The opinion of the court was delivered by: Kram, District Judge.
MEMORANDUM OPINION AND ORDER
Plaintiffs bring this diversity suit to recover under a
liability insurance policy issued by defendant. The complaint
alleges claims sounding in fraud and contract, together with
a claim under the New York General Business Law, arising from
defendant's alleged failure to satisfy its obligations under
the policy. The complaint also seeks punitive damages.
Defendant interposed an answer to the complaint denying its
material allegations and raising various affirmative defenses
including partial satisfaction of plaintiff's claim.
Defendant now moves, pursuant to Rules 12(b)(6) and 12(c) of
the Federal Rules of Civil Procedure, for an order dismissing
the complaint on the grounds that the complaint fails to state
a claim against it. Defendant also moves pursuant to Rule 9(b)
on the ground that the complaint fails to plead fraud with the
requisite particularity. Plaintiffs cross-move for an order,
pursuant to Rule 15(a), granting them leave to amend their
complaint and, pursuant to Rule 56(a), granting them partial
summary judgment with respect to the claims of the proposed
On May 12, 1988, plaintiffs purchased from defendant
Nationwide Mutual Fire Insurance Company ("Nationwide") an
"Elite II" homeowners insurance policy (the "Policy") which
insured that certain real property located at 48 Overlook
Road, Ossining, New York (the "Premises") together with the
personal property contained on the Premises (the "Contents").
Among the Policy's various available options, plaintiffs
selected Option I, "Extended Replacement Cost Coverage"
governing the Contents, and Option J, "Replacement Cost
Guarantee" governing the Premises.
On July 17, 1989, the Premises and Contents were damaged due
to a fire and its effects, a covered peril under the Policy.
Plaintiffs immediately retained Steven Seltzer, Esq.
("Seltzer"), a public adjuster licensed to represent insureds
within the State of New York and a vice president and general
counsel of the adjusting firm Goldstein Affiliates, Inc.
("Goldstein Affiliates"). With the assistance of Seltzer and
Goldstein Affiliates, plaintiffs timely submitted to
Nationwide a Sworn Statement and Proof of Loss, sworn to on
October 10, 1989 (the "Proof of Loss"), indicating, among
other things, that plaintiffs' loss with respect to the
Contents was $147,421.49 based on "replacement cost if
destroyed or restoration cost if restorable." In addition to
the Proof of Loss, plaintiffs submitted to Nationwide a
seventy-seven page list of items to be replaced or repaired
under the Policy, together with other documentation of their
loss. Nationwide, however, did not hire experts to appraise
the cost to repair, restore or replace plaintiffs' antique
furniture until five months after the fire.
The proposed amended complaint alleges that from the date of
the fire through approximately mid-January 1990, Nationwide
made no offers to settle any part of plaintiff's claim despite
plaintiffs' timely filing of a Proof of Loss, documentation of
their loss and apparent willingness to settle the building
portion of the claim for the amount recommended by
Nationwide's claims adjuster, John Hahn ("Hahn"). Hahn, a
twenty-year veteran with Nationwide, indicates that his
supervisor, Joseph Kenyon, had expressly rejected settling the
Contents portion of plaintiffs' claim, despite plaintiffs'
expressed willingness to accept the amount Nationwide's own
builder had recommended, because Mr. Kenyon specifically
refused Hahn authority to settle on a "piecemeal" basis. After
an apparent inquiry by the State of New York Insurance
Department concerning the settlement of plaintiffs' claim,
Nationwide advised the Insurance Department, by letter dated
April 11, 1990, that it had offered $53,571.65 for the
dwelling portion of the claim and $20,960.00 for the contents
portion. Plaintiffs allege that no such offer was ever
conveyed to them, and there is no evidence that the April 11,
1990 letter to the Insurance Department was circulated to
With respect to plaintiffs' Contents claim, Hahn admits
valuing the Contents loss for adjustment purposes at $20,000
on an actual cash value basis after having received
plaintiffs' Proof of Loss indicating that plaintiffs' had
sustained a loss of $147,421.49, a large portion of which
resulted from the destruction of, or damage to, antiques.
There is no indication of how Hahn arrived at the $20,000
figure. There is neither documentary evidence of the basis of
Nationwide's de facto rejection of plaintiffs' claim, nor
evidence of formal rejection. Nationwide does assert that
plaintiffs' failure to itemize their Contents loss on
Nationwide forms hampered Nationwide's ability to properly
evaluate the Contents claim.
Hahn admits that Nationwide policy and practice is to base
settlement of a replacement value claim upon actual cash value
unless and until the insured replaces destroyed personal
property with his or her own funds. Hahn also admits that it
is Nationwide's policy and practice to approach claims
settlement upon the premise that there are no time constraints
within which Nationwide must operate. Hahn testified at his
deposition as follows:
Q: Let's talk about contents for a moment.
Is it Nationwide's practice as you understand
it, to require the insured under the
replacement value coverage, to replace their
personal property out of their own funds before
replacement value coverage would apply?
Q: And is your testimony the same with respect to
Nationwide's obligation to pay the loss within
a certain period of time? That is, is there any
restriction or any rule requiring the claim to
be paid within a certain period of time?
A: No. I just stated that. There is no time
Q: And that would apply both to contents and to
A: To the total claim, sure.
Q: And with respect to this claim and other
similar claims, have you approached them all
that way, with that thought in mind?
A: I can't speak for other claims, but for the
most part, yes.
Plaintiffs also allege that "[s]ix (6) months to the day
prior to suffering the fire . . . Nationwide had identified
plaintiffs' relationship with Defendant as not being a
profitable one, and, specifically blacklisted them." Proposed
Amended Complaint ¶ "Twenty-Sixth." After having suffered two
minor losses, one due to a boiler puff-back, and the second due
to vandalism, a woman identified only as "Denise," from
Nationwide's underwriting department, dispatched a memorandum
to Nationwide's issuing agent:
This does not look to be a real profitable
account. You may want to review it for flagging
purposes. Advise. Denise.
Proposed Amended Complaint at ¶ "Twenty-Fourth. Nationwide's
issuing agent responded as follows:
I realize we had a few claims, but I have known
the Riordan's for a number of years and they are
excellent people. I will watch claims — Thanks for
Plaintiffs' proposed amended complaint asserts a claim
founded upon Nationwide's breach of its obligations under the
Policy, a claim under New York General Business Law § 349
(governing deceptive business practices) and a claim for
punitive damages. The common law fraud claims of the original
complaint do not appear as such in the proposed amended
complaint. Plaintiffs' alleged injury is summarized by the
complaint's allegation that:
Despite the passage of almost one (1) year and
the presentation of countless documents, numerous
meetings between the insured's representatives
and the insurer, despite the pleadings and
protestations offered by the insureds and their
representatives, Defendant has yet either to make
payment on Plaintiffs' claim, an offer of
compromise on plaintiffs' claim, or to set forth,
by way of ...