Premium of America, LLC v. Sanchez
73 A.3d 343
Md. Ct. Spec. App.2013Background
- Premium (LLC of investors) sued Dr. William C. Sanchez for negligent life-expectancy estimates he provided (1996–1999) to Beneficial Assurance, a broker that bought viatical settlements for investors.
- Viatical settlements: investors purchase life insurance benefits on terminally ill insureds and pay premiums; valuation depends on insureds’ life expectancies. Advances in HIV/AIDS care lengthened lives and rendered many investments worthless.
- Sanchez was paid by Beneficial to review medical records and produce life-expectancy reports; he testified he believed he was contracting only with Beneficial and did not know Beneficial was acting for investors or would disclose reports to others.
- Beneficial selected policies, matched them to investors, and provided investors with summaries of the physician reports only after purchases; investors had separate purchase-authorizations with Beneficial and later assigned claims to Premium after Beneficial’s bankruptcy.
- Premium alleged negligence, negligent misrepresentation, and gross negligence (and later sought to add breach of contract); the trial court granted Sanchez summary judgment for lack of tort duty and denied leave to amend as futile/statute-barred. The appellate court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sanchez owed a tort duty to investors for negligent life-expectancy reports | Sanchez was in privity with investors because Beneficial acted as agent for undisclosed principals; privity (or equivalent) establishes an intimate nexus | Sanchez contracted only with Beneficial, lacked knowledge of investors or risk, and thus owed no duty to unknown investors | No duty: privity absent in practical terms and even assumed privity would not satisfy intimate-nexus requirement here |
| Whether Restatement (Second) of Torts § 552 imposes liability to investors | § 552 applies to a limited class; Sanchez knew reports would be used to buy policies, so investors are within the class for whose benefit the info was supplied | Sanchez did not know the identity, number, or character of the ultimate recipients; Beneficial did not inform him it acted for investors, so § 552 does not reach investors | § 552 does not impose liability because Sanchez lacked knowledge of the class/actual use; number/character of intended recipients matters |
| Whether leave to amend to add breach-of-contract claim should be granted | Amendment should be permitted; breach claim rests on same facts and thus relates back to avoid limitations bar | No privity with investors; amendment would be futile and statute-of-limitations issues exist | Denied: amendment would be futile because no contract/privity existed between Sanchez and investors |
| Whether summary judgment was appropriate on these grounds | Premium: disputed facts about Beneficial’s knowledge make privity a factual issue for trial | Sanchez: undisputed record shows he lacked knowledge and there is no evidence Beneficial engaged him on behalf of identifiable investors | Summary judgment affirmed: Premium bore burden to show facts creating duty and failed to do so |
Key Cases Cited
- Walpert v. Katz, 361 Md. 645 (Maryland 2000) (elements of negligent misrepresentation and intimate-nexus/privity requirement for economic-loss negligence)
- Jacques v. First Nat’l Bank, 307 Md. 527 (Maryland 1986) (duty, privity concepts in economic-loss cases)
- Ultramares Corp. v. Touche, 255 N.Y. 170 (New York 1931) (Cardozo on limiting accountant liability to an "intimate nexus")
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (New York 1985) (three-part test for accountant liability / intimate nexus)
- Village of Cross Keys v. United States Gypsum Co., 315 Md. 741 (Maryland 1989) (discussing § 552 and liability of published technical information to identifiable professional class)
- Life Partners, Inc. v. Morrison, 484 F.3d 284 (4th Cir. 2007) (background on viatical-settlement industry)
- Barclay v. Briscoe, 427 Md. 270 (Maryland 2012) (duty as a policy question limiting scope of negligence liability)