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Insurance Brokerage Wins Summary Judgment in Lawsuit Triggered by Cyberattack

Case Study

Insurance Brokerage Wins Summary Judgment in Lawsuit Triggered by Cyberattack

A lawsuit that included allegations ranging from gross negligence to false and deceptive advertising over nearly three decades, brought against a major international insurance brokerage represented by Goldberg Segalla, has been dismissed by a New York court.

The case stemmed from a cyberattack and social-engineering scheme that resulted in the loss of nearly $3 million sustained by the plaintiffs — a high net-worth couple and the charitable foundation they ran — who after they were targeted realized they had virtually no insurance to cover their loss.

Alleging that for decades they relied upon promises they claimed had been made and not kept by the defendant broker, plaintiffs asserted claims under New York’s consumer protection laws alleging the brokerage falsely and deceptively advertised the services it provides, and, as a result, had unjustly enriched its business through the generation of commissions on the sale of insurance to the plaintiffs over a span of decades.

Plaintiffs also accused the brokerage of acting with gross negligence and breaching fiduciary duties to the plaintiffs by failing to properly advise them in regard to the insurance risks they faced, and the insurance they should purchase to manage their risks.

The case was defended in New York County Supreme Court by Goldberg Segalla partner Peter J. Biging, co-chair of the firm’s Management and Professional Liability practice group. In waging his defense, Peter first successfully obtained dismissal of the unjust enrichment and false and deceptive advertising claims, on the grounds that plaintiffs had failed to plead any unjust enrichment emanating from payments made directly by the plaintiffs to the defendant brokerage, and thus the requisite allegation of unjust enrichment at plaintiffs’ expense.  He pointed out that, in fact, they alleged having received the insurance for which they paid, that the court could take judicial notice of the fact insurance broker commissions are paid by the insurer from the premiums received on the insurance purchased and not the customer, and the plaintiffs had failed to allege the brokerage’s receipt of any payments made by the plaintiffs in the form of fees or other compensation paid to the defendant broker.

Peter also successfully argued that the requisite allegations of fraud or deception on the public necessary to the assertion of fraud and deceptive advertising claims had not been plausibly alleged (as opposed to allegations of alleged failure to match performance with the services allegedly promised specifically to the plaintiffs), and plaintiffs had also failed to allege representations to the public that were materially misleading.  In so doing, Peter convinced the court that plaintiffs had done nothing more than attempt to elevate an individual dispute over services into a General Business Law claim, which was impermissible.

In thereafter taking discovery with regard to the remaining claims, Peter was able to establish that the plaintiffs and the broker had an ordinary broker-client relationship, and not the requisite “special relationship” that would have given rise to either a duty to advise, or a fiduciary duty.  As such, as a matter of law, the plaintiffs could not establish either negligence or breach of fiduciary duty based on alleged failure on the part of the broker to provide advice or recommendations regarding insurance that would have provided coverage for the loss sustained.  In fact, the plaintiffs had purchased their homeowners’ insurance directly from the insurer they utilized for this purpose for decades, relied on the broker almost exclusively to handle the ministerial task of adding and deleting items from an extensive list of itemized fine art and valuables (and changing values based on updated appraisals), had derided recommendations made to their charitable foundation as boilerplate and largely of no relevance to their situation (which they routinely ignored), and dismissed recommendations that had been made to them regarding their homeowners insurance as being of no utility to them, and “silly.”

Based on this discovery, Peter moved for summary judgment dismissing the remaining claims, which was granted.

In securing this result, Peter afforded the brokerage at the outset the ability to avoid efforts by the plaintiffs to take expansive and burdensome discovery regarding its advertising and handling of accounts for a broad base of customers, and, additionally, from a possible judgment holding the potential to run into the multiple millions of dollars, given the potential for recovery of both the lost funds resulting from the scam, almost three decades worth of commissions received, and punitive damages as well as pre-judgment interest.

Assisting Peter in his defense were Colleen Murphy and Sarah Delaney, partners in Goldberg Segalla’s Global Insurance Services practice group.