Preview
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
Supreme Court of the State of New York
County of New York
-------------------------------------------------------------- X Index No. 510798/2018
--- :
ATLANTIC CASAULTY INSURANCE : Hon.: Carl J. Landicino,
COMPANY, :
:
Plaintiff, :
:
- against - :
:
EASTERN FRUIT & VEGETABLES INC., :
:
:
Defendants, :
:
-------------------------------------------------------------- X
MEMORANDUM OF LAW IN SUPPORT OF EASTERN FRUIT’S MOTION TO
DISMISS
To: Debra M. Krebs, Esq.
Keidel, Weldon & Cunningham, LLP
Attorneys for Plaintiff
925 Westchester Avenue, Suite 400
White Plains, NY 10604
(914) 948-7000
L. Blake Morris, Esq.
Attorney for Defendant
1214 Cortelyou Road
Brooklyn, NY 11218
Tel: (718) 826-8401
1 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
PRELIMINARY STATEMENT
Eastern Fruit and Vegetables Inc., (“Eastern”) respectfully submits this
memorandum of law in support of motion to dismiss under CPLR 3211 (a)(1) and (a)(7).
FACTUAL AND PROCEDURAL HISTORY
On or about May 24, 2018, this action was commenced by the purchase of an
index number and electronic filing of the summons and complaint for the sum of
$93,141,09 for earned premiums but pled as premium with interest from an unspecified
date. The defendant interposed an answer on June 29, 2018, with a counterclaim seeking
recovery for attorneys’ fees and asserted seven affirmative defenses. See infra. The
plaintiff interposed a reply on August 9, 2018 denying every allegation of Eastern Fruit’s
counterclaims. Summons, complaint, answer, and reply are attached to the Blake Morris
affirmation (“Morris Affm”) dated January 9, 2020 in support of defendant’s motion
attached hereto as Exhibits A, B, C. (See NY St Cts Elec Filing [NYSCEF] Doc. No. 1, 2,
3, and 5).
Plaintiff, Atlantic Casualty, is an unauthorized excess/surplus lines insurance
carrier. Eastern Fruit purchased a commercial general liability insurance policy from
Atlantic Casualty. Plaintiff alleges Eastern failed to remit payment for both premiums.
See, First Cause of Action para. 7. Also, under the first cause of action in paragraph
nine, Atlantic alleges that Eastern breached its contract because it did not remit payment
of “audit premiums”, inconsistent with paragraph seven. See, para. 9 cmplt.
Eastern in its verified answer in which it denied plaintiff’s allegations. Eastern
asserted seven affirmative defenses; failure to name a necessary party; lack of
authorization under New York State Law to issue insurance policies; failure to provide
2
2 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
audit standards, rate classification, or rate structure; failure to allege state of
incorporation; failure to state a cause of action; incapacity to commence and maintain
suit; and estoppel.
On or about September 25, 2018 Atlantic moved to dismiss Eastern Fruit’s
counter-claims and a motion for summary judgment seeking the sum of $93,141.04
allegedly due and owing for two primary insurance policies issued to Eastern Fruit: (1)
$69,903.09 under policy L-146001424-1 and (2) $23,238.00 under policy L-146001424-
2. Atlantic in a motion for summary judgment, requested that the Court issue judgment in its
favor for the alleged balance and requesting that the Court dismiss Eastern’s counterclaim.
Eastern opposed Atlantic’s motion and e-filed a cross-motion seeking to dismiss this action,
arguing that Atlantic Casualty lacks capacity to maintain this action.
Eastern’s cross-motion also requested the Court direct Atlantic Casualty to post a
bond for $500 pursuant to CPLR 8502 (‘the bond”) which the court granted. The bond was
deposited in Eastern’s attorney escrow account. (See Exhibit D NY St Cts Elec Filing
[NYSCEF] Doc. No. 31, Bond Payment Check)
The Court resolved the motion and cross-motion by Decision and Order dated
July 2, 2019 entered July 23, 2019. (See Exhibit E NY St Cts Elec Filing [NYSCEF]
Doc. No. 39, Decision and Order on Motion); (NYSCEF Doc. No. 52, notice of entry of
court order.) The Court granted Atlantic’s motion for summary judgment to the extent
that it dismissed Eastern’s counterclaim, but otherwise denied Atlantic’s motion. The
Court found that there is a question of fact as to whether Atlantic Casualty has the
capacity to maintain this action, because the question of whether they were actually doing
business in New York precludes dismissal at this juncture. (See NYSCEF Doc. No. 39,
Decision and Order on Motion)
3
3 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
STANDARD OF REVIEW
On a motion to dismiss pursuant to CPLR § 3211(a)(1), a court must accept as
true the facts as alleged within the four corners of the complaint and accord the plaintiff
the benefit of every possible favorable inference to determine whether the allegations fit
within any cognizable legal theory. Morone v. Morone, 50 N.Y.2d 481, 484 (1980).
“However, bare legal conclusions and factual claims which are flatly contradicted by the
evidence are not presumed to be true on such a motion.” See Palazzolo v. Herrick, 298
A.D.2d 372 (2d Dep’t 2002).
ARGUMENT
I. THE COMPLAINT SHOULD BE DISMISSED AS IT FAILS TO
ALLEGE THE REQUIRED BASIS FOR MAINTAINING THE
ACTION
Insurance Law §2105 (h) states that an excess line broker may procure an
insurance policy from an insurer not authorized to issue a policy in this State “where such
broker, after diligent effort, could not procure substantially similar coverage from an
insurer authorized to do business in this state.” The Department of Financial Services,
interpreting Insurance Law §2105, has issued regulatory requirements.
Plaintiff’s complaint alleges that Atlantic Casualty is “duly authorized to issue
policies of insurance in the State of New York.” (See Cmplt para.1) The complaint also
alleges that the plaintiff “provided certain commercial general liability insurance
coverage to the Defendant under Policy L146001424-1 and L146001424-2 for the
effective dates of April 17, 2016 to April 17, 2018.” (See Cmplt para. 3) Assuming these
allegations are true, plaintiff’s complaint should be dismissed because the plaintiff failed
4
4 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
to allege the requirements under New York Insurance Law for excess line carriers when it
issued these policies to Eastern Fruit. See infra discussion.
Excess Line Carrier Prohibitions:
Department of Financial Services (“DFS”) Regulation 41 prohibits an excess line
broker from procuring “coverage from an unauthorized insurer and the unauthorized
insurer shall not provide coverage if the coverage is prohibited by law, including if the
coverage: (1) does not constitute insurance within the meaning of section 1101 or other
sections of the Insurance Law; (2) involves a kind of insurance not authorized under
section 1113 or other sections of the Insurance Law; (3) is not within the scope of section
2105 of the Insurance Law; (4) is determined by any Appellate Division of the New York
State Supreme Court or the New York State Court of Appeals to be against public policy
in this State; or(5) has been otherwise proscribed by law” (11 N.Y.C.R.R. 27.11(a)) DFS
Regulation 41 also states that “[a]n excess line broker shall not solicit for, bind coverage
on behalf of, or act as an agent or representative of, an unauthorized insurer, except as
provided for in section 27.4 of this Part.” (11 N.Y.C.R.R. 27.11(c))
Under DFS Regulation No. 41 an excess line broker may procure an insurance
policy from an insurer not authorized to issue a policy in this State if the “risk has been
declined by at least three authorized insurers, each of which is authorized in this State to
write insurance of the kind requested and is an insurer that the excess line broker has
reason to believe might consider writing the type of coverage or class of insurance
involved.”(11 N.Y.C.R.R. 27.3(a)) Additionally, an affirming broker is required to have
an affidavit stating “the information relied upon that formed the basis of such licensee’s
5
5 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
or affirming broker’s reason to believe that the authorized insurer might consider writing
the type of coverage or class of insurance involved.” (11 N.Y.C.R.R. 27.3(b))
Plaintiff failed to produce or allege compliance with Insurance Law §2105 (h) and
the aforementioned Regulation No. 41.
Atlantic failed to produce or allege plaintiff’s insurance broker’s affidavit.
Additionally, Atlantic failed to produce or allege documentation of the declinations as
required. Under the DFS Regulation 41 an excess line broker has an affirmative
obligation to “keep a complete and separate record of all policies procured from
unauthorized insurers under its excess line license. Where declinations are required, the
excess line broker and the producing broker shall maintain files supporting declinations
by authorized insurers obtained by such excess line or producing broker.” (11 N.Y.C.R.R.
27.3(f)).
Insurance Law and DFS Regulation 41 requires excess/surplus lines insurance
policies to be placed through insurance brokers licensed as excess lines brokers. (Ins. Law. §
2118; 11 N.Y.C.R.R. 27.11) As a result of this, and through DFS control over the licensed
brokers, excess/surplus line insurers are indirectly supervised by DFS. `
Excess/line surplus carriers are under DFS supervision and are required to comply
with Insurance Law §2105 and Regulation 41.
Therefore, failure to comply with the exceptions for surplus line excess carriers, prohibits
excess/surplus line carriers from issuing a primary commercial general liability insurance
policy in this State. BCL §1312 is triggered as plaintiff lacks capacity to conduct business
regarding the insurance policies at bar.
BCL §1312 (a) prevents a foreign corporation from bringing suit in this State if that
foreign corporation was unauthorized to do business. Insurance Law §2105 and DFS
6
6 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
Regulation 41 explicitly prohibits unauthorized insurers from issuing policies in this State.
However, it does provide for exceptions to this for surplus line carriers permitted to issue
policies in this State when in compliance with the aforementioned statutory and regulatory
scheme. Thus, without authorization to issue a particular insurance policy in this State, it is
prohibited as a matter of law. For the purposes of the policies that are the subject of this
action, the foreign plaintiff corporation “is doing business in the State without authority shall
not maintain any action… unless and until such corporation has been authorized to do
business in this state.” BCL §1312 (a) Plaintiffs lack capacity.
EXCESS LINE BROKER’S DUTY OF DUE CARE IN SELECTING INSURER
Insurance Law § 2118(a)(1) requires excess line brokers to use “due care” when
selecting an excess line insurer. Insurance Regulation 41 (11 NYCRR 27) at § 27.13 sets
forth a list of requirements by which an excess line broker can meet the “due care”
standard. Some of those requirements are waived if ELANY performs certain functions
for all excess line licensees.
Diligent Effort/Diligent Search
An excess line broker or a producing broker which has sought coverage
through an excess line broker must conduct a search of the licensed market to
attempt to procure the coverage from a licensed insurer, who the broker has reason to
believe might consider writing the type of coverage or class of insurance (§ 2118(b)(3)(A)).
Three declinations from licensed insurers are required to meet the diligent
effort requirement (§ 2118(b)(4)). The broker is required to “maintain files supporting
declinations by authorized insurers. (§ 2118(c)(1)). Here, plaintiff’s broker failed to its duty
of due diligence under Insurance Law § 2118 because the broker failed to maintain the
required records of the declination process by authorized insureres.
7
7 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
Plaintiff’s Broker’s Failure of Due Diligence
Pursuant to defendant’s subpoena of non-party witness, plaintiff’s broker Hull &
Company of NY, Inc., dba Morstan General Agency, Inc., (“Plaintiff’s Broker”)
responded via letter dated December 3, 2019 with attachments. See Exhibit F
(Defendant’s Subpoena and Plaintiff Broker Response). Plaintiff Broker response is
certified. See Blake Affirmation para. 4.
Plaintiff’s Broker failed to satisfy the requirement to “maintain files supporting
declinations by authorized insurers.” (11 N.Y.C.R.R. 27.3 (f)). Defendant’s subpoena
requested three declination letters from authorized insurance carriers and an affidavit
from a broker, and all other evidences and writings. See Exhibit F. Defendant’s
subpoena. Plaintiff Broker’s response included three declinations and defendant’s
insurance applications for insurance but did not have supporting documentation to
support the basis for the declinations, as in telephone logs, email or letter correspondence
between Plaintiff’s Broker and authorized insurers.
Plaintiff would suffer no prejudice by the granting of the requested relief herein.
8
8 of 9
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018
NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020
Wherefore, defendant respectfully requests that this Court issue an order
dismissing the complaint with defendant to retain the $500 previously posted as security
for costs that is being held by defendant counsel in escrow with costs and disbursements
of this action and for such other and further relief as to this Court may seem just and
proper.
Dated: Brooklyn, New York
January 9, 2020
9
9 of 9
Preview
FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 Supreme Court of the State of New York County of New York -------------------------------------------------------------- X Index No. 510798/2018 --- : ATLANTIC CASAULTY INSURANCE : Hon.: Carl J. Landicino, COMPANY, : : Plaintiff, : : - against - : : EASTERN FRUIT & VEGETABLES INC., : : : Defendants, : : -------------------------------------------------------------- X MEMORANDUM OF LAW IN SUPPORT OF EASTERN FRUIT’S MOTION TO DISMISS To: Debra M. Krebs, Esq. Keidel, Weldon & Cunningham, LLP Attorneys for Plaintiff 925 Westchester Avenue, Suite 400 White Plains, NY 10604 (914) 948-7000 L. Blake Morris, Esq. Attorney for Defendant 1214 Cortelyou Road Brooklyn, NY 11218 Tel: (718) 826-8401 1 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 PRELIMINARY STATEMENT Eastern Fruit and Vegetables Inc., (“Eastern”) respectfully submits this memorandum of law in support of motion to dismiss under CPLR 3211 (a)(1) and (a)(7). FACTUAL AND PROCEDURAL HISTORY On or about May 24, 2018, this action was commenced by the purchase of an index number and electronic filing of the summons and complaint for the sum of $93,141,09 for earned premiums but pled as premium with interest from an unspecified date. The defendant interposed an answer on June 29, 2018, with a counterclaim seeking recovery for attorneys’ fees and asserted seven affirmative defenses. See infra. The plaintiff interposed a reply on August 9, 2018 denying every allegation of Eastern Fruit’s counterclaims. Summons, complaint, answer, and reply are attached to the Blake Morris affirmation (“Morris Affm”) dated January 9, 2020 in support of defendant’s motion attached hereto as Exhibits A, B, C. (See NY St Cts Elec Filing [NYSCEF] Doc. No. 1, 2, 3, and 5). Plaintiff, Atlantic Casualty, is an unauthorized excess/surplus lines insurance carrier. Eastern Fruit purchased a commercial general liability insurance policy from Atlantic Casualty. Plaintiff alleges Eastern failed to remit payment for both premiums. See, First Cause of Action para. 7. Also, under the first cause of action in paragraph nine, Atlantic alleges that Eastern breached its contract because it did not remit payment of “audit premiums”, inconsistent with paragraph seven. See, para. 9 cmplt. Eastern in its verified answer in which it denied plaintiff’s allegations. Eastern asserted seven affirmative defenses; failure to name a necessary party; lack of authorization under New York State Law to issue insurance policies; failure to provide 2 2 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 audit standards, rate classification, or rate structure; failure to allege state of incorporation; failure to state a cause of action; incapacity to commence and maintain suit; and estoppel. On or about September 25, 2018 Atlantic moved to dismiss Eastern Fruit’s counter-claims and a motion for summary judgment seeking the sum of $93,141.04 allegedly due and owing for two primary insurance policies issued to Eastern Fruit: (1) $69,903.09 under policy L-146001424-1 and (2) $23,238.00 under policy L-146001424- 2. Atlantic in a motion for summary judgment, requested that the Court issue judgment in its favor for the alleged balance and requesting that the Court dismiss Eastern’s counterclaim. Eastern opposed Atlantic’s motion and e-filed a cross-motion seeking to dismiss this action, arguing that Atlantic Casualty lacks capacity to maintain this action. Eastern’s cross-motion also requested the Court direct Atlantic Casualty to post a bond for $500 pursuant to CPLR 8502 (‘the bond”) which the court granted. The bond was deposited in Eastern’s attorney escrow account. (See Exhibit D NY St Cts Elec Filing [NYSCEF] Doc. No. 31, Bond Payment Check) The Court resolved the motion and cross-motion by Decision and Order dated July 2, 2019 entered July 23, 2019. (See Exhibit E NY St Cts Elec Filing [NYSCEF] Doc. No. 39, Decision and Order on Motion); (NYSCEF Doc. No. 52, notice of entry of court order.) The Court granted Atlantic’s motion for summary judgment to the extent that it dismissed Eastern’s counterclaim, but otherwise denied Atlantic’s motion. The Court found that there is a question of fact as to whether Atlantic Casualty has the capacity to maintain this action, because the question of whether they were actually doing business in New York precludes dismissal at this juncture. (See NYSCEF Doc. No. 39, Decision and Order on Motion) 3 3 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 STANDARD OF REVIEW On a motion to dismiss pursuant to CPLR § 3211(a)(1), a court must accept as true the facts as alleged within the four corners of the complaint and accord the plaintiff the benefit of every possible favorable inference to determine whether the allegations fit within any cognizable legal theory. Morone v. Morone, 50 N.Y.2d 481, 484 (1980). “However, bare legal conclusions and factual claims which are flatly contradicted by the evidence are not presumed to be true on such a motion.” See Palazzolo v. Herrick, 298 A.D.2d 372 (2d Dep’t 2002). ARGUMENT I. THE COMPLAINT SHOULD BE DISMISSED AS IT FAILS TO ALLEGE THE REQUIRED BASIS FOR MAINTAINING THE ACTION Insurance Law §2105 (h) states that an excess line broker may procure an insurance policy from an insurer not authorized to issue a policy in this State “where such broker, after diligent effort, could not procure substantially similar coverage from an insurer authorized to do business in this state.” The Department of Financial Services, interpreting Insurance Law §2105, has issued regulatory requirements. Plaintiff’s complaint alleges that Atlantic Casualty is “duly authorized to issue policies of insurance in the State of New York.” (See Cmplt para.1) The complaint also alleges that the plaintiff “provided certain commercial general liability insurance coverage to the Defendant under Policy L146001424-1 and L146001424-2 for the effective dates of April 17, 2016 to April 17, 2018.” (See Cmplt para. 3) Assuming these allegations are true, plaintiff’s complaint should be dismissed because the plaintiff failed 4 4 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 to allege the requirements under New York Insurance Law for excess line carriers when it issued these policies to Eastern Fruit. See infra discussion. Excess Line Carrier Prohibitions: Department of Financial Services (“DFS”) Regulation 41 prohibits an excess line broker from procuring “coverage from an unauthorized insurer and the unauthorized insurer shall not provide coverage if the coverage is prohibited by law, including if the coverage: (1) does not constitute insurance within the meaning of section 1101 or other sections of the Insurance Law; (2) involves a kind of insurance not authorized under section 1113 or other sections of the Insurance Law; (3) is not within the scope of section 2105 of the Insurance Law; (4) is determined by any Appellate Division of the New York State Supreme Court or the New York State Court of Appeals to be against public policy in this State; or(5) has been otherwise proscribed by law” (11 N.Y.C.R.R. 27.11(a)) DFS Regulation 41 also states that “[a]n excess line broker shall not solicit for, bind coverage on behalf of, or act as an agent or representative of, an unauthorized insurer, except as provided for in section 27.4 of this Part.” (11 N.Y.C.R.R. 27.11(c)) Under DFS Regulation No. 41 an excess line broker may procure an insurance policy from an insurer not authorized to issue a policy in this State if the “risk has been declined by at least three authorized insurers, each of which is authorized in this State to write insurance of the kind requested and is an insurer that the excess line broker has reason to believe might consider writing the type of coverage or class of insurance involved.”(11 N.Y.C.R.R. 27.3(a)) Additionally, an affirming broker is required to have an affidavit stating “the information relied upon that formed the basis of such licensee’s 5 5 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 or affirming broker’s reason to believe that the authorized insurer might consider writing the type of coverage or class of insurance involved.” (11 N.Y.C.R.R. 27.3(b)) Plaintiff failed to produce or allege compliance with Insurance Law §2105 (h) and the aforementioned Regulation No. 41. Atlantic failed to produce or allege plaintiff’s insurance broker’s affidavit. Additionally, Atlantic failed to produce or allege documentation of the declinations as required. Under the DFS Regulation 41 an excess line broker has an affirmative obligation to “keep a complete and separate record of all policies procured from unauthorized insurers under its excess line license. Where declinations are required, the excess line broker and the producing broker shall maintain files supporting declinations by authorized insurers obtained by such excess line or producing broker.” (11 N.Y.C.R.R. 27.3(f)). Insurance Law and DFS Regulation 41 requires excess/surplus lines insurance policies to be placed through insurance brokers licensed as excess lines brokers. (Ins. Law. § 2118; 11 N.Y.C.R.R. 27.11) As a result of this, and through DFS control over the licensed brokers, excess/surplus line insurers are indirectly supervised by DFS. ` Excess/line surplus carriers are under DFS supervision and are required to comply with Insurance Law §2105 and Regulation 41. Therefore, failure to comply with the exceptions for surplus line excess carriers, prohibits excess/surplus line carriers from issuing a primary commercial general liability insurance policy in this State. BCL §1312 is triggered as plaintiff lacks capacity to conduct business regarding the insurance policies at bar. BCL §1312 (a) prevents a foreign corporation from bringing suit in this State if that foreign corporation was unauthorized to do business. Insurance Law §2105 and DFS 6 6 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 Regulation 41 explicitly prohibits unauthorized insurers from issuing policies in this State. However, it does provide for exceptions to this for surplus line carriers permitted to issue policies in this State when in compliance with the aforementioned statutory and regulatory scheme. Thus, without authorization to issue a particular insurance policy in this State, it is prohibited as a matter of law. For the purposes of the policies that are the subject of this action, the foreign plaintiff corporation “is doing business in the State without authority shall not maintain any action… unless and until such corporation has been authorized to do business in this state.” BCL §1312 (a) Plaintiffs lack capacity. EXCESS LINE BROKER’S DUTY OF DUE CARE IN SELECTING INSURER Insurance Law § 2118(a)(1) requires excess line brokers to use “due care” when selecting an excess line insurer. Insurance Regulation 41 (11 NYCRR 27) at § 27.13 sets forth a list of requirements by which an excess line broker can meet the “due care” standard. Some of those requirements are waived if ELANY performs certain functions for all excess line licensees. Diligent Effort/Diligent Search An excess line broker or a producing broker which has sought coverage through an excess line broker must conduct a search of the licensed market to attempt to procure the coverage from a licensed insurer, who the broker has reason to believe might consider writing the type of coverage or class of insurance (§ 2118(b)(3)(A)). Three declinations from licensed insurers are required to meet the diligent effort requirement (§ 2118(b)(4)). The broker is required to “maintain files supporting declinations by authorized insurers. (§ 2118(c)(1)). Here, plaintiff’s broker failed to its duty of due diligence under Insurance Law § 2118 because the broker failed to maintain the required records of the declination process by authorized insureres. 7 7 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 Plaintiff’s Broker’s Failure of Due Diligence Pursuant to defendant’s subpoena of non-party witness, plaintiff’s broker Hull & Company of NY, Inc., dba Morstan General Agency, Inc., (“Plaintiff’s Broker”) responded via letter dated December 3, 2019 with attachments. See Exhibit F (Defendant’s Subpoena and Plaintiff Broker Response). Plaintiff Broker response is certified. See Blake Affirmation para. 4. Plaintiff’s Broker failed to satisfy the requirement to “maintain files supporting declinations by authorized insurers.” (11 N.Y.C.R.R. 27.3 (f)). Defendant’s subpoena requested three declination letters from authorized insurance carriers and an affidavit from a broker, and all other evidences and writings. See Exhibit F. Defendant’s subpoena. Plaintiff Broker’s response included three declinations and defendant’s insurance applications for insurance but did not have supporting documentation to support the basis for the declinations, as in telephone logs, email or letter correspondence between Plaintiff’s Broker and authorized insurers. Plaintiff would suffer no prejudice by the granting of the requested relief herein. 8 8 of 9 FILED: KINGS COUNTY CLERK 01/09/2020 06:52 PM INDEX NO. 510798/2018 NYSCEF DOC. NO. 75 RECEIVED NYSCEF: 01/09/2020 Wherefore, defendant respectfully requests that this Court issue an order dismissing the complaint with defendant to retain the $500 previously posted as security for costs that is being held by defendant counsel in escrow with costs and disbursements of this action and for such other and further relief as to this Court may seem just and proper. Dated: Brooklyn, New York January 9, 2020 9 9 of 9