Opinion
No. X07-CV02 0078855S
June 2, 2003
MEMORANDUM OF DECISION
Employers Reinsurance Corporation ("ERC") moves for summary judgment in this declaratory judgment action in which it seeks a determination that it has no duty to defend and indemnify its insured's agent, Anthony Muro, Jr. ("Muro"), for claims made against Muro relative to his unprofessional advice and investing of his clients' funds in fraudulent promissory notes. ERC asserts that it is entitled to judgment as a matter of law because the insurance contract fails to cover Muro's conduct in advising his clients to remove their funds from annuities and purchase the worthless promissory notes. The plaintiff further asserts that even if the court finds that Muro's acts arise out of the conduct of his business in rendering services for others as a licensed life, accident and health insurance agent, the sale of the promissory notes by Muro is specifically excluded under the policy.
Summary judgment shall be granted if the pleading and documentary proof submitted demonstrates that no genuine dispute of material fact exists and that the movant is entitled to judgment as a matter of law. Practice Book § 17-49.
The following facts are undisputed. Muro was, at all relevant times, an insurance broker licensed to sell life insurance in the State of Connecticut. Throughout 1997, 1998 and 1999, Muro approached some of his clients, including the intervening defendants, Louis and Marie Palizza, Robert and Shirley Lefebvre, Mark and Mary Waxenberg, and Robert and Virginia Pitruzello, and advised them to liquidate their investments in annuities and/or insurance policies in order to reinvest the proceeds in certain promissory notes. The notes turned out to be part of a Ponzi scheme and worthless due to the collapse, insolvency, liquidation and/or bankruptcy of the corporations obligated under the notes.
The Palizzas, Lefebvres, Waxenbergs and Pitruzellos commenced separate lawsuits against Muro for their losses. As a result of the claims made under the subject policy, ERC provided Muro with a defense to the claims but expressly reserved its rights to deny coverage on the grounds that no coverage existed for these losses and that the policy excluded coverage for the losses.
At all times relevant herein, Muro was insured through Midland National Life Insurance Company for "Insurance Agents and Brokers Professional Liability" by ERC under Policy No. LEO-89809-2. In Section I.a, the insurance contract restricts coverage to damages "arising out of the conduct of the business of the insured agent in rendering services for others as a licensed life, accident and health insurance broker." Thus, the field of coverage is not only bounded by "conduct of the business of the insured agent," but is further limited to that portion of the business of insurance agency rendered as a " licensed life, accident and health insurance broker." (Emphasis added.)
The defendants argue that there is a factual dispute as to whether Muro was acting in the business of an insurance agent in advising his clients to surrender their annuities and invest in the promissory notes. Although there is no definition of "insurance" or "business of insurance" in the subject insurance policy, the absence of such a definition does not create a factual issue to be resolved by the hearing of evidence, as the policy only applies to services which an insurance agent can be licensed to provide. This issue of what a licensed insurance agent can do is fully determined by statute and, therefore, is a matter of law.
Connecticut General Statutes § 38a-702a provides the following definitions regarding licensure of insurance agents:
(1) "Agent" or "insurance agent" means an insurance producer appointed by an insurer to act on the insurer's behalf pursuant to section 38a-702m . . . (5) "Insurance" means any of the lines of authority contained in this title . . . (8) "License" means a document issued by the commissioner authorizing a person to act as an insurance producer for the lines of authority specified in the document. The license itself does not create any authority, actual, apparent or inherent, in the holder to represent or commit an insurance carrier.
Connecticut General Statutes § 38a-1 (11) defines an insurer as a person doing "any kind or form of insurance business." C.G.S. § 38a-1 (10) defines insurance as
any agreement to pay a sum of money, provide services or any other thing of value on the happening of a particular event or contingency or to provide indemnity for loss in respect to a specified subject by specified perils in return for a consideration. In any contract of insurance, an insured shall have an interest which is subject to a risk of loss through destruction or impairment of that interest, which risk is assumed by the insurer and such assumption shall be part of a general scheme to distribute losses among a large group of persons bearing similar risks in return for a ratable contribution or other consideration.
Accordingly, "the legislature defines insurance as the assumption of another's risk for profit." Doucette v. Pomes, 247 Conn. 442, 456 (1999). In Doucette our Supreme Court found that "The fact that a self-insuring employer has chosen to retain its own workers' compensation risk rather than purchase insurance does not transform a company's business to that of insurance, that is, the employer is not `doing any kind or form of insurance business' within the meaning of § 38a-1 (11)." Id., 457. Inversely, just because Muro is a licensed insurance agent, this status in itself does not qualify all of his conduct as being in the "business of insurance." The plaintiffs could not reasonably argue that an insurance agent selling a motor vehicle to a client was acting in the "business of insurance" simply by virtue of his status as an insurance agent. In Doucette, the Court evaluated the acts of the employer based on the statutory definitions, rather than on any evidentiary findings. In the present case, Muro's brokering of promissory notes failed to involve the assumption of another's risk for profit, as contemplated by the legislature's definition of "insurance" under § 38a-1 (10) and, consequently, is not the doing of insurance business under § 38a-1 (11).
The intervening defendants also argue that even if Muro's assistance in purchasing the feckless promissory notes falls outside licensable activity for an insurance agent, his bad advice regarding the surrender of their annuities was just such a sanctioned function, and, therefore, coverage applies to Muro's unprofessional recommendations regarding these liquidations.
At first blush, applying the concepts of foreseeability and causation from tort law, this argument seems plausible. However, in determining the coverage provided by an insurance agreement, the court uses contract law rather than tort law to determine the parties' intentions and is governed by the language of the agreement. As quoted more fully above, Section I.a of the insurance contract extends coverage only to damages "arising out of the conduct . . . in rendering services for others as a licensed life, accident and health broker." (Emphasis added.) The court construes the express inclusion of "licensed" services to evidence the contracting parties' intent to restrict coverage to damages which flow directly from deficient performance of a licensable act rather than to allow coverage for consequential damages which occur because of the doing of subsequent unlicensed acts, such as the purchase of worthless promissory notes.
Accordingly, the court finds that ERC is entitled to judgment as a matter of law because Muro's actions in procuring the worthless promissory notes are not covered by the insurance policy. The court, therefore, does not reach the issue of whether Muro's conduct falls within the policy exclusions.
Sferrazza, J.