Sylvan Learning Systems, Inc. v. Gordon
| Decision Date | 15 November 2000 |
| Docket Number | No. CIV. A. 98-2146 AJL.,CIV. A. 98-2146 AJL. |
| Citation | 135 F.Supp.2d 529 |
| Court | U.S. District Court — District of New Jersey |
| Parties | SYLVAN LEARNING SYSTEMS, INC. Plaintiff, v. Irwin GORDON, Federal Insurance Company, Chubb Insurance Company of New Jersey, Chubb & Son, Inc., Cornwall & Stevens Northeast, Inc. and Universal Bonding Insurance Company, Defendants. |
John D. Corse, Piper Marbury Rudnick & Wolfe LLP, New York City, for Plaintiff.
Kevin J. McKenna, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, PC, Newark, NJ, for Defendants Federal Insurance Company, Chubb Insurance Company of New Jersey and Chubb & Sons, Inc.
Thomas M. Rittweger, Nicoletti Hornig & Sweeney, Hackensack, NJ, for Defendant Cornwall & Stevens Northeast, Inc.
Ronald E. Wiss, Wolff & Samson, Roseland, NJ, for Defendant Universal Bonding Insurance Company.
Irwin Gordon, Hackensack, NJ, Pro se Defendant.
This is an action by plaintiff Sylvan Learning Systems, Inc. ("Sylvan") against defendants Irwin Gordon ("Gordon"), Federal Insurance Company, Chubb Insurance Company of New Jersey, Chubb & Son, Inc. (collectively, "Chubb"), Cornwall & Stevens Northeast, Inc. ("Cornwall") and Universal Bonding Insurance Company ("Universal") (collectively, the "Defendants"). In an amended complaint (the "Amended Complaint"), filed 30 October 1998, Sylvan alleged Gordon, an insurance/bond broker, defrauded its corporate predecessors, I-R, Inc. and Independent Child Study Team, Inc. (collectively, "Educational Inroads"), by improperly inflating premiums on various insurance policies and bonds purchased by Educational Inroads. Amended Complaint, ¶¶ 25-27. Sylvan has alleged that Gordon was the statutory and common law agent of Chubb, Cornwall and Universal and, therefore, Chubb, Cornwall and Universal are liable for the alleged improprieties of Gordon. Id., ¶¶ 28-92. In addition, Sylvan has alleged that Chubb, Cornwall and Universal were negligent in failing to properly supervise Gordon. Id., ¶ 49.
Presently pending is a motion by Chubb and Cornwall for summary judgment (the "Joint Motion for Summary Judgment")1 and a motion by Universal for summary judgment (the "Universal Motion for Summary Judgment"2)3. For the reasons set out below, the Joint Motion for Summary Judgment and the Universal Motion for Summary Judgment are granted.
Sylvan is engaged in the business of providing educational and testing services. Amended Complaint, ¶ 13. Sylvan is the successor-in-interest to Educational Inroads. Id., ¶¶ 2, 14, 32. Prior to being acquired by Sylvan, Educational Inroads was engaged in the business of providing mobile and modular classrooms, modular buildings and space systems and various educational services, including testing and evaluation. Gordon Cert., ¶ 4.
Sometime in the 1970's, Gordon became the exclusive insurance broker for Educational Inroads. Deposition Testimony of Irwin Gordon (the "Gordon Dep.") at 25:20-31:14, attached as Ex. A to the McKenna Cert; Deposition Testimony of Anthony O'Donnell ("O'Donnell")4 (the "O'Donnell Dep.") at 41:20-44:24, attached as Ex. B to the McKenna Cert. As its broker, Gordon applied for and procured insurance policies on behalf of Educational Inroads. Gordon Dep. at 29:3-30:18, 54:9-56:10, 201:10-203:20, attached as Ex. A to the McKenna Cert.; O'Donnell Dep. at 100:17-101:15, attached as Ex. B to the McKenna Cert. In addition, Gordon provided counseling to Educational Inroads with regard to the appropriate types and amounts of coverage. Id.
Chubb issued certain property and casualty insurance policies for Educational Inroads (the "Chubb Policies") from 1991 through 1997. Chubb Answer to Amended Complaint, ¶ 16. The Chubb Policies were placed with Chubb by Cornwall, a licensed insurance producer. Joint Moving Brief at 5. Gordon, on behalf of Educational Inroads, procured the Chubb Polices from Cornwall.5
Gordon and Cornwall are separate and distinct. Gordon Dep. at 17:2-16, attached as Ex. A to the McKenna Cert. Gordon did not nave a producer or agency agreement with Chubb and could not place any policies with Chubb. O'Donnell Dep. at 126:5-10, attached as Ex. B to the McKenna Cert.; Deposition Testimony of William L. Stroh ("Stroh")6 (the "Stroh Dep.") at 105:8-108:21, attached as Ex. I to the McKenna Cert.
By contrast, Chubb and Cornwall did have an agreement in place at all relevant times (the "Chubb-Cornwall Agreement"). Chubb-Cornwall Agreement, attached as Ex. C to the McKenna Cert. Pursuant to the Chubb-Cornwall Agreement, Cornwall was authorized to, and did place, insurance policies with Chubb. Id. The Chubb-Cornwall Agreement was not specific to, and predated, the Educational Inroads policies at issue. Id.
On or about 19 March 1993, Gordon and Cornwall entered into a producer agreement (the "Producer Agreement"). Producer Agreement, attached as Ex. D to the McKenna Cert. The Producer Agreement stated, in part:
[Cornwall] agrees to render invoices for all items covered by this agreement allowing commission at the rate agreed upon. [Gordon] agrees to pay [Cornwall] premiums within Ten Days of the effective date unless other arrangements have been made and approved by [Cornwall] in advance of the effective date of the Insurance.
Producer Agreement, attached as Ex. D to the McKenna Cert.
The Producer Agreement was neither specific to, nor limited to, the policies at issue. Id. Moreover, Chubb was not a party to the Producer Agreement. Id.
According to Gordon, he presented Educational Inroads with his own invoices (the "Gordon Invoices") for all of its insurance policies, including the Chubb Policies. Gordon Dep. at 46:4-22, 68:14-69:11, 70:14-71:12, 88:13-90:23, attached as Ex. A to the McKenna Cert. Educational Inroads, in turn, rendered the payments identified in the Gordon Invoices directly to Gordon. Id. at 167:9-179:18; O'Donnell Dep. at 108:18-111:11, attached as Ex. B to the McKenna Cert. Gordon billed Educational Inroads well in advance of his receipt of premium quotes from Cornwall and prior to the issuance or delivery of the Chubb Policies. Gordon Dep. at 42:8-18, 68:13-19, 153:19-161:13, 190:8-192:16, 207:4-208:3, attached as Ex. A to the McKenna Cert.
According to Gordon, it was his standard policy to add charges for his services to the premiums, without specifying the amount of, or the basis for, such charges. Gordon Dep. at 40:21-43:19, 67:23-86:22, attached as Ex. A to the McKenna Cert. Specifically, as to the Chubb Policies, the amounts identified in the Gordon Invoices (the "Gordon Premiums") were higher than the properly stated premiums on the corresponding Chubb Policies (the "Chubb Premiums") because the Gordon Premiums included unspecified charges added by Gordon. Id. at 88:13-96:4. According to Gordon, neither Chubb nor Cornwall had knowledge of his billing practices. Id.
It appears Cornwall rendered and Gordon paid, on a net premium basis, Cornwall Invoices that covered the Chubb Policies and were based on the Chubb Premiums; Cornwall did not receive any sums in excess of the Chubb Premiums from Gordon. Joint Moving Brief at 7 (citing Gordon Dep. at 46:3-47:16, 88:13-96:4). According to Chubb and Cornwall, Chubb never received from Cornwall any sums in excess of the properly stated premiums identified in the policies and reflected in the corresponding Chubb Invoices that were sent to Cornwall. Id. Moreover, it appears Chubb never received any money from Gordon and never paid any money to Gordon. Gordon Dep. at 92:7-96:21, attached as Ex. A to the McKenna Cert.; Responses to Interrogatories Nos. 8, 18, 20, attached as Ex L to the McKenna Cert. Educational Inroads did not require Gordon to advise it whether, or to what extent, he was charging Educational Inroads service fees or other sums beyond the normal charges of the insurance companies. Gordon Dep. at 68:7-69:11, attached as Ex. A to the McKenna Cert.; O'Donnell Dep. at 111:18-112-11, attached as Ex. B to the McKenna Cert.; Stroh Dep. at 91:24-97:13, attached as Ex. I to the McKenna Cert.
Sylvan argued that Cornwall and Chubb ignored various "red flags," including, the improper issuance of identification cards by Gordon, the use of a "Chubb" stamp by Gordon and the improper issuance of certificates of insurance by Gordon. Brief in Opposition to the Joint Motion for Summary Judgment at 5. Moreover, Sylvan alleged Chubb did not complete an audit of the policies at issue for the years 1991 through 1997, despite being required to do so. Id. 4-5.
In or about 1982, Educational Inroads approached Gordon for the purpose of applying for and procuring surety bonds on behalf of Educational Inroads. Gordon Cert., ¶ 3. Educational Inroads retained Gordon; in or about March 1986, Educational Inroads, by and through Gordon, applied to Universal for the issuance of surety bonds. Id., ¶¶ 3, 6. Universal approved the application for bonding; from approximately March 1986 through July 1997, Universal issued numerous surety bonds on behalf of Educational Inroads. Id., ¶ 6.
Universal charged a premium for each bond issued. Universal Moving Brief at 4. Universal sent its invoice (the "Universal Invoice") for the premium to Gordon as the broker for Educational Inroads. Gordon Cert., ¶ 7. Gordon, in turn, submitted his own invoice (the "Gordon Invoice") to Educational Inroads. Id. In each instance, the Gordon Invoice was higher than the Universal Invoice. Id., ¶¶ 7, 8; Amended Complaint ¶¶ 27, 31, 34, 35, 39, 40, 30.
When Educational Inroads paid the Gordon Invoice, Gordon would remit a portion of what he collected to Universal. Gordon Cert., ¶ 8. The amount Gordon remitted to Universal was always the premium...
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