and, if so, whether such failure created another colorable defense for Steel. The defense was by no means frivolous. Steel denied Anka's authority to bind it for the U & O risk and pointed, with some justification, to its letter to Anka dated July 7, 1959 (Exhibit 26, Document No. 17) granting Anka limited authority to bind it.
Lea contends that he acted as a reasonable and prudent insurance broker in accepting the binder from Anka in lieu of Steel's endorsement. He points to the stipulation between the parties that it is common practice in the insurance business to rely upon oral and written binders until issuance of a policy or endorsement. It was not stipulated, however, that it is common practice, or that it is reasonable and prudent, for one insurance broker to accept another broker's purported authority to bind an insurance carrier on the flimsy evidence of authority on which Lea acted here. Lea had never before dealt either with Steel or with Anka. Lea had no specific knowledge nor did he make any inquiry as to Anka's authority to bind Steel. He was not aware of Steel's letter of July 7 until AFTER the fire, consequently knew nothing either of the grant of authority or the limits on Anka's authority to bind Steel. There is no evidence of a history of prior dealings between Anka and Steel from which Lea might reasonably have inferred that Anka was authorized to bind Steel. What Lea relied on was meager indeed: that Anka's president was a reputable, experienced broker (whose company presumably would not issue binders for a carrier unless authorized to do so); that Anka had furnished to Lea a three page brochure about Steel; and finally, that the alleged binder was issued by Anka following a telephone call between Anka and an officer of Steel Insurance Co.
The telephone call referred to took place some two months after issuance of the policy. Apparently concerned over the lack of written confirmation of U & O coverage, a Lea employee visited Anka Agency. While he was there an Anka representative telephoned a Steel officer. After the telephone call the letter containing the alleged binder was issued. But the Lea employee had not participated in the telephone conversation with the Steel officer and the record does not reveal what transpired between the Anka and the Steel representatives. The letter issued by Anka contained no notation that a copy had been sent to Steel. There was nothing to indicate that Steel had been put on notice of, or had acquiesced in, the issuance of the letter "binder". A reasonable and prudent insurance broker would not have relied on such a "binder" without more evidence and assurance of authority.
Apart from the unreasonable reliance upon Anka's purported authority, Lea failed to exercise reasonable care AFTER the issuance of the alleged binder. The "binder" was dated November 16, 1959. The fire occurred some 40 days later. In that interval, Lea had obtained neither an endorsement from Steel, nor written confirmation of the "binder". The passage of such a period of time was particularly significant in light of the printed condition on the formal binder ISSUED BY STEEL (Exhibit "G", Document No. 16) that it was only effective until and expired at noon on the 31st day following the effective date of the binder. Since the formal binder issued by Steel was, by its terms, effective only for 31 days, Lea did not exercise reasonable care in relying, for a period of time longer than 31 days, upon an informal binder issued by an alleged agent, without written confirmation from the principal.
(c) WITHHOLDING OF INFORMATION BY PLAINTIFFS.
Lea contends that, even assuming he was derelict in failing to obtain the endorsements naming Bargain City and providing Use and Occupancy coverage, he may nevertheless not be held liable to plaintiffs since their loss was not due SOLELY to Lea's breaches. It is Lea's position that one of the major defenses asserted by Steel in the suits against it was that the policy was obtained by the deliberate or negligent withholding by plaintiffs of information of Sun Ray's and Bargain City's loss history, and contends therefore:
"If one of the meaningful defenses of the insurance carrier is not related to any action of the broker, the insured cannot recover against the broker for the difference between the settlement figure and the policy limits since there is no method or evidence whatsoever to demonstrate the influence of each defense upon the settlement." (Defendant's brief, page 13.)
This contention is based upon counsel's interpretation of Hilton v. Federated Brokerage Group, Inc., 30 Misc.2d 503, 213 N.Y.S. 2d 171 (1961). It will not be necessary to consider whether the quoted portion of defendant's brief is an accurate statement of the law since I conclude that Steel's defense was attributable to Lea's conduct. Plaintiffs reasonably relied upon Lea to tell them what information was required in connection with the placing and the maintaining of policies of insurance. From correspondence
it appears that Lea was concerned with and sought from plaintiffs only information relating to locations and value of the contents of the Sun Ray and Bargain City stores. Plaintiffs furnished such information as Lea requested of them, albeit at times tardily. There were no direct dealings at any time between Steel and plaintiffs. Whatever information Steel required of plaintiffs it sought and obtained through Lea, and plaintiffs, in turn, relied upon Lea to inform them what information was required. If prior loss history was of importance in placing the policy, it was Lea's responsibility to know that and it was Lea's duty to seek out the information from plaintiffs. Consequently, if there was any substance whatsoever to Steel's defense concerning the failure to furnish information as to prior loss history, that defense was likewise attributable to Lea's fault.
(d) POLICY INTENDED TO COVER ONLY RETAIL STORES.
This was another defense asserted by Steel but neither side in this case has commented much upon it. Steel contended that the policies were intended to apply only to outlets of Retail Stores, not to locations of Bargain City or Sun Ray. If there was any merit at all in that defense it would appear clearly to be due solely to the fault of Lea. There is no room for dispute on that issue in this record. Plaintiffs and Lea clearly intended coverage for Sun Ray and Bargain City stores. It was Lea's responsibility to obtain such coverage from the carrier.
Lea breached the duty of care which he, as an insurance broker, owed to the plaintiffs, his clients. Lea's breach of duty gave rise to all of the insurance company's colorable defenses to plaintiffs' suit on the policy, causing plaintiffs substantial loss for which they are entitled to an award of damages against Lea.
Plaintiffs' motion for judgment on the record will be granted. Defendant's motion for judgment will be denied.
AND NOW, this 28th day of September, 1967, it is ORDERED that the Motion of defendants, Harry R. Lea and Roslyn T. Lea. co-partners trading as Harry R. Lea & Company, for Judgment be and it is hereby DENIED.
It is FURTHER ORDERED that the Motion of plaintiffs, Consolidated Sun Ray, Inc., Sun Ray Drug Co. and Bargain City U.S.A., Inc. for Judgment be and it is hereby GRANTED and judgment is entered in their favor against defendants, Harry R. Lea and Roslyn T. Lea, co-partners trading as Harry R. Lea & Company, in the sum of Five Hundred Eighty Thousand and Twenty-three ($ 580,023) Dollars.