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January 17, 1996


The opinion of the court was delivered by: SWEET

 Sweet, D.J.

 Plaintiff Evvtex Co., Inc. ("Evvtex") initiated this action against defendant Hartley Cooper Associates Limited and Gibbs Hartley Cooper Limited (collectively "Hartley Cooper") to recover sums collected by Hartley Cooper in its capacity as insurance broker and paid over to a third party John A. Finch Associates, Ltd. ("Finch"). After a trial before the Court and upon all the prior proceedings and the findings and conclusions set forth below, judgment will be granted in favor of Evvtex in accordance with the discussion below.

 The Parties

 Evvtex, a wholesale dealer of diamonds, is a Texas corporation with a principal place of business located in New York and a sales office in Dallas. David Moussazadeh ("David") is the president of Evvtex and in charge of its New York office. Abraham Moussazadeh ("Abraham") is vice-president and in charge of its Dallas office. Gibbs Hartley Cooper Limited ("Gibbs Hartley Cooper") is a United Kingdom corporation with a principal place of business located in London, England. Hartley Cooper Associates Limited ("Hartley Cooper") is a subsidiary of Gibbs Hartley Cooper and is an approved insurance broker qualified to obtain insurance from Underwriters of Lloyd's of London ("Lloyds").

 John A. Finch, and the entities he controlled, including John Finch Associates, ltd., Levmore Finch, and Finmore Excess, Inc. (collectively referred to as "JFA" or "Finch") did business in New York, New York, as a New York State licensed excess line insurance broker. Finch had been Evvtex's broker since 1986, and had attended to all of Evvtex's jewelry insurance needs since that time. Prior to 1986 Finch had worked for several years at Lloyds and was familiar with the manner of its operation.

 Prior Proceedings

 Evvtex filed its complaint in this action on December 30, 1992 and an amended complaint on March 17, 1994 alleging breach of contract, breach of fiduciary duty, breach of duty to prevent foreseeable risk of harm, and vicarious liability based upon the acts of Finch. The action was initially assigned to the Honorable Pierre N. Leval and reassigned to this Court upon his elevation to the Court of Appeals. On March 30, 1995 summary judgment was granted dismissing Lloyds on the grounds that Hartley Cooper was acting as broker for Evvtex and as such received the sums at issue from Lloyds thus discharging its liability.

 After discovery was completed, the action was tried before the Court on November 20 and November 21, 1995, and considered submitted at that time.

 The Issue

 The acknowledged chief villain in this case is Finch, the New York insurance broker who it is conceded made off with the moneys provided by Lloyds in accordance with their underwritten policy. Both the London brokers and the insured were victimized by Finch. Both cooperated unwittingly in Finch's scheme to defraud. The issue to be resolved is which must bear the loss, an issue resolved in favor of Evvtex as a result of the relationship of the parties.

 The Facts

 In May 1991, Evvtex purchased Jewelers' Block Policy No. ZJB9012467-351 and Policy No. ZEB9100848-354 which was obtained from Finch who placed the order for the policy through Hartley Cooper with Lloyds. Evvtex had commenced doing business with Finch in 1986. The policies purchased from Lloyds were never physically delivered to Evvtex by Hartley Cooper. The policies covered the loss of goods by theft from the business premises of Evvtex for the period August 4, 1991 to August 4, 1992.

 On October 9, 1991, Evvtex made timely payment for the premium due under the policy by tendering to Finch the premium payment by check in the amount of $ 34,100 which was $ 2,000 less than the invoice submitted to Evvtex by Finch. The premium payment was deposited into Finch's account No. 3-072157 at the Merchant's Bank of New York, 62 West 47th Street, New York, New York.

 Hartley Cooper commingled in their bank accounts premium payments received from other brokers to be forwarded to insurers with claims payments received by underwriters to be transmitted to the insured. As a matter of course, and known to Hartley Cooper, Finch also commingled premium payments received from insured to be forwarded to Hartley Cooper and ultimately transferred to the underwriters with claims payments received from Hartley Cooper from the underwriters to be forwarded to the insured. Hartley Cooper maintained an ongoing account with Finch and would "set off" or "net out" premium payments owed by Finch with the claims payments forwarded to Finch.

 In 1991, Hartley Cooper was having difficulty collecting premiums paid by the assured from Finch who was behind in forwarding premiums for over two years despite the extensions of time to permit premiums collected. By the end of 1991, the Finch businesses owed Hartley Cooper approximately $ 2,000,000, despite the steps taken to alleviate the problems Hartley Cooper had had with Finch.

 London was notified of the loss, an insurance adjuster, Horizon Public Adjusters Group, Inc. ("Horizon"), was retained by Evvtex for a percentage of the settlement proceeds, and accountants prepared the necessary inventory and accounting which established the loss at over $ 830,000.

 Negotiations were conducted by insurance adjusters for the parties. On March 19, 1992 a proof of loss was submitted by Evvtex for the agreed upon amount of $ 745,204.70. The Proof of Loss required "that the check in payment of claim be made payable to the assured and Horizon Public Adjusters Group, Inc." was Evvtex's insurance adjuster. It was anticipated that payment by Lloyds would be accomplished in 60 to 90 days.

 On March 25, 1992, on Evvtex's letterhead, a letter was written to authorize Hartley Cooper to deduct a discount service fee for the advancement of Hartley Cooper funds to the assured in advance of Hartley Cooper's collection of the settlement monies from the underwriters. The letter stated, "Please advance payment of my claim as discussed. We agree on a discount service fee of 1 1/2%."

 The typeface of this March 25, 1992 letter is different from that of the typeface found on all other letters from Evvtex, and the signature is not that of David, the principal of Evvtex. David signed his full name, "David Moussazadeh," on the proof of loss, the premium check and all other documents signed in an official capacity on behalf of Evvtex. The text of the letter is skewed and appears as though the text was haphazardly taped onto a letter previously sent on Evvtex stationery.

 Evvtex did not authorize Finch to create the letter of March 25, 1992 or to transmit it to Hartley Cooper and was not informed of the letter or of the possibility of an advancement of the funds service fee. The letter, it can be inferred, was created by Finch as part of his effort to satisfy his obligation to Hartley Cooper and others. Finch faxed the March 25, 1992 letter to Hartley Cooper.

 Finch sent a handwritten fax from Finch to Geoffrey Berrill ("Berrill"), who was filling in for John Evans ("Evans"), the director of Hartley Cooper most familiar with Finch and the Evvtex matter, having discussed it with David in New York prior to the settlement. Evans was skiing in the Alps. This fax was received March 31, 1992, stating that the insured was most anxious to receive the settlement proceeds as quickly as possible and had agreed to pay Hartley Cooper a 1 1/2% discount service fee in exchange for advancing the money prior to its actual receipt from Lloyds.

 Hartley Cooper by an April 2, 1992 letter from Berrill requested "written confirmation from the client that we [Hartley Cooper] can deduct the outstanding premiums US $ 27,000 gross, being 3 installments." The April 2, 1992 letter also specified that the gross claim would be paid less the deduction for the service fee and outstanding premium. Payment was to be made to the Maxson Young bank account, attention Russ York, who would arrange for settlement including the loss payees. Maxson Young was Hartley Cooper's insurance adjuster. The April 2, 1992 letter requested the number of the bank account of Maxson Young for the transfer of the sums and a written confirmation of the insured of the deduction of the outstanding premiums.

 On April 2, 1992 Evvtex's principal, David, was skiing in the Rockies. Abraham had come from the Texas office to manage the New York office while David was away. Abraham received a fax from Finch with a cover sheet requesting that the accompanying letter be typed on Evvtex stationery and faxed back to Finch. The letter stated, "Please telex funds to account number 310264022. This is in accordance with Hartley Cooper Associates' letter 2 April 1992." Neither Abraham nor David ever saw the Hartley Cooper April 2, 1992 letter, but Abraham was informed that the letter to be transcribed onto Evvtex letterhead was a mere formality and was necessary for the processing and receipt of Evvtex's claims monies.

As per conversation with John Finch Associates amd [sic] in reference to my claim, please telex funds to Republic National Bank, 452 Fifth Avenue, New York, New York 10018, for the account of John Finch Associates, premium account, account number: 310264030
The final settlement between John Finch [sic] and Associates and Evvtex Company will take place immediately ...

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