Life insurer rescinded the policy – Plaintiff-widow followed with negligence cause of action against life insurance agent and agent’s employer(s).

Plaintiff-widow had negligence cause of action against life insurance agent, who was brother-in-law of decedent, and agent’s employer(s) after the life insurer rescinded the policy because of decedent’s misrepresentations on the application about his health.

Plaintiff’s husband (“Decedent”) had reached out to defendant Pontillo (“Agent”), who was Decedent’s brother-in-law and financial advisor, to obtain additional term life insurance coverage.  Agent acted as the writing agent in applying for a $5 million term life insurance policy from Life Insurer that named plaintiff as beneficiary.  Decedent completed a medical examination questionnaire as part of the application which contained misstatements of fact. The policy was issued in 2011.  Decedent died within the two-year contestable period.  Life Insurer denied plaintiff’s claim for the insurance proceeds because of Decedent’s failure to disclose his history of substance abuse treatment and cocaine use and rescinded the policy.

Plaintiff commenced this action in pertinent part against Agent and Agent’s alleged employers E-1 and E-2, alleging that Agent submitted an inaccurate insurance application to Life Insurer while representing to plaintiff that the policy issued upon it was valid. In lieu of answering, E-1 moved to dismiss for failure to state a cause of action and as being precluded by documentary evidence.  Agent and E-2 served an answer and then moved to dismiss the complaint on the same grounds as E-1’s motion.  (Plaintiff had also sued the Life Insurer whose motion to dismiss was granted and that decision was not appealed.)

E-1 argued unsuccessfully that Agent was not its employee, relying on a representative agreement in which Agent was categorized as an independent contractor.   The Third Department noted, however, that (a) such a portrayal does not settle the fact-specific question of whether an employer-employee relationship existed between E-1 and Agent and (b) plaintiff produced proof that Agent used office resources at E-1’s headquarters in contravention of the representative agreement, corresponded using E-1’s email address, and had E-1’s business cards and letterhead.

E-1 also argued equally unsuccessfully that Agent could not have sold term life insurance under its banner and supplied its membership agreement with the Financial Industry Regulatory Authority which lacked the necessary authorization to sell term life insurance.  Plaintiff responded with E-1’s brochure which expressly proclaimed that E-1 offered term life insurance products and another brochure from E-1 referencing insurance sales through its “affiliated insurance agency” E-2.  Because of the conflicting documentary proof and the unclear relationship between E-1 and E-2, E-1 failed to show it had no connection to the Life Insurer’s policy.

Agent and E-2 claimed that only the decedent had standing to recover for any negligence in applying for the policy, citing black-letter law that where an insurance agent’s negligence causes an insured to be without coverage, the agent cannot be held liable for damages sustained by an injured third party as a consequence thereof if the third party is not in privity with the agent and is not an intended beneficiary of the insurance contract.  But the Third Department, held that plaintiff was indeed the intended beneficiary of Life Insurer’s policy from the moment that decedent applied for the policy.  Moreover, plaintiff alleged that she was linked to Agent by his status as a family member and trusted financial advisor and that Agent knew not only that the policy was intended to ensure plaintiff’s financial well-being in the event of Decedent’s death, but that plaintiff would rely upon Agent’s expertise in preparing a valid application for it.

The Third Department accepted plaintiff’s allegations as true and held that they showed Agent’s affirmative assumption of a duty of care to plaintiff for a specific purpose regardless of whether there was a contractual relationship.   Furthermore, plaintiff’s reliance was the end aim of the transaction and constituted a relationship close enough to privity as to create a duty of care toward her that permitted a negligence claim against Agent and his purported employers.

Plaintiff’s claim of negligent misrepresentation and concealment of material facts and her claim of fraud, however, were properly dismissed.  Plaintiff did not assert that Agent directly vouched for the policy’s validity but only that he delivered the application and policy documents to both decedent and to plaintiff as an assurance that it had been issued upon an accurate application and was valid. The court held that the most that could reasonably be taken from the act of delivery was that an application had been submitted to Life Insurer and that Life Insurer had issued a policy. The policy explicitly contained a two-year contestability clause which plaintiff (herself an attorney) could have discovered had she read the policy.

Plaintiff’s claim for breach of fiduciary duty was timely brought.  The applicable statute of limitations for the breach-of-fiduciary-duty claim at issue was three years and accrued when all elements of the tort could be truthfully alleged including when actual damage had been sustained.  Damages arose when Life Insurer determined that the policy had never been in force and denied plaintiff’s claim.  Because plaintiff’s action was commenced days after Life Insurer’s denial of her claim, her breach-of-fiduciary-duty claim was timely.

But plaintiff’s breach-of-contract claim against Defendants was properly dismissed.   Although plaintiff was a third-party beneficiary of the policy which gave her the same rights as Decedent, Decedent’s own misrepresentations on the application imperiled his purchase of the policy.  Because Decedent could not plausibly have claimed that Defendants breached the agreement as to him, plaintiff’s breach-of-contract claim was properly dismissed.

Vestal v. Pontillo, 018 NY Slip Op 01236 (3d Dep’t 2/22/18) http://nycourts.gov/reporter/3dseries/2018/2018_01236.htm