Guida v. Herbert H. Landy Ins. Agency, Inc.

The plaintiffs, attorneys Robert H. Guida and Christopher T. Perry (collectively referred to as attorneys or lawyers), sued their professional liability insurance broker, Herbert H. Landy Insurance Agency, Inc. (Landy), for failure to procure desired coverage. The attorneys charged Landy with negligence, negligent misrepresentation, and breach of contract. At the conclusion of the attorneys' case-in-chief, Landy moved for a directed verdict. The attorneys appeal from a Superior Court judge's allowance of that motion. For the following reasons, we affirm.

Background. In 2000, Guida started his own law practice. He decided to use Landy to obtain professional liability insurance. Landy brokered coverage from Hanover Insurance Company (Hanover); that carrier provided Guida his first policy, effective May 22, 2000, to May 22, 2001. At trial, Guida testified that he had read that policy in full. In February of 2001, Perry joined Guida's law firm. Also in February, Landy wrote to Guida that Hanover was withdrawing professional liability coverage in Massachusetts. Landy procured a successor policy from National Casualty Company (National Casualty). At trial, Guida testified that he had reviewed the National Casualty policy, that he had looked at the declarations page, and that he had reviewed the exclusions. In July, 2001, Perry became a shareholder of the firm, and Guida added him to the National Casualty policy. The lawyers changed the name of the firm to Guida & Perry, P.C. (law firm).

National Casualty then withdrew from further professional liability coverage in Massachusetts. By letter of February 15, 2002, Landy notified Guida of that development. The letter also stated the following: “To avoid a gap in coverage, and continue coverage in a seamless manner, please complete the enclosed [Gulf Insurance Group (Gulf) ] application. [Gulf] is a member of Travelers Insurance, which is a member of Citigroup and is rated A by A.M. Best.” Guida signed the application materials for the Gulf policy, which became effective on May 22, 2002.

On the “declarations page” of the Gulf policy, in bold and capital letters, the following statement appeared: “THIS IS A CLAIMS–MADE POLICY. PLEASE READ IT CAREFULLY.” The Gulf policy also contained an eight-page “Lawyers Professional Liability Coverage Form.” On page one of the coverage form, also in bold capital letters, the policy stated, “NOTICE—THIS IS A CLAIMS–MADE POLICY WITH ‘CLAIMS EXPENSES' INCLUDED WITHIN THE LIMITS OF LIABILITY, UNLESS OTHERWISE NOTED. PLEASE READ IT CAREFULLY.” Additionally, all of the exclusions to the policy appeared on page three of the coverage form. In particular, “exclusion L” stated that the policy did not cover claims “[a]rising out of the inability or failure to pay, collect, administer or safeguard funds held or to be held for others.” This exclusion eliminated coverage for theft of funds held by the law firm for the benefit of others.

At trial, Guida admitted that he had not read the entire Gulf policy, and that he had instead “skimmed it.” He testified that he had relied on Landy's assurance that the Gulf policy provided coverage identical to the previous two policies. In May, 2003, Guida renewed the Gulf policy for a second year, effective until May 22, 2004.

In May, 2004, Guida took a job elsewhere and Guida & Perry, P.C., dissolved. Perry stayed in the practice and he kept the same staff as he created his own firm. He purchased a “tail” for the Gulf policy, in addition to a new policy for his own firm (Perry firm). Shortly after Perry had formed his own firm, he discovered that his office manager, Rita Mauro, had been embezzling funds from the law firm's Interest On Lawyers' Trust Account (IOLTA account). She had committed these acts from some time in 2001 until September of 2004. Mauro had been the officer manager for both the predecessor firm and the Perry firm. Perry's accountant estimated that she had misappropriated over $2,000,000. Perry immediately terminated her in September of 2004.

As a result of Mauro's embezzlement scheme, the Board of Bar Overseers reprimanded Guida and Perry for failing to implement proper safeguards to protect their clients' funds. Guida and Perry also paid $200,000 and $83,000, respectively, to settle claims brought against them. They subsequently brought this action against Landy for Landy's alleged failure to procure coverage against the risk of employee theft, a risk allegedly covered by the earlier Hanover and National Casualty policies.

Analysis. 1. Standard of review. “We review the grant of a motion for a directed verdict to determine whether ‘anywhere in the evidence, from whatever source derived, any combination of circumstances could be found from which a reasonable inference could be drawn in favor of the plaintiff.’ “ Claudio v. Chicopee, 81 Mass.App.Ct. 544, 546 (2012), quoting from Dobos v. Driscoll, 404 Mass. 634, 656, cert. denied sub nom. Kehoe v. Dobos, 493 U .S. 850 (1989).

2. The attorneys' theories of liability. The attorneys pursued three theories of liability at trial: (1) that Landy negligently failed to advise them about, or provide coverage for, the event of employee theft of funds from their IOLTA account; (2) that Landy committed negligent misrepresentation by (a) the language of the letter of February 15, 2002, and (b) supplemental oral communications; and (3) that Landy breached a contractual duty by failing to provide coverage similar to the National Casualty policy after the attorneys had allegedly requested equivalent coverage.

a. Absence of special circumstances between the attorneys and Landy. The general relationship between an insurance agency and its policyholder customer does not impose a duty on the agency to investigate the customer's needs for particular coverage or to advise about the availability of insurance products to meet those needs. Robinson v. Charles A. Flynn Ins. Agency, Inc., 39 Mass.App.Ct. 902, 902–903 (1995). However, an insurance agent or broker may acquire a greater duty of investigation, advice, and assistance to an insured by reason of “special circumstances.” McCue v. Prudential Ins. Co. of Am., 371 Mass. 659, 661–662 (1976). Martinonis v. Utica Natl. Ins. Group, 65 Mass.App.Ct. 418, 421 (2006). Such “special circumstances of assertion, representation and reliance” may create a duty of due care. McCue v. Prudential Ins. Co. of Am., supra at 661, quoting from Rapp v. Lester L. Burdick, Inc., 336 Mass. 438, 442 (1957).

Factors creating special circumstances may include (1) a prolonged business relationship; (2) the complexity and comprehensiveness of the customer's coverages; (3) the frequency of contact between a customer and agent to attend to the customer's insurance needs; and (4) the extent to which a customer relies on the advice of the agent by reason of the complexity of the policies. See McCue v. Prudential Ins. Co. of Am., supra at 661–663 (“special circumstances” existed where there was a twenty-eight year relationship between the insured and insurer; the insurer's agents made monthly visits to the plaintiff; and the plaintiff had seven different insurance policies with the insurer); Bicknell, Inc. v. Havlin, 9 Mass.App.Ct. 497, 500–501 (1980) (“special circumstances” existed when an agent procured all of the plaintiff's insurance and the agent made recommendations over a considerable period of time); Construction Planners, In. v. Dobax Ins. Agency, Inc., 31 Mass.App.Ct. 672, 674, 676 (1991) (“special circumstances” existed after an extended relationship between the plaintiff and agent; the agent handled all of the plaintiff's insurance needs; and the agent renewed some of the plaintiff's policies without consulting with the plaintiff).

This case does not present the requisite “special circumstances” between the parties. The lawyers did not employ Landy for coverage beyond their professional liability needs. Landy procured policies for the attorneys on only four occasions. The parties never met in person; they communicated by telephone and letter. The relationship was generic, not special. As a result, Landy had no heightened duty of care to inform the attorneys of the existence and consequences of exclusion L. In the absence of such a duty, no negligence occurred.

b. Failure of policyholder to read the policy. In general, an insurance agent does not have a fiduciary duty to ensure that a policy provides adequate insurance for the needs of the insured. Martinonis v. Utica Natl. Ins. Group, supra at 420, citing Baldwin Crane & Equip. Corp. v. Riley & Rielly Ins. Agency, Inc., 44 Mass.App.Ct. 29, 32 (1997) (noting that an insurance agent assumes only the normal duties of an agency relationship). When an insured agrees to purchase “particular coverage, the insured may reasonably rely on the broker's superior expertise and may assume that the broker has performed his duty.” Campione v. Wilson, 422 Mass. 185, 195 (1996). Still, a policyholder has a duty to read the policy and to bring to the agency's attention any omissions or exclusions of expected coverage. Sarnafil, Inc. v. Peerless Ins. Co., 418 Mass. 295, 306–307 (1994).

The lawyers rely on Campione v. Wilson, supra at 194–196, and Martinonis v. Utica Natl. Ins. Group, supra at 420–422. However, those cases are distinguishable from the present scenario. First, in Campione, the insured requested specific increases in the limits of liability. Campione v. Wilson, supra at 187–188. Second, in Martinonis, evidence indicated that the policyholder specifically requested confirmation that the coverage limits were adequate. Martinonis v. Utica Natl. Ins. Group, supra. Summary judgment against the policyholders' claims was improper in both instances. However, those cases stand for the proposition that (1) if the policyholder communicates a request for a specific term, and (2) if the broker promises or agrees to procure it, then (3) the policyholder may rely on that promise without a duty of careful reading.

Here, those circumstances do not exist. The attorneys failed to introduce evidence that they specifically requested from Landy a term for their desired particular coverage. Moreover, since the parties had a general-not special-relationship, Landy had no duty to investigate the lawyers' needs for particular coverage or to advise about the availability of appropriate means of coverage for those needs. See Robinson v. Charles A. Flynn Ins. Agency, Inc., 39 Mass.App.Ct. at 902–903.

Instead, Sarnafil, Inc. v. Peerless Ins. Co., supra, controls the outcome of this case. In the absence of special circumstances, “a business entity ... should read its policies rather than rely on representations by an agent.” Id. at 307. As a result, the failure to read the policy severs the causal connection necessary between fault, i.e., for negligence, negligent misrepresentation, or breach of contract, and the resulting harm, i.e., the financial loss to the attorneys.

With respect to the attorneys' negligent misrepresentation claim, Landy's February 15, 2002, letter stated to the attorneys that procurement of the Gulf policy would provide “seamless” coverage. However, the letter did not make a representation about a specific aspect or exclusion of that coverage. Guida also knew that the Gulf policy had additional amendments, an awareness undercutting his claim that he thought the policy was identical to the previous two policies. Most importantly, if the attorneys had read the policy, they would have encountered exclusion L. Like the business entity in Sarnafil, Inc., the attorneys here “should [have] read [their] policies rather than rely on representations by an agent.” Ibid.

c. Contractual duty. The attorneys rely on alleged misrepresentation also as the basis for their breach of contract claim. However, they did not offer sufficient evidence to show that a contractual relationship obligated Landy to procure particular coverage, e.g., against employee theft. The representation of offering “seamless” coverage does not equal a promise that the policies are identical. Baldwin Crane & Equip. Corp. v. Riley & Rielly Ins. Agency, Inc., 44 Mass.App.Ct. at 31–32 (plaintiff's breach of contract claim failed despite the fact that the plaintiff asserted that it hired the agency to procure a replacement policy “on the same terms and conditions as previously obtained”; the tender of the new policy did not carry an implied representation that the terms and conditions were the same). Additionally, the attorneys did not introduce evidence of a particularized request for coverage, nor did they show a specific promise or representation of such coverage from Landy.

Conclusion. We conclude that (1) the absence of “special circumstances” necessary for a duty of investigation and advice by Landy and (2) the failure of the lawyers to read the Gulf policy preclude their claims of negligence and negligent misrepresentation. The absence of special circumstances and of a specific promise to procure a particular coverage negates also the claim of breach of contract. The entry of a full directed verdict was therefore proper .

Judgment affirmed.
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