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finding that there had been no loss of covered property because "[w]hat Benchemark really lost were business opportunities whereby [the employee] essentially put himself in the place of his employer[]"
Summary of this case from Hartford Fire Insurance Co. v. Mitchell Company, Inc.Opinion
00-CV-0865
January 26, 2001
Attorneys for Plaintiff, JEAN F. GERBINI, ESQ. WHITEMAN, OSTERMAN HANNA NEIL L. LEVINE, ESQ., Albany, New York.
Attorneys for Defendant, ERNSTROM DRESTE, LLP, THEODORE M. BAUM, ESQ., Rochester, New York.
MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
Plaintiff Benchmark Printing, Inc. ("Benchemark" or "plaintiff') commenced this diversity action, alleging that the defendant American Manufacturers Mutual Insurance Company ("AMMIC" or "defendant") breached the terms of an insurance policy it issued to the plaintiff. The defendant moves to dismiss the complaint for failure to state a claim upon which relief can be granted, pursuant to Fed.R.Civ.P. 12(b)(6). The plaintiff cross-moves for summary judgment, pursuant to Fed.R.Civ.P.56. This matter was submitted for decision without oral argument.
II. FACTS
Benchemark purchased an insurance policy which insured against "loss of `money,' `securities,' and `property other than money and securities' resulting directly from employee dishonesty.'" (Compl. at ¶ 9.) The policy excluded from coverage "indirect loss," which is defined in pertinent part as "[l]oss that is an indirect result of any act or "occurrence' covered by this insurance including but not limited to, loss resulting from Your inability to realize income that you would have realized had there been no loss of, or loss from damage to, Covered Property." Id. Ex. A.
Benchemark is a commercial printing company. It hired Eugene Errico ("Errico") on August 20, 1990 as a salesperson. He was promoted to Sales Manager in 1994, and was responsible for obtaining new clients as well as maintaining current clients.
Errico resigned on June 28, 1999. Soon thereafter, Benchemark discovered that beginning in 1996, Errico had represented to one of Benchemark's clients, the New York State United Teachers ("NYSUT"), that it was unable to perform their printing jobs and that the jobs would be subcontracted to Dodge Graphics ("Dodge"), a Benchemark competitor. However, in fact, there was no subcontract agreement. Instead, Errico represented to Benchemark that it had lost the NYSUT account to competitors. Under this scheme, Errico requested that Dodge submit a quote for each job. Dodge sent an invoice to Errico, which he then marked up. Dodge invoiced the NYSUT according to the marked up figures. NYSUT paid Dodge, who then paid Errico the difference between its quoted price and the mark-up.
The parties refer to the funds paid to Errico as "referral commissions." However, it seems more accurate to call them kickbacks.
Similarly, Errico represented to the New York State Nurses Association ("NYSNA"), another Benchemark client, that it was going to subcontract its printing jobs to Eagle Printing ("Eagle"). At Errico's request, Eagle provided a quote for each job and Errico then told it what to bill for the job. Eagle billed NYSNA according to the price Errico stated. NYSNA paid Eagle, who in turn paid Errico the difference between the quoted price and the price given by Errico.
Plaintiff claims that as a result of Errico's conduct, it lost the kickbacks that Dodge and Eagle paid to Errico as well as "other and further losses . . . including but not limited to lost profits." Id. at ¶ 34. These losses, plaintiff contends, are covered property within the meaning of the insurance policy.
On September 1, 1999, Benchemark submitted to AMMIC a Notice of Claim and an affidavit from its president describing the relevant acts committed by Errico. It also submitted a supplemental Notice of Claim with relevant invoices on October 6, 1999. On December 1, 1999, a Proof of Loss form as well as copies of Errico's personnel file and pleadings filed in a related State court action by Benchemark against Errico were sent to AMMIC. In a letter dated May 8, 2000, AMMIC disclaimed coverage. Plaintiff then commenced this action.
III. DISCUSSION A. Motion to Dismiss Standard
A motion to dismiss "test[s] the legal sufficiency of the complaint, and thus does not require the Court to examine the evidence at issue."DeJesus v. Sears, Roebuck Co., 87 F.3d 65, 69 (2d Cir. 1996) (quotingCarey v. Mt. Desert Island Hosp., 910 F. Supp. 7, 9 (D. Me. 1995)). In reviewing the sufficiency of a complaint at the pleading stage, "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
A cause of action shall be dismissed for failure to state a claim under Fed.R.Civ.P. 12(b)(6), "only if `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief'" Tarshis v. Riese Org., 211 F.3d 30, 35 (2d Cir. 2000) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Accordingly, in considering a motion brought pursuant to Fed.R.Civ.P. 12(b), the court must assume all of the allegations in the complaint are true and "draw inferences from those allegations in the light most favorable to [the] plaintiff." Id. Nevertheless, a pleading which consists of bald assertions and conclusory allegations unsupported by factual assertions "will not suffice to state a claim." Id. at 35; DeJesus, 87 F.3d at 70.
Where a motion to dismiss is made prior to any discovery or the filing of an answer, the court is loath to dismiss the complaint, regardless of whether the plaintiff is unlikely to prevail, unless the defendant can demonstrate that plaintiff is unable to prove facts which would entitle him to relief Wade v. Johnson Controls, Inc., 693 F.2d 19, 22 (2d Cir. 1982); see also Egelston v. State Univ. College, 535 F.2d 752, 754 (2d Cir. 1976).
B. Covered Property
The insurance policy at issue in this case provides that AMMIC "will pay for loss of, . . . Covered Property resulting directly from the Covered Cause of Loss." (Compl. Ex. A.) Covered property includes money, securities, and other tangible property which has intrinsic value. Id. Covered property under the policy is also limited to property that the insured owns, holds, or is legally liable for. Id. (emphasis added).
The parties do not dispute that the losses which Benchemark seeks were the result of the fraud or dishonesty of its employee. The question then, is whether the losses it claims are covered property under the policy.
In this case, what Benchemark really lost were business opportunities whereby "Errico essentially put himself in the place of his employer. As a result, Benchemark lost the opportunity to either perform the contracts itself or refer them out. Had it performed the contracts itself, then it would have received a profit. Had it referred them out, then it would have received the kickback. In either case, Benchemark is asking AMMIC to cover lost profits it hoped to receive. It cannot show that it actually earned, owned, ever held, or had any liability for these profits. Accordingly, Benchemark's alleged losses of the kickbacks paid to Errico and profits are not covered property under the clear language in the insurance policy and are not recoverable.
C. Indirect Loss Exclusion
The defendant argues in the alternative that the plaintiffs complaint must be dismissed because the kickbacks and lost profits it seeks to recover are indirect losses which are excluded from coverage. Although not necessary to the disposition of the motions in this case, defendant's argument will nevertheless be afforded a response.
The policy contains a provision which excludes from coverage the insured's "inability to realize income that [it] would have realized had there been no loss of . . . Covered Property." Id. (emphasis added). As discussed above, supra p. 5, in this case, the plaintiff claims that the "covered property" is lost profits. Therefore, in order for the exclusion to apply, the plaintiff would have to be seeking to recover the income it would have realized from the lost profits, such as interest. However, that is not what the plaintiff is claiming. Rather, the plaintiffs claimed loss is allegedly the covered property, not the inability to realize income from the covered property. Accordingly, the insurance policy's provision which excludes indirect losses from coverage does not apply in this case.
Of course, it has already been decided that plaintiffs claimed loss is not covered property. See supra p. 5. However, for purposes of demonstrating that the defendant's argument that the plaintiff is claiming an indirect loss lacks merit, it can be assumed arguendo that the loss is covered property.
IV. CONCLUSION
The plaintiff has admittedly suffered a covered cause of loss under the insurance policy with AMMIC. However, the damages claimed are not covered property under the plain language of the policy. Consequently, the complaint must be dismissed. As a result, plaintiffs motion for summary judgment must be denied as moot.
Accordingly, it is
ORDERED, that
1. The defendant's motion to dismiss is GRANTED;
2. The complaint is DISMISSED; and
3. The plaintiffs motion for summary judgment is DENIED as moot.
The Clerk is directed to enter judgment accordingly.
IT IS SO ORDERED.