Isken v. Rick Galster III Insurance Agency, Inc.

• Court: Superior Court of Delaware
• Decided: November 3, 2022
• Docket: N22C-04-170 FJJ
• Status: Published

Opinion

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

DONALD ISKEN, ) ) Plaintiff, ) ) C.A. No.: N22C-04-170 FJJ v. ) ) RICK GALSTER III INSURANCE ) AGENCY, INC., ) ) Defendant. )

Date Submitted: October 4, 2022 Date Decided: November 3, 2022

OPINION AND ORDER UPON CONSIDERATION OF RICK GALSTER III INSURANCE AGENCY, INC.’S MOTION TO DISMISS DENIED.

Sean O’Kelly, Esquire, O’Kelly & O’Rourke, 824 North Market Street, Suite 1001A, Wilmington, Delaware 19801

Loren Barron, Esquire, Margolis Edelstein, 300 Delaware Avenue, Suite 800, Wilmington, Delaware 19801

JONES, J.

1 OPINION AND ORDER

The Plaintiff, Donald Isken (“Mr. Isken”), has filed suit against Rick Galster

III Insurance Agency, Inc. (“Galster Insurance”) seeking monetary damages for

negligence, fraudulent inducement, and fraudulent misrepresentation. Galster

Insurance has moved to dismiss the complaint because: (1) Mr. Isken did not allege

Galster Insurance owed him a fiduciary duty; (2) Mr. Isken did not plead fraud with

particularity; and (3) Mr. Isken relied on representations outside the four corners of

the contract.

For the reasons that follow, Galster Insurance’s motion to dismiss must be

DENIED.

FACTUAL BACKGROUND

Galster Insurance is a Virginia stock corporation that maintains a place of

business in Wilmington, Delaware.1 A third-party broker agency, Galster Insurance

sells, solicits, and negotiates insurance on behalf of its clients in exchange for

compensation. Mr. Isken is a Delaware resident who owns property located at 913

Stuart Road in Wilmington, Delaware (the “Insured Premises”).2

Nationwide Insurance Company covered the Insured Premises via a

homeowner insurance policy (“the Nationwide Policy”) until September 2018, when

Nationwide elected not to renew the policy.3 In search of a replacement policy, Mr.

1 See Plaintiff’s Complaint at 1. The Court takes the factual record from the complaint, as is required under Superior Court Civil Rule 12(b)(6). 2 See id. at 2 3 See id. 2 Isken contacted Galster Insurance and instructed its agent broker, Rick Galster III

(“Mr. Galster”), to obtain new coverage for the Insured Premises on equivalent terms

as the Nationwide Policy.4 Galster Insurance secured a replacement policy (“the

Replacement Policy”) through Scottsdale Insurance Company, which became

effective on September 19, 2018.5

Nearly two years later, in August 2020, two storms hit the Insured Premises.6

Consequently, the Insured Premises sustained loss of electricity for several days. 7

Without electricity, the Insured Premise’s sump pump failed and one foot of water

flooded into two fully furnished living spaces in the lower-level living area.8 All

told, the cost of restoring the damaged areas to their previous condition exceeded

$100,000.9

When Mr. Isken informed Galster Insurance of the damage, Mr. Galster

advised Mr. Isken to immediately file a claim under the Replacement Policy.10 Mr.

Isken did so.11 However, through his conversations with the in-house claims adjuster

for Scottsdale Insurance Company, Mr. Isken learned the Replacement Policy only

provided $5,000 worth of coverage for water damage, instead of the $50,000 he

instructed Galster Insurance to obtain.12

4 See id. Through their conversations, Mr. Iskin alleges he made Mr. Galster aware of previous claims for water damage to the Insured Premises in 2015 and 2017. 5 See id. at 3. 6 See id. 7 See id. 8 See id. 9 See id. 10 See id. 11 See id. 12 See id. at 4. 3 Mr. Isken subsequently requested, and received for the first time, a copy of

the Replacement Policy.13 After reviewing it, Mr. Isken filed the instant suit against

Galster Insurance.14 Galster Insurance now moves to dismiss the complaint.

STANDARD OF REVIEW

On a motion to dismiss, the Court must determine whether the “plaintiff ‘may

recover under any reasonably conceivable set of circumstances susceptible of

proof.’”15 If the plaintiff may recover, then the motion must be denied.16 This Court

may grant the motion if “it appears to a reasonable certainty that under no state of

facts which could be proved to support the claim asserted would plaintiff be entitled

to relief.”17 When applying this standard, the Court will accept as true all non-

conclusory, well-pled allegations18 and must draw all reasonable factual inferences

in favor of the non-moving party.19

Further, to state a viable claim for fraud under Superior Court Civil Rule

9(b),20 the plaintiff must well-plead:21

(i) a false representation, usually one of fact, made by a defendant; (ii) defendant knew or believed the representation was false, or made it with reckless indifference to the truth; (iii) an intent to induce the plaintiff to act or refrain from acting; (iv) the plaintiff acted or refrained from acting in justifiable 13 See id. 14 See id. 15 Holmes v. D’Elia, 2015 WL 8480150, at *2 (Del. 2015). 16 See Deuley v. DynCorp Int’l, Inc., 2010 WL 704895, at *3 (Del. Super. 2010) (internal citations omitted). 17 Fish Eng’g Corp. v. Hutchinson, 162 A.2d 722, 724 (Del. 1960). 18 See Pfeffer v. Redstone, 965 A.2d 676, 683 (Del. 2009). 19 See Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005) (internal citations omitted). 20 Super. Ct. Civ. R. 9(b). 21 Trentwick American Litigation Trust v. Ernest & Young, LLC., 906 A.2d 168, 207 (Del. Ch. 2006), aff’d 931 A.2d 438 (Del. 2007). 4 reliance on the representation; and (v) damage resulting from such reliance.22

ANALYSIS

A. Galster Insurance’s Duty to Mr. Isken

Galster Insurance first argues that Mr. Isken’s professional negligence claim

must fail because Mr. Isken did not plead and prove Mr. Galster owed him a

fiduciary duty. To support this proposition, Galster Insurance turns to this Court’s

recent decision in Fansler v. North American Title Insurance Company.23

The Fansler Court granted dismissal in a professional negligence claim after

it determined the plaintiff failed to establish a fiduciary duty existed between the

parties.24 Fansler, however, does not require insured plaintiffs to well-plead the

existence of a fiduciary duty in every negligence claim brought against insurance

agents.25

This Court first explored the relationship between insured and agent in Sinex

v. Wallis. 26 The Sinex plaintiff brought suit against a defendant and the defendant’s

employer. In response, the defendant filed third-party complaints against its

insurance agent and agency, claiming both negligently failed to obtain more than the

minimum no-fault insurance coverage. Granting summary judgment for the

defendant, Sinex outlined the duties between the two parties:

22 See Infomedia Cp., Inc. v. Orange Health Sols., Inc., 2020 WL 4384087, at *3 (Del. Super. 2020) (citing Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983)). 23 2019 WL 1281432 (Del. Super. 2019). 24 See id. at *5. 25 See generally id. 26 611 A.2d 31 (Del. Super. Ct. 1991). 5 Ordinarily, an insurance agent assumes only those duties normally found in an agency relationship. This includes the obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by the insured. The agent assumed no duty to advise the insured on the specific insurance matters merely because of the agency relationship. On the other hand, an expanded agency or relationship creating a greater duty of the agent to the insured may arise when an agent holds himself or herself out as an insurance counselor or specialist and is receiving compensation apart from the premium(s) paid.27

The Sinex Court next addressed plaintiff’s argument that the defendant agent

violated the ordinary duty of reasonable care, diligence, and judgment. In support

of its position, the Sinex plaintiff directed the Court’s attention to a line of cases from

other jurisdictions. Those cases held an insurance agent breached his duty to the

insured when the agent failed to follow explicit instructions regarding the type (or

amount) of coverage required. The Court, however, declined to address whether

Delaware recognizes such a cause of action. Instead, Sinex rejected the plaintiff’s

argument as a matter of fact, finding the plaintiff never provided the defendant agent

with specific instructions in the first place.

Fourteen years after Sinex, this Court again confronted the issue of insurance

agent liability in Montgomery v. William Moore Agency.28 Denying summary

judgment, the Montgomery Court set out its view of the law:

The court holds that an insurance agent must offer coverage in the way that a reasonably competent agent would under the circumstances. And, generally, an insurance agent has no duty to advise a client. This general 27 See id. at 33 (internal citations omitted). 28 2015 WL 1056326 (Del. Super. 2015). 6 rule, however, turns largely on the relationship between the agent and the client and will not apply if: 1) the agent voluntarily assumes the responsibility for selecting the appropriate policy for the insured or 2) the insured makes an ambiguous request for coverage that requires clarification.29

Montgomery, in short, recognized a fiduciary relationship is not a required element

in every negligence case between an insured and an agent.

Finally, this Court most recently addressed the duties between insured and

agent in Slaubaugh Farm, Inc. v. Farm Family Ins. Co.30 In Slaubaugh, two plaintiff

farmers instructed their long-time insurance agent to obtain new homeowner’s

insurance with coverage for snow and ice. When the policy was issued, however,

the issuing insurance company failed to include the snow and ice coverage. The

plaintiffs brought this deficiency to the attention of the agent.

The agent, in turn, requested the insurance company to issue a revised policy

with all demanded coverage. In response, the insurance company acknowledged the

request but failed to take further action. The plaintiffs subsequently filed suit against

insurance company and agent after a blizzard caused extensive damage to a chicken

house on the property. Concluding a genuine issue of fact existed as to whether the

agent breached his duty, the Slaubaugh Court held:

An insurance agent assumes only those duties normally found in an agency relationship. This duty includes the obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by the insured. An insurance agent most offer coverage in the way that a 29 See id. at *2. 30 2018 WL 5473033 (Del. Super. 2018). 7 reasonably competent agent would under the circumstances. Generally, an insurance agent does not have a duty to advise a client with respect to appropriate insurance coverage. This general rule, however, does not apply if the agent voluntarily assumes the responsibility for selecting the appropriate coverage or if the insured makes an ambiguous request for coverage that requires clarification.31

Slaubaugh then turned to the alleged failure of the agent to follow up with the request

for revised coverage. To that point, the Court found “[i]t is … well-settled law that

an agent has the obligation to use reasonable care, diligence, and judgment in

processing the insurance requested by the insured.”32

Slaubaugh makes clear that an agent carries the affirmative duty to seek

clarification when a request for insurance coverage is ambiguous. If a duty is

charged in this context, then surely it must be imposed when an agent fails to follow

the explicit instructions of the insured.33 Thus, to the extent there is any doubt in

Delaware jurisprudence, this Court will not require a plaintiff to plead the existence

of a fiduciary relationship if an agent allegedly fails to follow the specific

instructions of the insured.

31 See id. at *3 (internal citations omitted). 32 See id. at *4. 33 As noted in Sinex, a line of cases from other jurisdictions impose liability on the agent when the agent fails to follow the explicit instructions of the insured. See, e.g. Consolidated Sun Ray, Inc. v. Lea, 401 F.2d (3d Cir. 1968), cert. denied 393 U.S. 1050, 89 S. Ct. 688, 21 L.Ed.2d 692 (1969) (duty to exercise care owed by reasonable and prudent broker breached when agent failed to follow explicit instructions of insured); Port Clyde Foods, Inc. v. Holiday Syrups, Inc., S.D.N.Y., 563 F.Supp. 893 (1982) (broker breached duty to provide skill, care, and diligence when insurance agent failed to discover that specifically requested coverage had not been provided by insurer); Roberson v. Knapp Ins. Agency, 125 Ill.App.2d 373, 260 N.E.2d 849 (1970) (agent found in breach when policy did not provide coverage specifically requested); Karam v. St. Paul Fire and Marine Ins. Co., La.Supr., 281 So.2d 728 (1973) (breach found when insured requested $100,000 in coverage but agent erroneously obtained $10,000).

8 Mr. Iskin has well-pled that he explicitly instructed Mr. Galster to replace the

Nationwide Policy with equivalent coverage. Because Mr. Galster owed Mr. Iskin

a duty to follow these instructions (even absent a fiduciary relationship between the

two), the Court will not dismiss this count of the complaint.

B. The Negligent Misrepresentation Pleading Requirements

Galster Insurance also argues Mr. Isken has not adequately pled the prima

facie elements of fraud under Delaware law. The Court disagrees.

In TEK Stainless Piping Products, Inc. v. Smith,34 this Court outlined the three

minimum pleading requirements a fraud claim must meet under Superior Court Civil

Rule 9(b) to survive dismissal. Specifically, the TEK Court found the alleged

misrepresentations must: (1) be enumerated; (2) identify the parties to the

conversation; and (3) set out the content of the discussions with sufficient

particularity to place the party on notice of the precise misconduct with which it is

charged.35

The Court is satisfied Mr. Isken’s complaint meets these requirements. Mr.

Isken alleges he specifically instructed Mr. Galster to acquire a policy identical to

the Nationwide Policy. According to Mr. Isken, this conversation took place after

Nationwide noticed the parties it was declining to renew the Nationwide Policy and

before Mr. Galster obtained the Replacement Policy.36 Although Mr. Isken does not

34 2013 WL 7577468 (Del. Super. 2013). 35 See id. at *3. 36 According to Mr. Isken, Nationwide notified him of the refusal to renew the policy on September 18, 2018, and Mr. Isken relayed this information to Mr. Galster shortly thereafter. 9 specify the time and place of the dialogue, the Court finds the substance of the

discussion lays out the elements of fraud with sufficient particularity. Therefore, the

Court cannot dismiss Mr. Isken’s negligent misrepresentation and fraudulent

inducement claims.

C. Flowshare and the Four Corners of the Contract

Finally, Galster Insurance contends Mr. Isken’s fraudulent inducement claim

must fail because the claim relies on representations made by Mr. Galster outside

the four corners of their contract. Mr. Isken’s reliance on extra-contractual

representations, so claims Galster Insurance, runs afoul of this Court’s “bootstrap

doctrine” as articulated in Flowshare, LLC v. GeoResults, Inc.37 The Court finds the

bootstrap doctrine has no applicability to this case.

Flowshare was a breach of contract action concerning an integration clause.

As the Flowshare Court instructed:

A fraud claim can be based on representations found in a contract, however, “where an action is based entirely on a breach of the terms of a contract between the parties, and not on a violation of an independent duty imposed by law, a plaintiff must sue in contract and not in tort.” A plaintiff “cannot bootstrap” a claim for a breach of contract into a claim of fraud merely by alleging that a contracting party never intended to perform its obligations or “simply by adding the term fraudulently induced to a complaint.” Essentially, a fraud claim alleged contemporaneously with a breach of contract claim may survive, so long as the claim is based on conduct that is separate and distinct from the conduct constituting

37 2018 WL 3599810 (Del. Super. 2018). 10 breach. Allegations that are focused on inducement to contract are “separate and distinct” conduct.”38

In other words, Flowshare assumes a breach of contract action with a corresponding

fraud claim. Mr. Isken has not alleged Galster Insurance breached their contract;

rather, as noted above, his claim is rooted in Mr. Galster’s breach of duty owed to

him in tort alone and independent of their contract. Therefore, a Flowshare analysis

is inappropriate and the Court will not dismiss the fraudulent inducement claim

under this theory.

CONCLUSION

Based on the foregoing, Galster Insurance’s Motion to Dismiss is DENIED.

IT IS SO ORDERED.

/s/ Francis J. Jones, Jr. Francis J. Jones, Jr., Judge

cc: File&ServeXpress

38 See id. at *5 (internal citations omitted). 11