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BERNSTEIN v. CENTAUR INS. CO.

November 28, 1984

GEORGE BERNSTEIN, acting for and on behalf of the Commissioner of Banking and Insurance of The State of Vermont as Receiver for the purpose of rehabilitation of Ambassador Insurance Company and JAMES P. CORCORAN, Superintendent of Insurance of the State of New York as Rehabilitor of Horizon Insurance Company, Plaintiffs, against CENTAUR INSURANCE COMPANY, Defendant


The opinion of the court was delivered by: CANNELLA

MEMORANDUM AND ORDER

CANNELLA, D.J.

Defendant's motion to dismiss the seventh cause of action is granted. Fed. R. Civ. P. 12(b) (6).

 Defendant's motion to stay this action pending arbitration is granted in part and denied in part pending submission of supplemental affidavits. 9 U.S.C. § 3.

 BACKGROUND

 This diversity action was brought by Ambassador Insurance Company ["Ambassador"] and Horizon Insurance Company ["Horizon"]. *fn1" On November 10, 1983, the Superior Court of the State of Vermont declared Ambassador insolvent and appointed the Commissioner of Banking and Insurance of Vermont as rehabilitator. On December 7, 1983, the Supreme Court of the State of New York declared Horizon insolvent and appointed the Superintendent of Insurance of New York as rehabilator. *fn2" On January 31, 1984, the current plaintiffs, acting on behalf of the rehabilitators of Ambassador and Horizon, were substituted as plaintiffs. *fn3"

 Ambassador alleges seven causes of action based upon certain reinsurance agreements between defendant Centaur Insurance Co. ["Centaur"] as reinsurer and plaintiffs as reinsured. Horizon joins in only the sixth and seventh claims. The first six claims allege nonpayment of amounts due under the agreements and seek damages, an accounting and a declaration of rights. The seventh cause of action alleges that defendant's actions were "willful, deliberate, without reasonable or probable cause and in bad faith," for which plaintiffs demand ten million dollars in damages.

 Defendant has moved to dismiss plaintiffs' seventh cause of action on the ground that it fails to state an independent cause of action and is in fact merely a request for punitive damages, which are not available in a contract action absent willful or malicious fraud.

 Defendant also moves to stay the action pending arbitration. It is undisputed that al the reinsurance agreements at issue contain a clause providing: "Any difference of opinion between the Reinsurer and the Company with respect to the interpretation of this certificate or the performance of the obligations under the certificate shall be submitted to arbitration." *fn4"

 DISCUSSION

 1. Motion to Dismiss

 Defendant's motion to dismiss is granted. There is no independent cause of action for punitive damages in New York. See Weir Metro Ambu-Service v. Turner, 57 N.Y.2d 911, 456 N.Y.S.2d 757, 442 N.E.2d 1268 (1982); Bradshaw v. Silversmith, 122 Misc.2d 544, 546, 472 N.Y.S.2d 237, 239 (N.Y. App. Term 1983). Moreover, even if the Court were to construe the complaint liberally and interpret the seventh cause of actio as a demand for punitive damages, the demand would fail. Punitive damages are not permitted in a breach of contract action in New York absent "fraud 'aimed at the public generally', evincing a 'high degree of moral turpitude', and demonstrating 'such wanton dishonesty as to imply a criminal indifference to civil obligations.'" Durham Indus. v. North River Ins. Co., 673 F.2d 37, 41 (2d Cir. 1982) (quoting Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 491, 179 N.E.2d 497, 500 (1961)), cert. denied, 459 U.S. 827, 103 S. Ct. 61, 74 L. Ed. 2d 64 (1983). See also Brink's Inc. v. City of New York, 717 F.2d 700, 704 (2d Cir. 1983) (punitive damages unavailable under New York law even for deliberate breach of good faith); Kaufman v. Chase Manhattan Bank, 581 F. Supp. 350, 357 (S.D.N.Y. 1984) (no punitive damages permitted when investment fraud not aimed at investing public; no moral turpitude or wanton dishonesty); Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 358, 386 N.Y.S.2d 831, 833, 353 N.E.2d 793, 795 (1976) (punitive damages in contract action available only upon showing of public wrong); Borkowski v. Borkowski, 39 N.Y.2d 982, 982, 387 N.Y.S.2d 233, 233, 355 N.E.2d 287, 287 (1976) (punitive damages may be awarded in case of gross and wanton fraud even absent allegations of public wrong).

 Plaintiffs have not alleged any fraud and can suggest no greater public wrong than their own inability to pay the claims of their insured as a result of defendant's breach. This is not the kind of wrong to the public that requires exemplary damages. See Walker v. Sheldon, 10 N.Y.2d at 404, 223 N.Y.S.2d at 490, 179 N.E.2d at 499 (primary purpose or exemplary damages is to encourage victims to ...


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