In Cilente v. Phoenix Life Ins. Co., 2015 Slip Op 09203 (1st Dep’t Dec. 15, 2015), the Appellate Division, First Department of the New York State Supreme Court, affirmed a trial court order that granted summary judgment and dismissed plaintiffs’ claims against an insurer and broker for alleged failure to provide certain disclosures, in violation of Insurance Law § 2123 and § 4226. The First Department reasoned that although the subject statutes provide a private right of action for an aggrieved person in instances where an insurer or broker knowingly violates such provisions or their underlying regulations, here, defendants established their failure to provide this disclosure was inadvertent and not knowing. Additionally, plaintiffs did not raise a triable issue concerning defendants’ knowledge of noncompliance with the statutes.

In Cilente, plaintiff, Alfonso N. Figliolia (“Figliolia”) obtained and placed in his Family Trust a $15 million life insurance policy from defendant Phoenix Life Insurance Company (“Phoenix”) that would pay his estate taxes; defendant Nestfield and Nestfield & Associates (collectively “Nestfield”) was his broker. Figliolia also created a premium financing program through defendant, A.I. Credit Corp. due to the high amount of the annual premium.

The cash value of the policy, however, did not accrue at a sufficient enough pace, prompting A.I. Credit to seek additional pledges of collateral. Figliolia, after making additional pledges of collateral, restructured the policy to reduce the face amount of the policy. Figliolia also purchased a second policy, financed by A.I. Credit. This second policy ultimately failed to accumulate cash value at a sufficient rate to keep the financing plan afloat. Figliolia defaulted, prompting this litigation.

Plaintiffs claimed that the defendants fraudulently made representations to them in documents that were provided after plaintiffs purchased the initial policy with Phoenix and executed the financing agreement. Plaintiffs also alleged Nestfield and Phoenix failed to provide the requisite disclosure statements pertaining to the partial replacement of the first policy with the second, in violation of Insurance Law § 2123 and § 4226.  

N.Y. Ins. Law § 2123 (McKinney 2001) prohibits misrepresentations, misleading statements and incomplete comparisons by insurance agents and insurance brokers. N.Y. Ins. Law § 4226 (McKinney 2001) prohibits insurers from making misrepresentations, misleading statements and incomplete comparisons. These sections require that any replacement of individual life insurance policies conform to the standards set forth in Reg. 60.

The First Department affirmed the trial court’s grant of defendant’s summary judgment motion dismissing plaintiff’s fraud-based claims and finding that there was no evidence in the record indicating that the terms of the policy and financing agreement were not disclosed to plaintiffs. Id. at *2. Additionally, the First Department affirmed the trial court’s dismissal of plaintiffs’ Insurance Law claims. Id. The First Department noted that a private right of action is only available to an aggrieved person where an insurer or broker knowingly violates any provision of the section or regulations. Id. Here, Phoenix and Nesfield established that their failure to provide this disclosure was inadvertent, and thus did not knowingly fail to make any such disclosure. Id. Moreover, the First Department found that plaintiffs did not raise a triable issue regarding the defendants’ knowledge of their noncompliance with the statutes. Id.

This decision demonstrates that the Court will carefully consider an insurer or broker’s intent before allowing a private cause of action to be asserted under the Insurance Law provisions in question.