The opinion of the court was delivered by: ROBERT L. CARTER
Third-party defendant Anglo American Insurance Company Limited ("Anglo") moves pursuant to Rules 12(b)(2) and 12(b)(6), F.R. Civ. P., to dismiss the third-party complaint brought by third-party plaintiff William J. Fitzpatrick.
Plaintiffs bring the main action in this case against CalFed; XCF Acceptance Corporation, as successor by merger to CalFed; and Fitzpatrick, an executive vice-president of CalFed who was a director of Anglo until the February, 1990 closing. Plaintiffs bring breach of warranty and contract claims against CalFed in connection with the sale of Anglo. In addition, plaintiffs bring negligent misrepresentation claims against CalFed and Fitzpatrick on the grounds that at the closing CalFed and Fitzpatrick reaffirmed representations and warranties contained in the purchase agreement, that the reaffirmations were incorrect and misleading, and that CalFed and Fitzpatrick failed to disclose material facts. In the instant third-party action, Fitzpatrick alleges that as a director of Anglo he is entitled to indemnification to the extent that he is found liable on plaintiffs' negligent misrepresentation claim.
This court has not held an evidentiary hearing regarding personal jurisdiction, and Fitzpatrick has not had an opportunity to conduct discovery regarding personal jurisdiction. Therefore, Fitzpatrick must merely make out a prima facie case that personal jurisdiction over Anglo exists. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55 (2d Cir. 1985). The court will construe the facts in the light most favorable to Fitzpatrick and resolve all doubts in his favor. Id.
A federal court sitting in diversity determines its personal jurisdiction over a defendant according to the law of the state in which the court sits. Id. at 57. This court has personal jurisdiction over a foreign corporation under N.Y. Civ. Prac. L. & R. ("CPLR") 301 (McKinney 1990) where the defendant "is engaged in such a continuous and systematic course of 'doing business' [in New York] as to warrant a finding of its 'presence' in this jurisdiction." Laufer v. Ostrow, 55 N.Y.2d 305, 309-10, 449 N.Y.S.2d 456, 434 N.E.2d 692 (1982) (quoting McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 419 N.E.2d 321 (1981)). A foreign corporation will be found to be doing business in New York where there is a relationship between that corporation and a New York corporation leading to an inference of agency, Frummer v. Hilton Hotels Int'l, Inc., 19 N.Y.2d 533, 538, 281 N.Y.S.2d 41, 227 N.E.2d 851 (1967), cert. denied, 389 U.S. 923, 19 L. Ed. 2d 266, 88 S. Ct. 241 (1967), or where
a separate corporation, acting with its authority and for its substantial benefit, carries out activities in New York that are more than 'mere solicitation' and are 'sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services.'
Volkswagen de Mexico, S.A. v. Germanischer Lloyd, 768 F. Supp. 1023, 1027 (S.D.N.Y. 1991) (Cedarbaum, J.) (quoting Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116, 121 (2d Cir. 1967), cert. denied, 390 U.S. 996, 20 L. Ed. 2d 95, 88 S. Ct. 1198 (1968)). Here, plaintiff alleges that Anglo, a foreign corporation, is subject to personal jurisdiction in New York because of its relationship with New York excess line brokers.
There is no allegation of common ownership between Anglo and its purported agents. Therefore, the first prong of the test is whether New York excess line brokers act with the authority and for the benefit of Anglo.
As Anglo stresses, New York excess line brokers usually act as agents of their insureds, Augustin v. Gilot, 152 Misc. 2d 666, 670-71, 578 N.Y.S.2d 348 (Civ. Ct. 1991), rev'd on other grounds, 158 Misc. 2d 627, 606 N.Y.S.2d 514 (App. Term. 1993), and they do not have the authority to bind Anglo to agree to underwrite a policy. New York excess line brokers receive requests for insurance and then contact a London broker. The London broker then solicits London insurers to underwrite the policy. (Mitchell Aff. P 6.) Anglo is free to accept or deny coverage of the policy, and the actions of the excess line brokers in soliciting potential policyholders have no binding effect on Anglo.
Fitzpatrick points out, however, that London insurers often rely upon their New York brokers to prepare and process policy documents, to obtain information that insurers need in order to assess liability and decide what claims to cover, and to collect and remit premiums and losses. (Latza Aff. P 18.) Although there is no evidence before the court regarding the extent to which Anglo relies upon brokers to perform such tasks, New York law requires insurers to authorize brokers to collect premiums due on insurance contracts that the brokers solicited. N.Y. Ins. Law § 2121 (McKinney 1985). Whenever the brokers collect premiums, they are deemed to be acting under the authority of the insurance company so long as a contract that they solicited is in effect and the broker receives the payment within ninety days after its due date. N.Y. Ins. Law § 2121 (McKinney 1985); see also Bohlinger v. Zanger, 306 N.Y. 228, 230, 117 N.E.2d 338 (1954) (discussing "dual agency status of an insurance broker"). Thus, New York excess line brokers act under the authority and for the benefit of Anglo, satisfying the first prong of the test.
Furthermore, without the activities of the brokers Anglo would have difficulty preparing and processing policy documents, acquiring information about prospective policyholders in order to assess the risks that they present, and collecting premiums from New York policyholders. The excess line industry specializes in covering unique and specialized risks. (Latza Aff. P 8; see also Fitzpatrick Documentary App. Ex. A at 4.) Fundamental to this coverage is "'freedom of rate and form' -- the flexibility to set premiums to reflect the true exposure and coverage and to create and tailor a policy to meet the specific needs of the insured." (Fitzpatrick Documentary App. Ex. A at 3.) In order to perform this discretionary underwriting, insurers must obtain extensive information about the prospective policyholders and must be confident of the truth and completeness of this information. (Latza Aff. P 8.) According to Fitzpatrick's attorney, "Most excess line insurers, and London Insurers especially, would prefer to place their confidence in the underwriting support provided by professional licensed brokers in the form of full and accurate disclosure of all material information relative to the subject of the insurance." (Id. P 8.) Thus, the services that the brokers regularly perform go beyond mere solicitation and "are an essential part of the conduct of defendant's business," Tuxxedo Network, Inc. v. Hughes Communications Carrier Servs., Inc., 753 F. Supp. 514, 517 (S.D.N.Y. 1990) (Cedarbaum, J.), satisfying the second prong of the test.
Fitzpatrick avers that the services performed by excess line brokers are so important that if their services were not available Anglo would have to perform their role itself. Anglo argues that Anglo could not take over the tasks of excess line brokers because insurance brokerage and underwriting are completely different and because excess line insurance is rarely written without a broker. This dispute misses the point of the test, which is the importance of the agents' services to the principal, not the feasibility of the principals' performing the agents' role. Gelfand, 385 F.2d at 121 (holding that test is whether services provided by New York representative "are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services") (emphasis added). The fact that excess line insurance is rarely written without a broker's aid is precisely the point -- brokers are an integral part of the underwriters' business. Furthermore, Anglo does not deny that excess line insurers sometimes do sell insurance directly to insureds, demonstrating that the underwriters could perform at least some aspects of brokers' jobs.
Evidence that Anglo purposely avails itself of the New York insurance market can be found in the measures it takes to comply with New York regulations and guidelines regarding excess line insurers.
In order to do business with New York excess line brokers, unauthorized foreign insurers must provide their most recent financial statements to excess line brokers for inspection by insureds, N.Y. Comp. Codes R. & Regs. ("NYCRR") tit. 11, § 27.5(a)(1) (1993), and annually file Form EL-1 with the New York State Insurance Department, indicating the value of their New York premiums for the previous year. NYCRR tit. 11, § 27.6(d) (1993). They must maintain a $ 1,500,000 trust fund in a New York bank or a member of the Federal Reserve Bank, NYCRR tit. 11, § 27.5(a)(1)(ii)(b) (1993), and they must submit to the jurisdiction of the New York courts in any action instituted by an insured arising out of a policy issued by the unauthorized insurer. NYCRR tit. 11, § 27.6(b) (1993). As of 1993, Anglo apparently maintained a trust fund of $ 3,504,760 in New York state, (Latza Aff. P 11), and Anglo filed Form EL-1 in 1988, 1989, 1990, 1991 and 1992. (Fitzpatrick Documentary App. Ex. C.) Anglo's compliance with the remaining regulations can be deduced from the facts ...