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TWO'S CO. v. TRANSAMERICA INS. CO.

October 1, 1986

Two's Company, Inc., Plaintiff,
v.
Transamerica Insurance Company, Defendant



The opinion of the court was delivered by: WALKER

MEMORANDUM AND ORDER

 WALKER, District Judge:

 INTRODUCTION

 Plaintiff Two's Company ("TC"), a New York corporation, brings this action to enforce an insurance contract with Defendant Transamerica Insurance Company ("Transamerica"), a California corporation and TC's insurer under an all-risk business, property, and casualty insurance policy.

 Plaintiff moves for summary judgment on two of Transamerica's affirmative defenses. Defendant moves to disqualify plaintiff's counsel, Samuel D. Rosen, Esq., on the grounds that his testimony at trial would violate Disciplinary Rule 5-102(A). Both parties move for sanctions, pursuant to Fed. R. Civ. P. 11.

 Plaintiff's motion for summary judgment is denied. Defendant's motion to disqualify plaintiff's council is granted. Plaintiff's and defendant's motions for sanctions are denied.

 FACTS

 In October 1984, TC discovered an incident of employee theft. TC furnished Transamerica with a pro forma "Bond Proof of Loss" in the sum of $ 100,000, together with an affidavit signed by TC's employee Linda Williams, who admitted to the theft. On October 23, 1985, defendant denied payment on the claim, alleging that plaintiff had failed to furnish an itemized loss statement. A few days later, defendant notified plaintiff that the insurance policy would be cancelled, effective December 26, 1985.

 TC brought suit in November 1985, seeking compensatory damages of $200,000, as well as punitive damages of $1,000,000. Two of plaintiff's claims pertained to injuries resulting from defendant's cancellation of plaintiff's policy, claims which plaintiff subsequently dropped. The remaining cause arises out of defendant's refusal to pay the insurance claim related to Williams' theft.

 In addition to a general denial of plaintiff's claim, defendant offers four affirmative defenses: 1) Plaintiff failed to file a detailed proof of loss statement; 2) Plaintiff accepted $19,000 in restitution from Linda Williams, *fn1" an agreement which discharged defendant from any plaintiff claim; 3) Plaintiff agreed not to prosecute Williams in consideration for the $19,000 she had paid, an agreement which bars plaintiff's insurance claim; 4) Defendant's liability for a maximum of $ 100,000 under the TC insurance policy prevents plaintiff's recovery of the $ 1,200,000 damages sought.

 Williams has filed no less than five affidavits adding, correcting or supplementing her description of the theft and related events, particularly her payment of $19,000 to plaintiff. In four of these affidavits, Williams either explicitly states or suggests that in return for her $19,000 check, plaintiff agreed that she would not face criminal prosecution for theft. In three of the affidavits, Williams describes the payment as restitution for the money or items she stole. However, in Williams' third affidavit, dated January 14, 1986, she denied that the $19,000 check constituted restitution, indicating instead that the check was endorsed to the law firm of plaintiff's attorney Rosen as payment for legal fees. This characterization of the $19,000 "as partial reimbursement of legal, accounting and investigative expenses" is corroborated in an affidavit filed by Rosen.

 Williams has stated that since plaintiff first accused her of theft, "Mr. Rosen has been the only person on behalf of Two's Company that I have spoken, corresponded or dealt with. . . ." Rosen's affidavit of January 16, 1986 confirms that he has handled all transactions relevant to this litigation between Williams and plaintiff: "Everything plaintiff submitted was done by me . . . in writing."

 DISCUSSION

 Motion for Partial Summary ...


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