 1984 WL 488, at *2 (S.D.N.Y. June 15, 1984).

This brings me to conclude that ACE vested PBC, the whole-sale broker, with the authority to receive the premium on behalf of ACE. ACE argues that § 2121 extends no further than to PBC as the agent of ACE, but at no time was Sahni ACE's agent. Def.'s Opp'n 12–13.

C. Sub–Agents

An agent may authorize subagents to perform in accordance with authorization from the principal, and the subagent “affects the relations of the principal to third persons as fully as if the appointing agent had done such acts.” Restatement (Second) of Agency § 5(1) cmt. d (1958); see also id. § 142, cmt. b; Isaac et al. v. D. & C. Mutual Fire Ins., 308 Pa. 439, 162 A. 300, 301 (1932) (“Where a duly authorized insurance agent, in the due prosecution of the business of his company, employs another as a subagent to solicit insurance and perform other acts in relation thereto, the acts of the subagents, within the scope of the delegated authority, have the same effect as if done by the agent himself.”). Subagents are quite common in the insurance industry. In fact, PBC acted as a subagent, or sub-broker, to MEL when it procured a policy from ACE at Sahni's request.

There is no reason that the sub-agency relationship should not run the other way as well. See68 N.Y. Jur. 2D Insurance § 476 (“Generally, the business of an insurance agent, either in issuing policies or soliciting insurance, is not of such a discretionary or personal nature that it cannot be delegated.”); 3 Couch on Ins. § 54:20 (“An insurer is ... bound by the acts of a subagent when, knowing of his or her appointment, the insurer takes no steps to repudiate the appointment.”); id. § 54:19 (“In the absence of a known limitation on the agent's authority to the contrary, the agent may employ: ... Subagents to deliver policies and collect premiums.”); see also Cullinan v. Bowker, 180 N.Y. 93, 72 N.E. 911, 914 (1904).

In Hobbs Brook Agency, Inc. v. North River Insurance Co., 7 Mass.App.Ct. 885, 386 N.E.2d 1315, 1317 (Mass.1979), the court, applying New York law, held that there was sufficient evidence to support a finding that the insurer knew that its agent would deliver the policy to the subagent who would in turn receive the premium. The court considered the insurer as having “delivered” the policy to the subagent within the meaning of § 2121. This interpretation furthers the goals of § 2121 and is entirely consistent with agency principles, and it is not, I might add, a new concept. See Central Ohio Ins. v. Lake Erie Provision Co., 7 Ohio Circ. Dec. 562 (Cir.Ct.1895) (holding that under a similar statute a payment of the premium to the retail broker, or subagent, was a payment to the insurer). It is no coincidence, then, that this is also the opinion held by the New York Insurance Department. See N.Y. Gen. Counsel Op. No. 3–9–90 (# 2), 1990 WL 10496587 (“The Department has long held the position that the insurer must accept that payment of premiums to a broker is equivalent to receipt by the insurer, even though the insurer had no direct dealings with such broker. It should be recognized that there might be a chain of brokers in delivering the policy to the insured, which must be regarded as having been done under the authority of the insurer.” (internal citations omitted)).

Therefore, pursuant to § 2121, ACE must be charged with receipt of the premium. PBC was an agent of ACE for the limited purpose of receiving on ACE's behalf the payment of any premium which was due on the policy issued at PBC's request. The New York Insurance Department has gone even further to say that “[i]t is presumably realized by the insurer that the broker with whom it dealt with may not be the broker with whom the insured dealt with” and that the insurer must recognize the payment of premiums to the subagent even where the insurer does not know there is a second...