Merrick Bank Corporation v. Royal Group Services, LTD, LLC

Background

Merrick Bank Corporation was an acquiring bank in the Visa, MasterCard, and Discover payment networks. After Southern Sky Air and Tours, doing business as “Myrtle Beach Direct Air,” stopped operating and filed for bankruptcy, customers sought refunds for prepaid vacations. Merrick paid $26.2 million in chargebacks and sought to recover that amount.

Merrick alleged that in 2011 it hired Royal Group Services (RGS) and its broker, Gregory Richmond, to obtain insurance from Chartis Specialty Insurance Company. According to Merrick, the requested policy would not require Merrick to seek recovery from independent sales organizations before receiving payment from the insurer. Merrick alleged that the defendants instead obtained a policy containing an independent-sales-organization provision and were responsible for its inclusion.

Merrick’s remaining claims were negligence and breach of contract. The court had previously granted in part and denied in part an earlier summary-judgment motion by Richmond, finding factual disputes about whether Merrick requested the disputed coverage and about the parties’ roles in negotiating, drafting, and reviewing the policy. The court also treated the former breach-of-fiduciary-duty claim as a breach-of-contract claim.

Arguments

The defendants argued that they were only intermediaries, made no relevant representations, and that Merrick assumed full responsibility for drafting and negotiating the policy. They also argued that Merrick’s claims were speculative because it had not shown that Chartis would have issued a policy without the disputed provision. Finally, they argued that no contract existed between Merrick and the defendants and that the insurance policy’s integration clause barred evidence of an oral agreement.

Court’s analysis

The court rejected the integration-clause argument. Merrick was not challenging the insurance policy’s terms; it was suing over a separate agreement with the defendants. Evidence that RGS was paid for its brokerage services, along with Richmond’s testimony that he understood he and RGS had a duty to provide accurate policy information, created a factual dispute about whether a contract existed between Merrick and the defendants.

The court explained that an insurance agent has a common-law duty to obtain specifically requested coverage within a reasonable time or tell the client that the coverage cannot be obtained. A general request for insurance is not enough, but the evidence here could support a finding that Merrick specifically requested coverage that did not require it to seek indemnification from the independent sales organizations first. The court also stated that the defendants’ duty to communicate that the requested coverage had not been obtained did not depend on whether Chartis ultimately would have issued such a policy.

The evidence included communications showing that RGS and Richmond understood Merrick’s request, Richmond’s testimony acknowledging that understanding, and evidence that Richmond assured Merrick there would not be a repeat of an earlier problem. Although Merrick’s attorney reviewed and approved the final policy, that approval did not legally bar Merrick’s claims. The evidence that Richmond commented to Chartis on the policy and represented to Merrick that the policy would provide coverage before Merrick pursued the independent sales organizations created factual disputes about whether the defendants breached their duties.

Disposition

Judge Alvin K. Hellerstein denied the defendants’ motion for summary judgment. The court found the motion was not frivolous and therefore declined to award Merrick costs and fees for defending against it. The court canceled the scheduled February 11, 2021 oral argument and directed the Clerk to terminate the open motion.