In Resource Financing, Inc. v. National Casualty Company (219 AD2d 627, 631 N.Y.S.2d 411 [2d Dept 1995]), the insureds, a mortgagee and its successor, first sued their insurer for failing to name the mortgagee and its assignees as beneficiaries under a fire insurance policy.
The insurer's motion to dismiss the underlying suit to reform the policy was denied. Notwithstanding this legal victory, the insureds never pursued the matter by moving for summary judgment against the insurer.
Rather, they settled their claim against the insurer for a greatly reduced amount, and then sued their agent for her role in procuring the policy.
The Second Department dismissed the subsequent lawsuit against the agent, because the insureds could not demonstrate that their damages were proximately caused by the agent's actions.
Instead, the Second Department held that the insureds' loss was caused solely by their action in settling the case with the insurer, rather than proceeding to seek a full recovery, either in a trial against the insurer, or by a motion for summary judgment.
The settlement action by the insureds superseded any alleged negligence by the agent.