        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

496
CA 14-01911
PRESENT: SCUDDER, P.J., SMITH, PERADOTTO, LINDLEY, AND DEJOSEPH, JJ.


REGENCY OAKS CORPORATION, PLAINTIFF-RESPONDENT,

                    V                             MEMORANDUM AND ORDER

NORMAN-SPENCER MCKERNAN, INC., DEFENDANT-APPELLANT.


KEIDEL, WELDON & CUNNINGHAM, LLP, SYRACUSE (DEBRA M. KREBS OF
COUNSEL), FOR DEFENDANT-APPELLANT.

WOODS OVIATT GILMAN LLP, ROCHESTER (ANDREW J. RYAN OF COUNSEL), FOR
PLAINTIFF-RESPONDENT.


     Appeal from an order of the Supreme Court, Monroe County (Matthew
A. Rosenbaum, J.), entered August 20, 2014. The order granted the
motion of plaintiff for partial summary judgment on liability.

     It is hereby ORDERED that the order so appealed from is affirmed
without costs.

     Memorandum: Plaintiff, a professional employer organization
(PEO), commenced this fraud action alleging that defendant is liable
for the acts of its former employee, who provided plaintiff with a
falsified workers’ compensation insurance policy and a certificate of
liability insurance purportedly issued by American International Group
(AIG). Defendant is an insurance agency, and AIG is one of the
insurance companies that defendant represents. Plaintiff alleged that
defendant assigned its employee, a “producer” who specialized in
obtaining insurance for PEOs, to work with plaintiff. Defendant was
aware that its employee had a private company, Professional Insurance
Managers (PIM), but the employee had signed a covenant not to compete
when he was hired by defendant, and he advised an owner of defendant
that he had nothing more to do with PIM. Defendant’s employee,
however, prepared a proposal for plaintiff from PIM. Plaintiff’s
president questioned defendant’s employee regarding PIM and was
advised that PIM was a division of defendant that specialized in PEOs.
Defendant’s employee directed plaintiff to pay over $220,000 in
premium payments to an account that was controlled by PIM, and
plaintiff thereafter received what was a purported insurance policy
issued by AIG, effective from December 15, 2005 to December 15, 2006.
In the spring of 2006, plaintiff received a notice from the New York
State Workers’ Compensation Board issuing a penalty for failure to
have proper workers’ compensation coverage in effect. Plaintiff
forwarded the notice to defendant’s employee, and thereafter received
a certificate and letter, purportedly issued by AIG, confirming that
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                                                         CA 14-01911

the policy was in full force and effect. Defendant terminated the
employee’s employment on June 29, 2006 when it learned that he had
embezzled funds from another customer.

     Supreme Court granted plaintiff’s motion seeking partial summary
judgment on liability. We affirm.

     “In an action to recover damages for fraud, the plaintiff must
prove a misrepresentation or a material omission of fact which was
false and known to be false by [the maker], made for the purpose of
inducing the other party to rely upon it, justifiable reliance of the
other party on the misrepresentation or material omission, and injury”
(Lama Holding Co. v Smith Barney, 88 NY2d 413, 421). It is undisputed
that the insurance policy purportedly issued by AIG was false, and
thus plaintiff established that a false representation was made that
was known to be false by defendant’s employee. Defendant contends,
however, that the justifiable reliance element was not met because it
cannot be liable for the acts of its employee, and plaintiff’s
reliance on the alleged “apparent authority” of defendant’s employee
was not reasonable.

     It is axiomatic that “[t]he mere creation of an agency for some
purpose does not automatically invest the agent with ‘apparent
authority’ to bind the principle without limitation . . . An agent’s
power to bind his [or her] principal is coextensive with the
principal’s grant of authority” (Ford v Unity Hosp., 32 NY2d 464, 472-
473). “Essential to the creation of apparent authority are words or
conduct of the principal, communicated to the third party, that give
rise to the appearance and belief that the agent possesses authority
to enter into a transaction. The agent cannot by his [or her] own
acts imbue himself [or herself] with apparent authority. ‘Rather, the
existence of “apparent authority” depends upon a factual showing that
the third party relied upon the misrepresentation of the agent because
of some misleading conduct on the part of the principal – not the
agent’ . . . Morever, a third party with whom the agent deals may rely
on an appearance of authority only to the extent that such reliance is
reasonable” (Hallock v State of New York, 64 NY2d 224, 231, quoting
Ford, 32 NY2d at 473). Here, plaintiff contacted defendant seeking
workers’ compensation coverage, and defendant assigned its employee
who specialized in plaintiff’s type of business to assist plaintiff.
We therefore conclude that plaintiff established that it reasonably
relied upon the authority of defendant’s employee to act for
defendant.

     We conclude that plaintiff fulfilled its duty to inquire about
the authority of defendant’s employee to act for defendant by
inquiring as to PIM’s authority when its president was presented with
a proposal from PIM, and not from defendant (see Herbert Constr. Co. v
Continental Ins. Co., 931 F2d 989, 995-996 [2d Cir 1991]). Contrary
to the conclusion of our dissenting colleagues, we conclude that
plaintiff’s reliance on the explanation that PIM was a division of
defendant was reasonable under the circumstances (cf. Marshall v
Marshall, 73 AD3d 870, 871; Edinburg Volunteer Fire Co., Inc. v Danko
Emergency Equip. Co., 55 AD3d 1108, 1110; 1230 Park Assoc., LLC v
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                                                         CA 14-01911

Northern Source, LLC, 48 AD3d 355, 355-356). The proposal stated that
PIM represented numerous carriers, including AIG, and that the
relationships with those carriers “allow [defendant] to provide
clients with the broadest array of services.” Furthermore, plaintiff
received a policy and a certificate of insurance, albeit falsified,
that appeared to be issued by AIG. “An employer is liable for the
acts of its employee when the employee ‘is doing something in
furtherance of the duties he [or she] owes to [the] employer and where
the employer is, or could be, exercising some control, directly or
indirectly, over the employee’s activities’ ” (Sports Car Ctr. of
Syracuse v Bombard, 249 AD2d 988, 989; see Holmes v Gary Goldberg &
Co., Inc., 40 AD3d 1033, 1034-1035). Thus, because defendant was
referenced in the proposal prepared by PIM, and because defendant’s
employee provided the service for which plaintiff had contacted
defendant (cf. Zigabarra v Falk, 143 AD2d 901, 901-902), we conclude
that plaintiff established that its reliance on the employee’s
explanation that PIM was a division of defendant was reasonable, and
defendant failed to raise an issue of fact sufficient to defeat the
motion.

     All concur except LINDLEY and DEJOSEPH, JJ., who dissent and vote
to reverse in the following memorandum: We respectfully dissent. In
our view, Supreme Court erred in granting plaintiff’s motion for
partial summary judgment. Therefore, we would reverse.

     While we agree with the majority that plaintiff had contact with
defendant, the principal, in order to purchase workers’ compensation
insurance and thus had a basis for its belief that defendant’s
employee acted with the authority of defendant, we conclude that there
is a triable issue of fact whether plaintiff’s reliance on defendant’s
employee was reasonable and whether plaintiff failed to make a
reasonable inquiry with defendant to verify the extent of the
employee’s authority.

     “[A] third party with whom the agent deals may rely on an
appearance of authority only to the extent that such reliance is
reasonable” (Hallock v State of New York, 64 NY2d 224, 231). The
insurance proposal received by plaintiff from the employee had
“PROFESSIONAL INSURANCE MANAGERS” (hereafter, PIM) on the top of its
coverage page with the employee’s personal contact information at the
bottom, which included his personal microsoft email address –
“LDavisjr@msn.com” – instead of his work email address, which was
“LEDavis@nsminc.com.” The policy of insurance received by plaintiff
does not list defendant but, instead, in the box labeled “Producer’s
Name & Mailing Address,” PIM is listed along with PIM’s address in
Exton, Pennsylvania. The certificate of insurance lists the
“Producer” as “Professional Insurance Managers, Ltd.” and both the
address and phone number match those of PIM and not defendant.
Moreover, plaintiff was told to send its premium payments to an
account that, “unbeknownst to [plaintiff],” was controlled by PIM.
Plaintiff never went beyond defendant’s employee to confirm that PIM
was in fact a division of defendant. Subsequently, plaintiff received
correspondence from the New York State Workers’ Compensation Board
explaining that plaintiff did not have the proper insurance in effect.
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                                                         CA 14-01911

Plaintiff forwarded the letter to defendant’s employee and, in
response, plaintiff received a forged letter from American
International Group confirming that the policy was in effect. Based
upon all of plaintiff’s dealings with defendant’s employee, including
the “PIM” documents and the letter it received from the New York State
Workers’ Compensation Board, we cannot conclude that plaintiff’s
inquiry and/or acceptance of the employee’s explanation was reasonable
as a matter of law (see Edinburg Volunteer Fire Co., Inc. v Danko
Emergency Equip. Co., 55 AD3d 1108, 1109-1111; Arol Dev. Corp. v
Whitman & Ransom, 215 AD2d 145, 146).




Entered:   June 12, 2015                        Frances E. Cafarell
                                                Clerk of the Court
