Liberty Mut. Ins. Co. v. North-South

Full title: LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff, v. NORTH-SOUTH LIMO LLC, RAMI…

Court: Supreme Court of the State of New York, New York County

Date published: Jun 4, 2007

2007 N.Y. Slip Op. 31547 (N.Y. Sup. Ct. 2007)

Opinion

0109932/2006, 108627/06, 109785/06, 110342/06, 109933/06, 109934/06.

Decided June 4, 2007.

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] EDWARD H. LEHNER, J.Page 3

Before the court are motions to dismiss pursuant to CPLR 3211 in six separate actions all of which were commenced by Liberty Mutual Insurance Company ("Plaintiff") and in each of which actions Large Auto Brokerage, Inc. ("Large Auto") and Leon Gavriel ("Gavriel") (jointly the "Broker Defendants") are defendants and the movants on these motions. It was stipulated that the issues before the court are the same in each case (tr. pp. 6-7). The complaint in each action alleges a cause of action for breach of contract against other defendants (the "Insured"), and causes of action for both negligent misrepresentation and fraud against the Broker Defendants.

In its complaints, Plaintiff alleges that the Insureds submitted applications to the Assigned Risk Plan (the "Plan") through Large Auto, which contained false information as to the number and use of the vehicles, thereby obtaining lower insurance premiums, and it seeks herein the proper amount of premiums, punitive damages and attorneys' fees.

Dismissal of the first cause of action for breach of contract is denied since said claim is asserted only against the Insured and not the moving Broker Defendants.

The Broker Defendants contend: that "the plan supplants (rather than) supplement(s) the common law, and the carrier's remedy for fraud in the application is cancellation of the policy" (tr. p. 29-30); and that Plaintiff's claim for inception on the ground that it had been obtained through fraud or misrepresentation" (p. 361), and concluded that the "right to cancel was designed as a substitute for, not an addition to, the common-law right of rescission" (p. 364). While it noted that the "very range of subjects included (in the Plan) reflects a design to supply an exclusive and comprehensive scheme of regulation of the contractual relationship concerned" (p. 363), the court did not address the issue before this court as to whether the Plan affected common-law claims for damages against a broker.

In Reliance Insurance Companies v. Daly, 38 AD2d 715 (2^nd Dept. 1972), the court, in indicating that a suit by an insurer against its insured to recover for damages paid to an injured third party may be viable based on a fraudulent application submitted by the insured, stated:

"(H)owever, nothing in the applicable law precludes a suit for damages after the insurer's responsibilities to a third party have been satisfied. The statutory scheme preventing rescission ab initio is a recognition that there is a public interest in the insurance policy which may exceed the interest of the parties to the contract. . . . That public interest is unaffected by a suit for damages which in no way impinges upon the injured party's recovery."

Based on the foregoing principle, the court in Insurance Company of North America v. Kaplan, 274 AD2d 293, 298 (2^nd Dept. 2000), held that "(a)n insurance carrier that is precluded from rescinding a policy retroactively due to fraud is not without means of redress. For example, if the insurer is required to pay benefits under the policy to a third party, it may bring an action against its insured to recover such losses." See also, insurer lacks a right of action in tort when the subject matter of the tort happens to be a Plan-assigned policy" (emphasis in original), and he rejected "Large Auto's position that the Plan's failure to mention that insurers can recover in tort for misrepresentations by brokers implies that such recovery is unavailable in this case." Regarding the privity issue, Judge Gleeson found that "Liberty's allegations establish a functional equivalent of privity (in that) Large Auto submitted an application on behalf of (the Insured) to the Plan, with the expectation that a Plan carrier would use it to issue a policy at an estimated premium rate calculated from the information in the application (and that) Large Auto knew or should have known that the rating information on the application was false." Large Auto's additional argument that there was "no reliance by a known party" was also found wanting, as the court held that such "argument mistakenly supposed that the test for functional privity requires the defendant to know ahead of time which specific individual or entity will rely on its statement." This court agrees with such conclusions.

A similar ruling denying dismissal was issued by Judge Korman in Liberty Mutual Insurance Company v. Ben's Luxury Car Limousine Service, Inc., 06 Civ. 3430 (E.D.N.Y. 2007).

The claim for punitive damages lacks merit since Plaintiff has not alleged conduct that warrants such relief. Recently in Ross v. Louise Wise Services, Inc., ___ NY3d ___, NYLJ May 4, 2007, p. 22, c. 1, the Court of Appeals wrote:

"Punitive damages are permitted when the defendant's wrongdoing is not simply intentional but evince[s] a high degree of moral turpitude and demonstrate[s] such wanton dishonesty as to imply a criminal indifference to civil obligations. . . . In Prozeralik v. Capital Cities Communications, Inc. ( 82 NY2d 466, 479 [1993]), the Court wrote that punitive damages may be sought when the wrongdoing was deliberate and has the character of outrage frequently associated with crime. The misconduct must be exceptional, as when the wrongdoer has acted maliciously, wantonly, or with a recklessness that betokens an improper motive or vindictiveness . . . or has engaged in outrageous or oppressive intentional misconduct or with reckless or wanton disregard of safety or rights." (Internal citations omitted.)

The claim for attorneys' fees is dismissed since "attorneys fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or by court rule" [A.G. Ship Maintenance Corp. v. Lezak, 69 NY2d 1, 5 (1986)], and the complaint does not allege any basis for such award.

In view of the foregoing, the Broker Defendants' motion is granted solely to the extent of dismissing the claims for punitive damages and attorneys' fees, and is otherwise denied. This decision constitutes the order of this court.