RICH v. BRANDYWINE INSURANCE ADVISORS, LLC et al

Filing 50

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MICHAEL M. BAYLSON ON 3/9/17. 3/10/17 ENTERED AND COPIES E-MAILED.(kw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
DAVID RICH
Plaintiff,
v.
BRANDYWINE INSURANCE
ADVISORS, LLC, and BARRY ABRAMS
CIVIL ACTION

Defendants,
NO. 16-3965

TRIGEN INSURANCE SOLUTIONS,
INC., as successor in interest to
BRANDYWINE INSURANCE
ADVISORS, LLC,
Third-Party Plaintiff,
v.
CENTRAL INSURANCE AGENCY, INC.
Third-Party Defendant.

MEMORANDUM RE: CENTRAL INSURANCE AGENCY, INC.’S MOTION TO DISMISS
BRANDYWINE INSURANCE ADVISORS, LLC’S THIRD-PARTY COMPLAINT
Baylson, J.

I.

March 9, 2017

Introduction
This case involves a dispute over where blame lies for the purchase of an insurance

policy that failed to provide the coverage the plaintiff wanted. Plaintiff David Rich (“Plaintiff”)
brings this action against Brandywine Insurance Advisors 1 (“BIA”) and Barry Abrams, an
insurance broker for BIA (“Abrams,” and collectively, “Original Defendants”). Plaintiff’s
Complaint (ECF 1, “Compl.”) contains four Counts:

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Trigen Insurance Solution, Inc. (“Trigen”), which is the parent company of BIA, joined
this action as successor-in-interest to BIA on November 23, 2016. (ECF 27). For purposes of
this memorandum, the Court will refer to both Trigen and BIA as BIA.
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(1)
(2)
(3)
(4)

Breach of fiduciary duty;
Negligence;
Negligent Misrepresentation; and
Fraud.

(Compl. ¶¶ 89-152).
On September 23, 2016, BIA filed a Third-Party Complaint (“T-P Compl.”) against
Central Insurance Agency, Inc. (“Central”), an insurance advisor with which BIA consulted, for
contribution and indemnification. On December 9, 2016, Central filed a Motion to Dismiss
BIA’s Third-Party Complaint pursuant to Federal Rules of Civil Procedure 14(a) and 12(b)(6),
(ECF 29, “Central’s Mot.”), to which BIA filed an Opposition on January 11, 2017 (ECF 42,
“BIA’s Opp’n”).
For the following reasons, Central’s Motion to dismiss BIA’s Third-Party Complaint will
be DENIED in part and GRANTED in part.
II.

Factual Background
The following facts are taken from the Complaint and Third-Party Complaint, and are

accepted as true for purposes of the pending motion. See Fed. R. Civ. P. 12(b)(6); United States
Express Lines, Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002). In the Spring of 2013, Plaintiff
met Steven Peterson (“Peterson”), who was engaged in the business of providing “vaulting
services” for ATMs in the New York City metropolitan area. Vaulting services involve
supplying and loading ATMs with various denominations of cash, which is then dispensed to
customers who draw out money utilizing their bank cards. (Compl. ¶¶ 10-14).
In April 2013, Plaintiff decided to provide secured loans to Peterson’s ATM vaulting
business (the “Vaulting Loans”). (Id. ¶¶ 20-25). According to Plaintiff, an “explicit
precondition and term of the Vaulting Loans” was that their proceeds were to be used

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exclusively as working capital—specifically, as vaulting cash—for Peterson’s ATM vaulting
business, and not for business expenses or other overhead. (Id. ¶¶ 26-27).
In early 2014, Peterson requested additional loans from Plaintiff. Plaintiff worried that
Peterson could abscond with funds in the vaulting accounts, however, and wanted to protect his
investment with insurance. (Id. ¶¶ 30-32). Before making further loans to Peterson, Plaintiff
required that he obtain “proper business insurance,” including, inter alia, “(i) employee theft and
dishonesty coverage (to, among other things, cover theft and dishonesty by Peterson)[.]” (Id. ¶
33). Accordingly, Peterson obtained the Original Defendants as insurance brokers to obtain the
coverage Plaintiff requested. (Id. ¶ 34).
Plaintiff made it clear to Original Defendants that he wanted an insurance policy that
would protect his interest—i.e. make him the “loss payee or other form of beneficiary”—against
theft and dishonesty by employees, including—specifically—Peterson. (Id. ¶¶ 40-41). The
Original Defendants represented to Plaintiff that they could obtain a commercial insurance policy
(the “Policy”) which would name Plaintiff as the loss payee and would protect his interest
against theft and dishonesty by employees, including Peterson. (Id. ¶¶ 44-46). In the Spring of
2014, in reliance on the Original Defendants’ representations to Plaintiff, the ATM vaulting
business obtained the Policy. (Id. ¶ 47). Despite Plaintiff’s instructions, however, the Policy did
not include Plaintiff as a loss payee, an insured, or other form of beneficiary. (Id. ¶ 48).
Thereafter, the Original Defendants, both orally and in writing, repeatedly assured
Plaintiff that the Policy protected and insured him against theft or dishonesty by Peterson. (Id.
¶¶ 50-53). Because of those assurances, in July 2014, Plaintiff requested, through the Original
Defendants, that the Policy coverage for employee theft and dishonesty be raised to $2,250,000,
which it was. (Id. ¶¶ 54-55). Plaintiff also made additional loans and advances to Peterson’s

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ATM vaulting business in reliance upon the Original Defendants’ representations. (Id. ¶ 56).
Plaintiff was not officially added as a loss payee of the Policy, however, until December 2014.
(Id. ¶ 58).
In November 2014, Peterson admitted to Plaintiff that he had misappropriated about
$900,000 from the ATM vaulting business, of which $833,835 he could not return to the vaulting
funds (the “Theft”). (Id. ¶¶ 60, 65, 67). Upon learning of the Theft, Plaintiff immediately
contacted the Original Defendants, who assured him that the losses to the ATM vaulting business
due to the Theft were covered by the Policy. (Id. ¶¶ 61-63).
In June 2015, after an investigation and numerous discussions with the Original
Defendants, Plaintiff filed a claim as a loss payee under the Policy to recover for the Theft. (Id. ¶
70). His claim, however, was rejected because—contrary to the explicit representations and
assurances of the Original Defendants—the Policy did not cover losses resulting from theft or
dishonesty of Peterson because Peterson was an owner of the ATM vaulting business.
Unbeknownst to Plaintiff, the Policy expressly excepted from coverage any theft committed by
owners of the ATM vaulting business. (Id. ¶¶ 71-72).
In June 2016, while preparing to bring the instant action, Plaintiff learned that, at all
relevant times, Abrams (1) had been convicted of felony insurance fraud and perjury in
Pennsylvania, and, (2) as a result of that conviction, had his insurance license revoked, such that
he was unlicensed while acting as an insurance broker and agent of BIA. (Id. ¶¶ 78-80).
In the Third-Party Complaint against Central, BIA alleges that beginning early 2014,
“when endeavoring to find suitable commercial crime insurance coverage for the ATM vaulting
business, BIA consulted with [Central]” in exchange for the payment of a commission. (T-P
Compl. ¶¶ 12, 15). Stephen A. Ormsby (“Ormsby”), a representative of Central, “proposed the

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Policy to BIA as being one which would meet the commercial crime insurance needs of the
ATM [v]aulting [b]usiness,” specifically that “any theft of monies from the ATM [v]autling
[b]usiness by Peterson, the business’ owner, would be covered under the Policy.” (Id. ¶¶ 13-14).
According to BIA, in reliance on Central’s professional advice with respect to the scope of the
coverage that the Policy provided, BIA recommended the Policy to the ATM vaulting business,
which it purchased, effective June 5, 2014. (Id. ¶ 16). BIA alleges that, “[t]o the extent
[Plaintiff] sustained any loss or damage for which BIA is determined to be liable, the loss or
damage was proximately caused by the negligence and/or negligent misrepresentations of
[Central], through which BIA procured the Policy for the ATM Vaulting Business.” (Id. ¶ 11).
I.

Procedural History & Jurisdiction
Plaintiff filed his Complaint on July 22, 2014. On September 9, 2016, BIA filed an

Answer (ECF 9), which denied the allegations in the Complaint, and asserted forty-one
affirmative defenses and certain cross-claims. On September 23, 2016, BIA filed a Third-Party
Complaint against Central.
On October 7, 2016, Abrams filed an Answer to Plaintiff’s Complaint (ECF 17), which
also denied the allegations in the Complaint, and asserted twenty-eight affirmative defenses and
certain cross-claims. That day, Abrams also filed an Answer to BIA’s cross-claims. (ECF 18).
On December 9, 2016, Central filed the instant Motion to Dismiss BIA’s Third-Party
Complaint, to which BIA filed an Opposition on January 11, 2017.
On December 21, 2016, the Court granted leave for the Original Defendants to jointly file
a Third-Party Complaint against Peterson. (ECF 39).

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This Court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(1) because Plaintiff’s
citizenship (Pennsylvania) differs from that of each defendants’ (New York), and the amount in
controversy exceeds $75,000.
II.

Discussion
a. When Third-Party Joinder is Proper Under F.R.C.P. 14(a)
The parties dispute whether Central was properly joined as a third-party defendant,

pursuant to Rule 14(a).
As stated above, in this case, the Court exercises its diversity jurisdiction. In a diversity
case, while the nature of the interest sought to be enforced is determined by state substantive law
(here, Pennsylvania) 2, see Erie R. R. Co. v. Tompkins, 304 U.S. 64 (1938), the issue of joinder
is a matter of federal law. See Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S.
102, 105 (1968). Thus, the Court applies the federal joinder standard in this action, which
provides,
A defending party may, as third-party plaintiff, serve a summons
and complaint on a nonparty who is or may be liable to it for all or
part of the claim against it. But the third-party plaintiff must, by
motion, obtain the court’s leave if it files the third-party complaint
more than 14 days after serving its original answer. 3
Fed. R. Civ. Pro. 14(a)(1).
In determining whether a third-party complaint was properly brought under Rule 14, a
court looks to whether the pleadings provide a basis for the third-party defendant’s liability to the
defendant/third-party plaintiff. See Morris v. Lenihan, 192 F.R.D. 484, 488 (E.D. Pa. Jan. 10,
2000). Rule 14, however, does not provide an independent legal basis for a third-party cause of

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The parties do not dispute that Pennsylvania substantive law applies.
Original Defendants filed the Third-Party Complaint on September 23, 2016, which was
within 14 days of their September 9, 2016 Answer. (ECF 9, 16).
3

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action; it merely provides the procedural mechanism for the assertion of such a claim under
recognized substantive law. Id. A court must apply the governing substantive law (here, the law
of Pennsylvania), to determine whether there is a substantive basis for defendants’ third-party
complaint.
In this case, the Third-Party Complaint asserts that “BIA is entitled to indemnity and/or
contribution from [Central].” (T-P Compl. ¶ 20). Accordingly, the Court must look to the law of
indemnity and contribution in Pennsylvania.
i. Indemnification
Central moves to dismiss BIA’s Third-Party Complaint on the basis that BIA has failed to
state a claim for indemnification. “Under Pennsylvania law, indemnity is available only from
those who are primarily liable to those who are merely secondarily or vicariously liable.” In re
One Meridian Plaza Fire Litigation, 820 F. Supp. 1492, 1496 (E.D. Pa. 1993). “Indemnity, if
applicable, would shift the entire liability for plaintiff’s loss from a third-party plaintiff to thirdparty defendant.” Id. Indemnification is a right “which enures to a person who, without active
fault on his own part, has been compelled, by reason of some legal obligation, to pay damages
occasioned by the initial negligence of another, and for which he himself is only secondarily
liable.” TVSM Inc. v. Alexander & Alexander, Inc., 583 F. Supp. 1089, 1091 (E.D. Pa. 1984)
(emphasis added) (citing Builders Supply Co. v. McCabe, 77 A.2d 368 (Pa. 1951)). “Indemnity
is a narrow form of relief extended in limited circumstances. Liability will not be shifted simply
because another party bears some fault.” Merrill Lynch, et al. v. Staiman, 771 F. Supp. 102, 105
(E.D. Pa. Aug. 15, 1991).
Here, BIA’s Third-Party Complaint fails to state a claim for indemnification. First, BIA
has not alleged that it has any legal relationship with Central (e.g. employer/employee or
principle/agent) whereby Central would be liable for the conduct of BIA. See Morris v. Lenihan,
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192 F.R.D. 484, 489 (E.D. Pa. May 2, 2000) (listing examples of relationships where
indemnification is appropriate, and holding that “[n]othing in the instant third-party complaint
indicates the existence of a relationship . . . that . . . would legally require the [third-party
defendants] to pay damages for which [the original defendants] were liable.”).
Additionally, indemnity is not available where, as here, the third-party plaintiff had some
“active fault” in the damage done to the injured party. McCabe, 77 A.2d at 370. The relevant
question, with respect to indemnity, is not who bears “primary responsibility,” but rather
“whether the party seeking indemnity . . . had any part in causing the injury.” Morris, 192
F.R.D. at 489 (quoting Sirianni v. Nugent Bros., Inc., 509 Pa. 564, 571 (1986)). BIA alleges that
it is entitled to indemnity from Central because BIA’s advice to Plaintiff regarding the Policy
was based on advice it, in turn, relied upon from Central, such that Central—not BIA—
proximately caused Plaintiff’s injury. (T-P Compl. ¶¶ 18-20; BIA’s Opp’n at 6-7).
However, accepting BIA’s allegation of proximate causation as true, Plaintiff’s
Complaint still adequately alleges that BIA “had a[] part in causing [Plaintiff’s] injury.” Morris,
192 F.R.D. at 489. For instance, BIA’s reliance on Central’s advice could have, in and of itself,
constituted negligent conduct to Plaintiff, as could BIA’s decision to allow Abrams, an
unlicensed broker, to act as its agent in advising Plaintiff. (See, e.g., Compl. ¶¶ 49-50; Central’s
Mot. at 13-14); Resolution Trust Corp. v. KPMG Peat Marwick, No. 92-cv-1373, 1993 WL
211555, at *2 (E.D. Pa. Jun. 8, 1993) (“[Defendant] cannot qualify for indemnification” because
“[defendant’s] alleged conduct in failing to perform accounting services as set forth in the
[plaintiff’s] Complaint . . . constitutes active negligence.”).
While BIA relies on Herndon Borough Jackson Tp. Joint Mun. Authority v. Pentair Pump
Group, No. 12-cv-1116, 2015 WL 2166097 (M.D. Pa. May 8, 2015), this case is both easily

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distinguishable and not binding on this Court. There, Herndon Borough, which “moves
wastewater through various pump stations,” alleged that Pentair installed inferior parts in a water
pump, which caused significant damage to Herndon Borough. Pentair filed a third-party
complaint against Larson Design Group, Inc., alleging that it was Larson’s negligent
misrepresentation of the design of the sewage plant—“and not any alleged defects in the
pumps”—that caused the damage. Id., at *1. The court found that “a thorough reading of the
Third Party Complaint evidences” an indemnity claim because “absent Larson’s initial
negligence, Pentair’s equipment would have operated as expected, and no liability could have
been imputed to Pentair.” Id., at *5. Importantly, there, unlike here, the court concluded that
Pentair “justifiably relied” on Larson’s faulty information, meaning it was convinced that Pentair
had no “active fault” in causing Herndon Borough’s injury. As explained above, the same
cannot be said of BIA.
Accordingly, BIA has not stated a claim for indemnification, and Central’s motion to
dismiss will be granted with prejudice with respect to that claim.
ii. Contribution
Central also moves to dismiss BIA’s Third-Party Complaint on the basis that BIA has
failed to state a claim for contribution. The Pennsylvania Uniform Contribution Among
Tortfeasors Act (the “Uniform Act”) provides a right for contribution among joint tortfeasors.
42 Pa. C.S.A. § 8324(a). “Joint tortfeasors are defined as ‘two or more persons jointly or
severally liable in tort for the same injury to persons or property[.]’” Mattia v. Sears, Roebuck &
Co., 366 Pa. Super. 504, 507, 531 A.2d 789, 791 (1987) (quoting 42 Pa. C.S.A. § 8322). “Two
actors are jointly liable for an injury if their conduct causes a single harm which cannot be
apportioned . . . even though [the actors] may have acted independently.” Id. (internal citations
omitted). As the Pennsylvania Superior Court explained in Svetz for Svetz v. Land Tool Co.,
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“[i]t matters not on which theory a tortfeasor has been held responsible for the tort committed
against the plaintiff. So long as the party seeking contribution has paid in excess of his or her
share of liability, it would be inequitable under the [Uniform] Act to deny that party’s right to
contribution from a second tortfeasor who also contributed to the plaintiff’s injury.” 355 Pa.
Super. 230, 238, 513 A.2d 403, 407 (1986). Accordingly, whether BIA has stated a claim for
contribution against Central depends upon whether it has sufficiently alleged that Central
committed a tort against Plaintiff such that Central and BIA were “joint tortfeasors.”
Central argues that BIA has not stated a claim for contribution for two reasons. First, it
argues that BIA “cannot, as a matter of law, establish that Central owed [Plaintiff] a duty of
care.” (Central’s Mot. at 15). Without owing a duty of care to Plaintiff, the argument follows,
Central could not be a “joint tortfeasor” because it could not have committed a tort against him at
all. (Id.). Second, Central argues that BIA is not entitled to contribution as a matter of law with
respect to BIA’s fiduciary duty and fraud claims, since those claims involve intentional torts, and
parties are “not entitled to contribution with respect to intentional torts.” (Id.)
BIA counters that the Third-Party Complaint should not be dismissed because, under
Pennsylvania law, “a professional who provides information to another, with knowledge that the
information will be used and/or relied upon by third-parties, owes a duty of reasonable care to
those third-parties,” and “[Central] was well aware that its professional opinion about the scope
of coverage provided under the Policy would be relied upon by BIA and, in turn, by the ATM
Vaulting Business.” (BIA’s Opp’n at 7).
BIA relies primarily on Bilt-Rite Contractors, Inc. v. The Architectural Studio, 581 Pa.
454, 866 A.2d 270 (2005), in support of its argument that it has adequately alleged that it is
entitled to contribution from Central as a “joint tortfeasor.” There, the Supreme Court of

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Pennsylvania considered, as a matter of first impression, “whether a building contractor [BiltRite] may maintain a negligent misrepresentation claim against an architect [TAS] for alleged
misrepresentations in the architect’s plans for a public construction contract [for East Penn
School District], where there was no privity of contract between [TAS] and [Bilt-Rite], but [BiltRite] reasonably relied upon the misrepresentations in submitting its winning bid [to East Penn
School District] and consequently suffered purely economic damages as a result of that reliance.”
Id. at 456. In holding that it did, the court adopted Section 552 of the Restatement (2d) of Torts 4
“as the law in Pennsylvania in cases where information is negligently supplied by one in the
business of supplying information, such as an architect or design professional, and where it is
foreseeable that the information will be used and relied upon by third persons, even if the third
parties have no direct contractual relationship with the supplier of information.” Id. at 483. It
further clarified that “Section 522 imposes a duty of reasonable care upon the supplier of
professional information for use by others,” and “the absence of privity does not defeat a section
552 claim.”

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§ 552 Information Negligently Supplied for the Guidance of Others
(1) One who, in the course of his business, profession or employment, or in any other transaction
in which he has a pecuniary interest, supplies false information for the guidance of others in
their business transactions, is subject to liability for pecuniary loss caused to them by their
justifiable reliance upon the information, if he fails to exercise reasonable care or competence
in obtaining or communicating the information.
(2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss
suffered
(a) by the person or one of a limited group of persons for whose benefit and guidance he
intends to supply
the information or knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the information to influence or
knows that the recipient so intends or in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the information extends to loss suffered
by any of the class of persons for whose benefit the duty is created, in any of the transactions in
which it is intended to protect them.
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Following Bilt-Rite, BIA is correct that, under Pennsylvania law, Central could be liable
to Plaintiff for negligence or negligent misrepresentation despite the fact that Plaintiff and
Central were not in privity (i.e., had no contractual relationship). BIA’s Third-Party Complaint
adequately alleges that Central was “in the business of supplying information,” and that it was
“foreseeable that the information [Central provided to BIA] would be used and relied upon by
[Plaintiff], even if [Plaintiff] ha[d] no direct contractual relationship with [Central].” Bilt-Rite,
581 Pa. at 286; (see T-P Compl. ¶¶ 11-18).
Central’s brief does not persuade the court otherwise. Importantly, Central does not even
cite Bilt-Rite, nor attempt to distinguish it. Instead, Central relies on Gibbs v. Ernst, 538 Pa. 193,
210, 647 A.2d 882, 890 (1994), which stands for the broad proposition that “any action in
negligence is premised on the existence of a duty owed by one party to another.” Gibbs does not
hold that no such duty exists under the circumstances present in this case. In fact, the Court in
Gibbs, recognizing that “[a]n important element of duty is foreseeability,” held that an adoption
agency had a duty to disclose an adopted child’s medical history to adopting parents given the
“unique relationship between the adoption agency and the prospective parents.” Id.
Having concluded that BIA has adequately alleged that Central was a “joint tortfeasor”
under a theory of negligent misrepresentation such that BIA may be entitled to contribution, the
Court need not meaningfully engage with Central’s second argument, that BIA is not, as a matter
of law, entitled to contribution for its alleged intentional torts against Plaintiff. Svetz, 355 Pa.
Super. at 238 (“Contribution is available whenever two or more persons are jointly or severally
liable in tort, irrespective of the theory by which tort liability is imposed.”). The Court notes,
however, that Central mischaracterizes the law to the extent it argues that, under Pennsylvania
law, “a party is not entitled to contribution with respect to intentional torts.” (Central’s Mot. at

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15). See, e.g., Euro Motorcars Germantown Inc. v. Manheim Remarketing, Inc., No. 13-cv7614, 2015 WL 798969, at *7-8 (E.D. Pa. Feb. 25, 2015) (“I conclude that Pennsylvania
appellate courts would . . . hold that the contribution statute [the Uniform Act] permits a
contribution remedy for intentional tortfeasors.’”).
Accordingly, BIA has stated a claim for contribution, and Central’s motion to dismiss
will be denied with respect to that claim.
III.

Conclusion
For the reasons stated above, Central’s Motion to Dismiss will be GRANTED as to

BIA’s indemnification claim, and DENIED as to BIA’s contribution claim.
An appropriate Order follows.
O:\Jessica.2016\16-cv-3965, Rich v. Brandywine\Memo Re Motion to Dismiss Third Party Complaint.docx

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