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April 18, 1990


The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.


Plaintiffs have sued defendants for negligence and breach of contract with respect to an excess liability insurance policy issued by defendant Travelers Indemnity Company ("Travelers"). In their complaint, plaintiffs claim that defendants are liable for a $200,000 gap in coverage between the Travelers policy and plaintiffs' primary liability policy. Travelers has moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiffs have cross-moved for summary judgment on the first and second causes of action of the complaint.*fn1


In 1983, Travelers issued a PLUS excess liability insurance policy to plaintiffs Stephen and Helinda DiLorenzo. The policy was renewed annually through November 18, 1986. The parties dispute the events leading up to the issuance of the policy, but the following facts appear to be undisputed.

Defendant Louis Carletto is an insurance broker employed by the Edward Holle Insurance Agency ("Holle"), which is a sole-proprietorship operated by defendant Edward Holle and an authorized agent of Travelers. Before 1983, Holle, acting through Carletto, had sold at least one other insurance policy to plaintiffs. In or about September 1983, plaintiff Stephen DiLorenzo, after discussions with Carletto, submitted to Holle a written application for a Travelers PLUS excess liability policy on the Travelers application form. The policy for which Mr. DiLorenzo applied was an umbrella policy that would insure plaintiffs for liability on their home and two automobiles up to $1,000,000, subject to certain deductible amounts. The application contained the following language:

  This policy is subject to the deductible amounts
  shown below. It is understood and agreed by the
  insured that primary insurance policies applicable
  to all exposures listed in Item 3 must be
  maintained with limits equal to or greater than
  the deductible amounts. Failure to do so will
  result in a serious gap in coverage.
Auto Liability          $300,000 each occurrence
All Other Liability     $100,000 each occurrence
  If the insured maintains primary auto insurance
  with limits of $250,000/$500,000 bodily injury and
  $25,000 property damage, then the deductible
  amount applicable to auto liability shall be such

Mr. DiLorenzo signed the application form directly below a declaration that he had read the application and understood the applicable deductible amounts. Holle forwarded the application to Travelers. After normal processing, Travelers issued the umbrella policy for which Mr. DiLorenzo had applied. Holle did not participate in the underwriting of the policy.

In language identical to the above-quoted portion of the application form, Item 6 of the Declarations page of the Travelers policy issued to plaintiffs stated that the policy was subject to a deductible of "$300,000 each occurrence" for automobile liability. Following 1983, the DiLorenzos received annual policy renewal notices for their Travelers PLUS excess liability policy, each of which contained language stating:

  Important reminder — your PLUS policy provides
  excess insurance. You must maintain underlying
  insurance policies with limits at least equal to
  the PLUS policy deductible amounts in order to
  avoid a serious gap in coverage.

Since 1980, plaintiffs had purchased primary automobile liability insurance from a different insurer, Allstate Insurance Company ("Allstate"). Plaintiffs had not obtained this policy through Holle or Carletto. The Declaration Sheet for the plaintiffs' Allstate policy indicated that that policy provided coverage of $100,000 each person and $300,000 each occurrence.

In August, 1986, plaintiffs' car was involved in an accident which resulted in serious injury to one Dawn Keske. Ms. Keske filed a lawsuit in New York Supreme Court against Mr. DiLorenzo. After a jury verdict of liability on the part of Mr. DiLorenzo, the parties to that action settled the damages issue for an amount in excess of $764,000. Allstate contributed $100,000 pursuant to plaintiffs' primary automobile liability policy, while Travelers disclaimed liability for any amounts below $300,000, resulting in a gap of $200,000 in plaintiffs' coverage. This lawsuit followed.

In an affidavit submitted in connection with this motion, Mr. DiLorenzo states that, before he submitted the application for the Travelers policy, Carletto had represented to plaintiffs that the policy would give them coverage of up to $1,000,000 for their automobiles. In an affidavit of his own, Carletto states that neither he nor Holle ever advised plaintiffs that they were buying full insurance coverage on their automobiles up to $1,000,000. Mr. DiLorenzo also contends that plaintiffs gave Carletto a copy of their Allstate insurance policy Declarations Sheet, and that Carletto told ...

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