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RIORDAN v. NATIONWIDE MUT. FIRE INS. CO.

December 3, 1990

JOHN W. RIORDAN AND JANE FOX, PLAINTIFFS,
v.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, DEFENDANT.



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 amended complaint.

BACKGROUND*fn1

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 plaintiffs.

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?

A: Yes.

  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
    limit.
  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:

Hi, Denise:

    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
  your concern.

Id.

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 ...

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