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GOLDSTEIN v. MILTON BROKERAGE ASSOCS.

March 17, 1986

IRVIN GOLDSTEIN, DAVID GOLDSTEIN, JAY GLICKMAN, LAWRENCE NEEDLE
v.
MILTON BROKERAGE ASSOCIATES, et al.



The opinion of the court was delivered by: HUYETT

 HUYETT, J.

 Plaintiffs have moved for partial summary judgment in this professional liability action against Milton Brokerage Associates, Inc., their former insurance broker. In this motion, plaintiffs seek a determination that defendant Milton was negligent per se in failing to comply with the Pennsylvania Surplus Lines Law, 40 Pa. Stat. Ann §§ 1006.1-.19 (Purdon 1971) (the Law). As explained below, I will deny the motion because of the existence of factual issues concerning proximate cause. I do agree with plaintiffs, however, that third-party defendant Fred Rosenberg acted as an agent of Milton, so that the brokerage company must be responsible for his dealings with plaintiffs.

 Plaintiffs, owners of residential rental properties in the Philadelphia area, brought this action for declaratory judgment and damages against Milton, a New York insurance broker. In turn, Milton has asserted claims for contribution and indemnity against third-party defendants Allied Programs Corporation, an insurance marketing firm, and Rosenberg, a broker formerly affiliated with Milton. The case arises out of an insurance contract between plaintiffs and Ambassador Insurance Company, which is now insolvent. Plaintiffs seek a declaration that Milton should reimburse them (up to the limits of their policy with Ambassador) for any liability that they may incur as a result of the insolvency of their former insurer.

 II. FACTUAL BACKGROUND

 Plaintiffs obtained insurance coverage from Ambassador beginning in December 1980. Before that, they were insured by Monarch Insurance Company, an insurer licensed in Pennsylvania. In purchasing the Ambassador policy, plaintiffs dealt with Rosenberg as well as with others at Milton. Plaintiffs sought to switch their coverage from Monarch at least in part because of their concern about obtaining a lower premium. The Ambassador policy, which was renewed once, remained in effect through December 1983.

 In June of 1980, Rosenberg and Milton signed a contract in which they agreed to split evenly all commissions generated by his sales efforts. The agreement provided that Milton would collect the commissions, keep 50% of each, and pay Rosenberg the other 50%. Rosenberg worked out of Milton's New York City office, and under the terms of the contract, he also had use of Milton's supplies, including stationery and business cards bearing Milton's name. In addition, Milton provided Rosenberg with clerical assistance, including typing, billing, and telephone answering. Rosenberg kept his client files in the office where Milton employees had easy access to them. Finally, Milton had veto power over any business solicited by Rosenberg.

 Rosenberg worked closely with Milton personnel, including Phyllis Popper, who was both a major shareholder and the president of the brokerage firm. In particular, Rosenberg and Popper worked together on plaintiffs' account. Popper discussed proposed coverage with Rosenberg, and then sought to obtain a policy through Allied. Allied gave Popper price quotes regarding coverage by two insurers licensed in Pennsylvania. Popper met with and spoke to plaintiff Irvin Goldstein on more than one occasion. And when coverage was finally placed with Ambassador, she was aware of the fact as well as that the company was not licensed in Pennsylvania.

 Goldstein paid Rosenberg a consulting fee on top of his commission. Rosenberg retained the full amount of this consulting fee, although Milton collected its usual 50% of plaintiffs' commission. Rosenberg did not receive a consulting fee for each client whom he served. In an affidavit filed with this motion, Goldstein said that he considered Rosenberg to be a representative of Milton.

 In December 1984, a Vermont court found Ambassador insolvent, and ordered it to be liquidated. That decision is now on appeal. Six lawsuits have been filed against plaintiffs for risks covered in the Ambassador policy. Plaintiffs seek to have Milton cover any judgments that may be obtained against them in those suits (up to the policy's limit of one million dollars per year).

 III. STATUTORY BACKGROUND

 Pennsylvania's Surplus Lines Law deals with the insuring of Pennsylvanians by companies not licensed as insurers in the state - - companies known as "surplus lines insurers." The statute requires that those operating in Pennsylvania under its provisions fulfill certain duties. It imposes obligations on the "producing broker" and the "surplus lines agent," both of whom must be licensed by the Insurance Commissioner of Pennsylvania. The Law defines a "producing broker" as the individual or corporation who acts "as a representative of the insured . . . in a transaction involving placement of insurance coverage with an unlicensed insurer"; and it defines a "surplus lines agent" as the individual or corporation who "effect[s] placement of insurance coverage with an unlicensed insurer." 40 Pa. Stat. Ann. § 1006.2(2)-(3). In this case, plaintiffs' producing broker was Rosenberg/Milton, *fn1" and their surplus lines agent was Allied, which arranged for the coverage to be purchased from Ambassador.

 Under the Law, insurance can be issued by surplus lines carriers only if "at least three licensed insurers, all of which actually issue insurance on the class in question in their normal course of business, have declined to insure the particular risk." § 1006.4(b). These refusals to insure are referred to as declinations. If a policy is issued by a surplus lines carrier, both the producing broker and the surplus lines agent "must execute written declarations . . . the producing broker as to his having made a diligent effort to procure the desired coverage from licensed ...


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