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Because insurance is a business of utmost good faith, insurers and their agents and brokers often enter into oral agreements with regard to the collection of premiums and how the broker is entitled to commissions. The statute of frauds, in most states, makes it difficult if not impossible to enforce such an oral agreement.

The New York appellate division was asked to resolve the differences between insurance brokerage Aramarine Brokerage Inc. (Aramarine) and its lawyers for legal malpractice arising out of the law firm’s successive representation of it in connection with an underlying federal action against a group of insurers (CGU insurers). In the federal action, the CGU insurers moved for summary judgment on their counterclaims for a return of insurance brokerage commissions paid in connection with premiums subsequently returned; on the ground that plaintiff’s claim of an oral agreement between the parties was controlled by New York law and was unenforceable pursuant to the statute of frauds. As a result of the federal case, Aramarine was required to pay the CGU insurers more than $1.3 million. In Aramarine Brokerage Inc v. Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C, No. 7548 650631/11 (N.Y.App.Div. 05/03/2012), Aramarine sued its lawyers for malpractice.

The CGU insurers argued, for the first time, in reply to the Aramarine motion for summary judgment that the oral agreement also failed for lack of consideration. They applied a rule first stated by movie mogul Sam Goldwyn, who is reported to have said that “your oral contract ain’t worth the paper it’s printed on.” 

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