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K. BELL & ASSOCS. v. LLOYD'S UNDERWRITERS

July 21, 1993

K. BELL & ASSOCIATES, INC., Plaintiff,
v.
LLOYD'S UNDERWRITERS, Defendant.


DUFFY


The opinion of the court was delivered by: KEVIN THOMAS DUFFY

KEVIN THOMAS DUFFY, D.J.:

 Plaintiff, K. Bell & Associates, Inc., ("K. Bell") commenced this diversity action on July 12, 1992, against defendant, Lloyd's Underwriters ("Lloyd's"). On October 6, 1992, defendant moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6).

 BACKGROUND

 Facts Alleged

 K. Bell, a New York corporation licensed to act as an insurance broker and reinsurance intermediary, obtained two insurance broker's Error and Omissions policies (the "Policies") from Lloyd's Underwriters, a United Kingdom consortium. Complaint PP 1-4. The complaint alleges that the Policies obligated Lloyd's to:

 
reimburse plaintiff for all sums which plaintiff should become legally obligated to pay as damages by reason of any negligent act, error, or omission committed or alleged to have been committed by the plaintiff, or by any person for whose negligent acts, errors, or omissions plaintiff was legally responsible, which 2 [sic] arose out of the conduct of the insured's professional activity as an insurance broker, insurance agent, or general insurance agent.

 Id. at P 6. K. Bell's complaint also asserts that the aggregate coverage under the Policies provided coverage for $ 2,000,000.00 subject to a $ 10,000.00 deductible. Id. at P 5.

 From 1980-1982, K. Bell was the insurance broker to the American Marine Insurance Group ("AMIG"). Id. at P 7. In early August of 1985, AMIG commenced an action (the "Underlying Action") against K. Bell, and others, in New York State Supreme Court, New York County. Id. at PP 9-10. K. Bell asserts that they promptly notified Lloyd's of this claim by forwarding a copy of the Summons and Complaint to Lloyd's broker, on August 9, 1985. Id. at P 12. After almost ten months had passed, on June 6, 1986, Lloyd's responded reserving its rights in regards to possible late notice of claims, and applications of exclusions (f) and (g) of the Policies, through a letter from its attorneys. Id. at P 14.

 Throughout the duration of the Underlying Action, attorney's for Lloyd's periodically requested and received status reports of the Underlying Action from K. Bell's attorneys. Id. at PP 15-31. On November 18, 1991, summary judgement was entered against K. Bell in the Underlying Action in the amount of $ 686,266.64 plus interest. K. Bell's attorneys informed Lloyd's of this decision and advised that they expected Lloyd's to either post a bond or letter of undertaking, so that K. Bell could pursue an appeal. Id. at PP 32, 33. By letter dated February 27, 1992, Lloyd's formally declined coverage under the Policies. Id. at P 38. Subsequently, a final judgement totaling $ 1,192,223.77 was entered against K. Bell, and, thereafter, AMIG successfully restrained all of K. Bell's funds to ensure satisfaction of the judgment. On or about July 12, 1992, K. Bell commenced the instant action.

 K. Bell's Claims

 K. Bell's complaint asserts that Lloyd's failure to provide coverage under the Policies constituted a breach of contract. Additionally, K. Bell's complaint asserts that the doctrines of equitable estoppel and waiver preclude Lloyd's from declining coverage under the Policies. K. Bell further claims entitlement to punitive damages due to Lloyd's bad faith.

 DISCUSSION ...


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