Toussie v. Allstate Insurance Company et al

Filing 233

MEMORANDUM and ORDER: Allstates motion 229 for summary judgment is granted in its entirely and Toussies cross-motion 230 is denied. The case is dismissed with prejudice. Ordered by Judge Frederic Block on 3/5/2020. (Innelli, Michael)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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ROBERT TOUSSIE,
Plaintiff,
MEMORANDUM AND ORDER
Case No. 14-2705 (FB) (CLP)

-againstALLSTATE INSURANCE COMPANY,
ALAN RODRIGUEZ INSURANCE
AGENCY, INC., and GEORGE J.
SCHLOTT, INC.,

Defendants.
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Appearances:
For Defendant Allstate Insurance
For the Plaintiff:
Company:
AVRUM J. ROSEN
JOHN M. PENNEKAMP
Rosen Kantrow & Dillon PLLC
Fowler White Burnett P.A.
38 New Street
1395 Brickell Avenue, 14th Floor
Huntington, New York 11743
Miami, Florida 33131
BLOCK, Senior District Judge:
Robert Toussie owns property at 290 Exeter Street and at 285 Coleridge
Street in Manhattan Beach, Brooklyn. Both properties were insured by Allstate
Insurance Company and both suffered flood damage during Hurricane Sandy in
2012.
In 2010, Toussie’s premium payment was erroneously applied to the
Coleridge Street property instead of the Exeter Street property. As a result,

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Allstate paid policy limits for damage to the Coleridge Street property but denied
coverage on the Exeter Street property. Toussie sued, claiming that his single
premium payment entitled him to coverage on both properties. For the following
reasons, the Court holds, as a matter of law, that it did not.
I
Toussie’s properties were insured against flooding through the National
Flood Insurance Program (“NFIP”), under which claims are paid with federal
funds. See Palmieri v. Allstate Ins. Co., 445 F.3d 179, 184 (2d Cir. 2006). The
policies themselves are issued and administered by private insurance companies,
but they must take the form of a standard flood insurance policy (“SFIP”) set out in
federal regulations. See Jacobson v. Metro. Prop. & Cas. Ins. Co., 672 F.3d 171,
177 (2d Cir. 2012). Allstate first issued an SFIP covering the Exeter Street
property in 2003. The policy was renewed annually without incident until 2009.
On November 4, 2009, Allstate sent Toussie a renewal notice for the Exeter
Street policy. The notice advised that the policy would expire on December 19,
2009, unless Toussie paid the required annual premium of $388 by January 18,
2010. Toussie received a second such notice on December 18, 2009. In addition,
Toussie’s Allstate agent, Alan Rodriguez, sent him a fax on January 14, 2010,
advising him to pay the premium by January 17, 2010, to avoid a lapse in
coverage.
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Meanwhile, the Coleridge Street property was due to expire on December
22, 2009. Allstate sent Toussie a first renewal notice for the Coleridge Street
policy on November 6, 2009, and a second notice on December 21, 2009. As with
the Exeter Street property, the premium for the Coleridge Street property was $388
and could be paid within 30 days of the expiration date without a lapse in
coverage.
Toussie wrote one $388 check to Allstate. The check was dated January 14,
2010, and included a memo line referencing the number of the Exeter Street policy.
He delivered the check to an employee of the Rodriguez agency, who recorded the
payment in Allstate’s centralized computer system and deposited the funds into an
account shared by Allstate and the agency. A computerized receipt reflects that the
check was received on January 19, 2010. The funds were deposited on January 20,
2010.
The agency employee erroneously applied the check to the policy covering
the Coleridge Street property, which was due to lapse on January 21, 2010. This
despite a note in the computer system advising “DO NOT PROCESS RENEWAL”
of the Coleridge Street policy because it was duplicative of an older Allstate policy
on the property. The agency did not advise Toussie that a second premium
payment was due.

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Because of the agency employee’s error, Allstate considered the Exeter
Street property lapsed and did not send renewal notices for the 2010-2011 and
2011-2012 policy periods. By the same token, the error led Allstate to consider the
Coleridge Street policy paid; it sent Toussie renewal notices for the 2010-2011 and
2011-2012 policy periods. Toussie paid the required premiums for the Coleridge
Street policy for those periods but did not make any further payments on the Exeter
Street policy.
Hurricane Sandy hit the East Coast on October 29, 2012, causing flood
damage to both of Toussie’s properties. As noted, Allstate paid policy limits for
the damage to the Coleridge Street property but denied the claim for damage to the
Exeter Street property.
Toussie sued Allstate, the Rodriguez agency and George J. Schlott, Inc.,
which had purchased Rodriguez’s book of business. Toussie subsequently settled
with Schlott for $50,000.
As to Allstate, Toussie alleged claims for (1) breach of contract and (2)
vicarious liability for the Rodriguez agency’s negligence and/or breach of fiduciary
duty in processing his payment. The Court previously denied Allstate’s motion to
dismiss those claims pursuant to Federal Rule of Procedure 12(b)(6). After
discovery, Allstate and Toussie filed cross-motions for summary judgment
pursuant to Federal Rule of Procedure 56.
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II
A.

Breach of Contract
The Exeter Street policy obligated Allstate to compensate Toussie for flood

damage to that property incurred while the policy was in effect. By its terms, the
policy expired “at 12:01 a.m. on the last day of the policy term,” SFIP § VII(H)(1),
which was December 19, 2009. To renew the policy, Toussie had to pay the
renewal premium “within 30 days of the expiration date,” id. § VII(H)(2), that is,
January 18, 2010. Apparently conceding that it received the premium when the
Rodriguez agency received it, Allstate takes the position that the policy lapsed
because the premium was not received by the agency until January 19, 2010.
There is arguably a legitimate question of fact as to whether the premium
was received by the agency on the date of the check (January 14, 2010), the date of
the receipt (January 19, 2010), or some date in between. But the question is
immaterial because a payment on January 19, 2010, would have triggered
reinstatement of the policy after a 30-day waiting period. Since the loss did not
occur within that waiting period, it does not matter whether payment was received
on January 14th or January 19th.
Allstate argues that a correctly applied payment would have provided
coverage only through December 2010, almost two years before Hurricane Sandy.
It is undisputed that no premium was paid for the 2010-2011 or 2011-2012 periods.
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Allstate argues that no premium means no policy, and that no policy means no
breach of contract.
Toussie responds with a different theory of breach. He argues that Allstate
had a duty to notify him every year when his premium came due. Allstate did not
provide any such notice after 2009 because, as far as it knew, the policy had
expired without being renewed in December 2009.
The policy, however, does not mandate any renewal notice. Rather, a
federal statute requires written notice to the property owner “not less than 45 days
before the expiration of any contract for flood insurance under [the NFIP].” 42
U.S.C. § 4104a(c). That requirement is restated and elaborated in the NFIP’s
Flood Insurance Manual. But neither the statute nor the manual states that failure
to provide the notice is a breach of the policy.
Nor does the statute or manual state that that the remedy for failure to
provide a renewal notice is continued coverage despite nonpayment of the
premium. In Zeman v. Zack Agency, Inc., 429 N.Y.S.2d 444 (2d Dep’t 1980), the
Second Department interpreted New York’s statutory notice requirement to
authorize that remedy. But the court relied on specific statutory language requiring
that the premium be “billed”:
We hold that the phrase “billed to the insured” in the [statute] requires
that the insurer must actually bill the insured in order to subject the
latter to a duty to pay the premium as a condition of renewal. In the
absence of a nonrenewal notice and of a bill for a further premium, the
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liability of the insurer remains in effect, despite the failure of the
insured to pay premiums.
Id. at 447. But the NFIP is governed by federal law, not state law, and the
“billed” language does not appear in the federal statute.
Moreover, the policy itself—the terms of which are set by federal
regulations—provides a very different remedy:
If we find, however, that we did not place your renewal notice into the
U.S. Postal Service, [and i]f you or your agent notified us, not later
than one year after the date on which the payment of the renewal
premium was due, of non-receipt of a renewal notice before the due
date for the renewal premium, . . . we will mail a second bill providing
a revised due date, which will be 30 days after the date on which the
bill is mailed.
SFIP § VII(H)(3). In other words, “the very language of this provision requires the
insured to notify the insurance company that it has not received a renewal notice.”
84 Albany Ave. Realty Corp. v. Standard Fire Ins. Co., 13 F. Supp. 3d 241, 245
(E.D.N.Y. 2014). Toussie did not so inform Allstate.
In sum, there was no policy in effect at the time of Hurricane Sandy;
Toussie’s attempt to connect that circumstance to Allstate’s failure to
provide renewal notices is not supported by the policy language. Therefore,
the Court grants summary judgment to Allstate on Toussie’s breach of
contract claim.

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B.

Vicarious Liability for Negligence
Toussie’s theory fares better as a tort theory, which depends not on

policy language, but on an insurance agent’s duty to use due care in the
conduct of his or her business. That duty is usually the subject of litigation
when the agent fails to procure requested coverage, see, e.g., Bruckmann,
Rosser, Sherrill & Co. v. Marsh USA, Inc., 885 N.Y.S.2d 276, 278 (1st
Dep’t 2009), but the Court sees no reason why it could not extend to other
tasks the agent agrees to perform. “It is ancient learning that one who
assumes to act, even though gratuitously, may thereby become subject to the
duty of acting carefully, if he acts at all.” Glanzer v. Shepard, 233 N.Y. 236,
239 (1922) (Cardozo, J.).
Thus, the logic goes, the agency assumed a duty to use due care in
accepting and applying Toussie’s premium payment. Its failure to do so led
Allstate to consider the policy lapsed and, therefore, not to send renewal
notices. The lack of renewal notices led to there being no policy in effect
when Hurricane Sandy hit. Not airtight, perhaps, but plausible.
Allstate does not argue to the contrary. Instead, it argues that the
agency was Toussie’s agent, not Allstate’s, and so Allstate is not vicariously
liable for its negligence. In support, it cites 44 C.F.R. § 61.5, which states
that “representations regarding the extent and scope of coverage which are
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not consistent with the National Flood Insurance Act of 1968, as amended,
or the Program's regulations, are void, and the duly licensed property or
casualty agent acts for the insured and does not act as agent for the Federal
Government, the Federal Emergency Management Agency, or the servicing
agent.” The regulation, however, plainly refers to agency for the purpose of
making representations of coverage, and the few cases citing it have all
applied it to claims of misrepresentation.
Here, by contrast, Toussie is claiming that the agency’s employees
acted as Allstate’s agents when accepting and applying his premium
payment. That claim is supported by the undisputed facts that the agency’s
employees used Allstate’s central computer system to record the payment,
were authorized to cash Toussie’s check, and deposited the funds into an
account held jointly by the agency and Allstate. Moreover, Allstate does not
dispute that it received the payment as soon as the agency accepted the
check. Clearly, the agency was authorized to accept payments on behalf of
Allstate.
Were that the end of the inquiry, the Court would grant summary
judgment to Toussie on that issue. But Allstate points out that
misapplication of Toussie’s premium payment actually benefitted him
because it caused the Coleridge Street policy to renew for the 2009-2010
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policy period. Toussie then paid the renewal premiums for 2010-2011 and
2011-2012, and Allstate paid the policy limits after Hurricane Sandy.
The adverse and beneficial effects cancel each other out. Toussie paid
the premium on a single policy and received the limits of the Coleridge
Street policy, but nothing on the Exeter Street policy. Had his payment been
corrected applied, he would have received the limits of the Exeter Street
policy, but nothing on the Coleridge Street policy. The policy limits were
the same.
At oral argument, Toussie’s counsel argued that the agency’s error led
the Coleridge Street policy to be marked “paid,” such that no one from the
agency reminded him to pay the second premium. That is beside the point.
As noted, Allstate had a statutory duty to send him a renewal notice within
45 days of the Coleridge Street policy’s expiration. See 42 U.S.C.
§ 4104a(c). It did so and, indeed, provided a second notice a month later. In
short, Allstate did everything it was required to do with respect to providing
renewal notice.
The Rodriguez agency may well have assumed a voluntary duty to
“remind” Toussie to pay his premiums before a policy lapsed (as the agency
did for the Exeter Street policy). But unlike accepting and processing
premium payments, there is no evidence that the agency provided those
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reminders with Allstate’s authorization or on its behalf. In other words,
there is no evidence that the agency acted as Allstate’s agent in that respect
and, so, Allstate is not vicariously liable for its omissions.
As the Court explained at oral argument, it takes very seriously its
oath to see that justice is done. Allowing an insured who has paid the
premium for one policy to recover the limits of two policies is obviously an
unjust result. Law, no more than equity, should abhor a windfall Cf.
Prudential Ins. Co. v. S.S. Am. Lancer, 870 F.2d 867, 871 (2d Cir. 1989)
(“We know of no general principle of law or equity that would in any way
support what is so obviously an unjust result.”).
III
For the foregoing reasons, Allstate’s motion for summary judgment is
granted in its entirely and Toussie’s cross-motion is denied. The case is
dismissed with prejudice.
SO ORDERED.

_/S/ Frederic Block_______
FREDERIC BLOCK
Senior United States District Judge
Brooklyn, New York
March 5, 2020

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