United States District Court, Southern District of New York
May 15, 2001
AMERICAN NATIONAL FIRE INSURANCE CO. AND GREAT AMERICAN INSURANCE CO., PLAINTIFFS,
MIRASCO, INC., DEFENDANT. MIRASCO, INC., PLAINTIFF, V. AMERICAN NATIONAL FIRE INSURANCE COMPANY, DEFENDANT.
The opinion of the court was delivered by: Robert W. Sweet, U.S.D.J.
American National Fire Insurance Co. and Great American Insurance Co.
(the "Insurers"), plaintiffs in 99 Civ. 12405 (the "New York Action") and
defendants in 00 Civ. 5098 (the "Georgia Action"), have moved for summary
judgment to dismiss the punitive damage counterclaim of defendant
Mirasco, Inc. ("Mirasco") in the New York Action as well as a similar
claim in the Georgia Action. Both the counterclaim and claim are based
upon a Georgia statute providing a remedy for bad faith on the part of the
insurer. For the reasons set forth below, the motion is granted at this
These New York and Georgia Actions represent opposing sides of the same
coin, an insurance claim by Mirasco relating to a shipment of frozen beef
liver rejected by Egyptian authorities upon its arrival in Alexandria.
Diligent lawyering has provided additional basis for another scrimmage of
motion practice before reaching the merits of the dispute. In order to
determine whether or not Mirasco has a claim for damages resulting from
the alleged bad faith treatment by the Insurers of this claim, it is
necessary to determine the law which will be applied to the insurance
policy giving rise to the claim in view of the absence of any choice of
Following informal discussion concerning the resolution of an insurance
claim filed early in 1999 by Mirasco, on December 22, 1999, the Insurers
commenced the New York Action against Mirasco seeking a declaration that
they were not obligated to pay Mirasco's losses under the policy. In
response Mirasco asserted a counterclaim against the Insurers under
Georgia law for breach of contract and bad faith.
On March 8, 2000, Mirasco commenced the Georgia Action against
the Insurers in the Superior Court of Georgia, Fulton County, seeking
compensatory and exemplary damages, including attorneys' fees, under
Georgia law for the Insurers' breach of the policy and their bad faith
denial of Mirasco's claim. The Insurers removed the Georgia Action to
federal court, and Mirasco sought to remand. After finding that diversity
jurisdiction existed, the United States District Court for the Northern
District of Georgia, on July 5, 2000, transferred the Georgia Action to
this Court, stating:
The most persuasive reason for transferring this
action is that a related action involving the same issues
pending in the United States District Court
for the Southern District of New York. Transferring this
case would promote judicial economy by preventing the
duplication of judicial effort and avoiding the
possibility of inconsistent results. Defendants submit
that pursuant to the "first to file" rule this case
should be transferred to the New York court as the action
currently pending there was filed before the instant
action. The first to file rule provides that where two
courts have concurrent jurisdiction over substantially
similar actions, the first court in which jurisdiction
attaches has priority to consider the case. See Martin
v. South Carolina Bank, 811 F. Supp. 679, 686 (M.D.Ga.
1992). Plaintiff argues in response that a court may
decline to apply the first to file rule where priority
was obtained by filing a declaratory judgment in the
transferee court in anticipation of litigation. See
Martin v. South Carolina Bank, 811 F. Supp. 679, 686
(M.D.Ga. 1992). However, doing so is not mandatory.
Allstate Ins. Co. v. Clohessy, 9 F. Supp.2d 1314
(M.D.Fla. 1998). In Martin, the court also explained that
while a "plaintiff's choice of forum is entitled to
deference, it is not a more important factor than the
presence of related proceedings in the transferee
Plaintiff asserts that Defendants' declaratory
judgment motion was filed in anticipation of litigation
as it was filed while the parties were negotiating over
Defendants' refusal to pay on Plaintiff's claim. The
vice president of Mirasco apparently met with
representatives for Defendants on December 8, 1999.
Defendants filed their declaratory judgment action on
December 28, 1999. Defendants assert that they did not
file in anticipation of litigation but simply because
they saw no resolution to the liability dispute. They
assert that it is common in the insurance industry to
file a declaratory judgment action in such situation.
Although the court finds it a close call as to whether
Defendants did, indeed, file their action in
anticipation of litigation, the court will nonetheless
transfer this case in the interest of judicial
economy. These actions clearly should be consolidated
for purposes of adjudication in order to preserve
judicial resources and avoid inconsistent judgments,
and as the convenience of witnesses may favor transfer
the court will so grant it. See e.g., Tingley
Systems, Inc. v. Bay State HMO Management, Inc.,
833 F. Supp. 882 (M.D.Fla. 1993) (finding convenience
of parties and witnesses favored transfer of action to
district in which defendant's declaratory judgment
action was pending; although both parties would be
inconvenienced by litigating in other's chosen forum,
all parties and witnesses would be more inconvenienced
by litigating related actions in separate courts);
Allstate Ins. Co. v. Clohessy, 9 F. Supp.2d 1314
(M.D.Fla. 1998) (explaining "the first-filed action is
preferred, even if it is declaratory, unless
considerations of judicial and litigant economy, and
the just effective disposition of disputes, require
otherwise"); Martin, 811 F. Supp. at 686 (granting
transfer to court in which declaratory judgment action
pending when said court had already denied transfer as
not doing so would result in waste of judicial
resources and the possibility of inconsistent
In the New York Action complaint, the Insurers asserted that maritime
law governed the action which gave rise to a motion by Mirasco to dismiss
and to stay the New York Action. In an order of September 20, 2000,
familiarity with which is assumed,
it was held that jurisdiction was
based solely upon diversity of citizenship.
Discovery has gone forward, and the Insurers have moved to dismiss
Mirasco's claim for punitive damages based upon the Insurers' bad faith
in responding to its claim. That motion, the subject of this opinion, was
deemed fully submitted on February 21, 2001.
The Insurers are Ohio corporations with their principal place of
business in Cincinnati and licensed to do business in New York as a
marine insurance company. Mirasco is a Georgia corporation with its
principal place of business in Atlanta.
On March 15, 1990, the Insurers issued an insurance policy to Mirasco
entitled "Open Cargo Policy No. 7375220" (the "Policy") which was
originally effective March 15, 1990 and which was rewritten effective
March 15, 1996. International Insurance Brokers, Inc. ("IIB") in New York
on behalf of Mirasco prepared the Policy and submitted it to the
Insurers' New York office where it was executed and returned to IIB.
The Policy provides coverage for physical loss or damage to lawful
goods in transit. The Policy covers conveyances:
Per steamer and/or steamers and/or motor vehicles and/or
barge and/or sailing vessel and/or land conveyance and/or
aircraft and/or mail and/or parcel post and connecting
conveyances by land or otherwise.
Policy, Clause 7, "Conveyances."
The Policy includes a "Rejection Coverage" clause (the "Rejection
Clause"). This clause provides in relevant part that the Policy covers
"the risks of rejection or condemnation by the government of the country
of import or their agencies or departments during the period of this
insurance," see Policy, Rejection Clause, Part A.1., but excluding
coverage for the "embargo or prohibition" of goods, see Policy, Rejection
Clause, Part D.
Clause 39 of the Policy refers to the "statutes of New York, and/or
state or county having jurisdiction" to determine time bars.
Clause 40 of the Policy states:
It is a condition of this policy and it is hereby agreed
that International Insurance Brokers, Inc. is The
Insured's broker and shall be deemed to be exclusively
the agents of The Insured and not of These Insurers; any
notice in connection with affecting this insurance which
is given or delivered by or on behalf of These Insurers
to International Insurance Brokers, Inc., including
notice of cancellation, shall be deemed to have been
delivered to The Insured.
Policy, Clause 40, "Brokers".
Clause 60 of the Policy states:
Authority is hereby given to The Insured to issue These
Insurers' Certificates, special policies and all
endorsements (if required) on any or all risks applying
under this policy, which are not to be valid unless
countersigned by an authorized representative of The
Policy, Clause 60, "Privilege to Issue Certificates".
The Policy contains no choice of law provision. The Policy was
delivered to Mirasco and certificates of insurance were mailed to Mirasco
and later completed and countersigned by Mirasco in Atlanta.
On December 31, 1998, the vessel M/V Spero, which was chartered by
Mirasco, departed Houston, Texas bound for Alexandria, Egypt bearing a
cargo of frozen beef livers. The M/V Spero arrived in Alexandria on or
about January 23, 1999. However, the Egyptian authorities would
permit the cargo to be landed. Mirasco ordered the vessel to return to
Houston where the cargo was sold as salvage. Mirasco then presented a
claim to the Insurers in the amount of $2,946,290.23. The Insurers paid
Mirasco $400,000 to cover the cost of the return ocean freight to
Houston, and by letters of May 9, 1999 and September 22, 1999, have
rejected Mirasco's claim on the ground that Mirasco's claim does not meet
the requirements of the Rejection Clause. The Mirasco claim was rejected
by the Insurers in their Cincinnati office.
Section 33-4-6 of Georgia Insurance Code provides, in relevant part:
Liability of insurer for damages and attorney's fees.
In the event of a loss which is covered by a policy of
insurance and the refusal of the insurer to pay the same
within 60 days after a demand has been made by the holder
of the policy and a finding has been made that such
refusal was in bad faith, the insurer shall be liable to
pay such holder, in addition to the loss, not more than
25 percent of the liability of the insurer for the loss
and all reasonable attorney's fees for the prosecution of
the action against the insurer. The amount of any
reasonable attorney's fees shall be determined by the
trial jury and shall be included in any judgment which is
rendered in the action. . .
O.C.G.A. § 33-4-6.
New York law does not provide a cause of action for bad faith denials
of insurance claims. Rocanova v. Equitable Life Assurance, 83 N.Y.2d 603,
634 N.E.2d 940 (1994).
The Applicable Conflict of Law Rules
As a preliminary matter, courts must decide what conflict of law rules
apply in order to determine the applicable substantive law governing the
dispute. Normally a federal court sitting in diversity applies the
conflicts rules of the state in which it sits. Klaxon Co. v. Stentor
Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477
(1941). Where, as here, the case is transferred from another district,
the issue becomes slightly more complex.*fn1 Compounding that problem is
the fact that a possible result in this case is the application of
different conflict rules (and thus potentially different substantive law)
to the New York Action and the Georgia Action, even though the claims are
mirror images and are being tried in the same court.
Fortunately, in this case, both Georgia's and New York's conflict rules
yield the same result, therefore, the issue of which conflict of law
rules apply needs not be decided.
New York Law is Applicable
The three possible choices of law fora are Ohio, Georgia and New York.
For the reasons set forth below, New York law governs the issue of bad
faith claims for denial of coverage.
Georgia Choice of Law Analysis
Georgia applies the lex loci contractus test to determine applicable
law. General Telephone Co. of the Southeast v. Trimm, 252 Ga. 95 (Ga.
The general rule as to contracts of all kinds is that
they are to be governed as to their nature, validity, and
interpretation by the law of the place where they were
made, except where it appears
from the contract itself
that it is to be performed in a state other than that in
which it was made, in which case . . . the laws of that
sister State will be applied, so long as such laws do not
conflict with the statutes, powers, or rights of the
state wherein it was executed and sought to be enforced.
Tillman v. Gibson, 161 S.E. 630, 632 (Ga App. 1931) (internal citations
omitted). See also, Trimm, 252 Ga. 95 (Ga. 1984) (affirming the lex loci
contractus test as stated in Tillman.)
In Coffin v. London & Edinburgh Ins. Co. (27 F.2d 616 (N.D. Ga 1928)),
a case which applies the Georgia conflict of law rule, the court decided
on similar facts to apply New York law to an insurance contract where the
policy covered property in Georgia, the assured resided in Georgia and the
insurance company sent an investigator to Georgia.*fn2 In that case the
court stated, "[t]he location of the property insured is not conclusive
in fixing the law which the parties intended to contract under. It might
be a ship at sea, or a house in a city never visited by either party. In
case of loss the contract can be performed without visiting the place of
destruction." At 617.
Although Mirasco has advanced delivery of the Policy in Georgia as a
grounds for applying Georgia law, it has acknowledged that "the location
of a contract's delivery or performance does not necessarily dictate the
choice of law analysis. Rather, the overall intent of the parties is
determinative." Boardman Petroleum, Inc. v. Federated Mut. Ins. Co.,
926 F. Supp. 1566, 1575 (S.D.Ga. 1995) (Memorandum of Law of Mirasco,
Inc., p. 9). Further, delivery of the Policy to IIB in New York was
delivery to Mirasco under Clause 40.
Finally, recognizing the strength of the arguments that New York law
applies, Mirasco has cited its "presumption of identity" rule, see
Shorewood Packing Corp. v. Commercial Union Ins. Co., 865 F. Supp. 1577,
1579-82 (N.D.Ga. 1994), to make the Georgia punitive damages statute
applicable, there being no equivalent statute in New York according to
Mirasco. However, by its terms, the rule as between the original thirteen
states applies only to the applicability of Georgia common law. As stated
by the court in Shorewood, under the presumption of identity rule,
"Georgia courts apply the common law as developed in Georgia rather than
foreign case law." Id, at 1581 (internal citations omitted.). The
application of Georgia statutory law is not contemplated by the rule.
The locus of the contractual relationship under Georgia's lex loci
contractus test was New York, therefore the applicable law is that of New
New York Choice of Law Analysis
As stated by Mirasco in its brief, New York courts look to the "law of
the jurisdiction with the strongest interest in the resolution of the
particular issue presented." James v. Powell, 19 N.Y.2d 249,
279 N.Y.S.2d 10, at 23 (1967) (Memorandum of Law of Mirasco, p. 2). In
cases involving insurance contracts, important factors to be considered
include the "location of the insured risk, residence of the parties and
where the contract was issued and negotiated." Evvtex Co. v. Hartley
Cooper Assocs., 911 F. Supp. 732, 738, aff'd 102 F.3d 1327 (2d Cir. 1996)
(quoting Avondale Indus., Inc. v. Travelers Indemnity Co.,
774 F. Supp. 1416, 1423 (S.D.N.Y. 1991) and citing Olin Corp. v.
Insurance Co. of North Am., 743 F. Supp. 1044,
1049 (S.D.N.Y. 1990),
aff'd, 929 F.2d 62 (1991)).
The policy was negotiated between IIB and Great American in New York
where the Rejection Coverage clause was prepared and included in the
Policy; the Policy was issued in New York; the risk insured had no
particular location, other than the port of departure and port of return,
both being in Texas; and investigation of the claim. It now appears that
decision of declination occurred principally in Ohio and in part in New
The only connection Georgia has to the dispute is the domicile of the
insured and possibly the issuance of the certificates of insurance, which
is disputed. Ohio has a similarly slim connection as the domicile of the
Insurers and the place of the rejection of the claim.
Under New York's interest analysis, the applicable law is the law of
New York Law On Bad Faith Denials of Coverage
New York law has barred a punitive damage claim against insurers unless
the conduct complained of is sufficiently egregious to constitute an
independent tort and forms part of a pattern of conduct directed at the
public at large. Rocanova v. Equitable Life Assurance, 83 N.Y.2d 603,
634 N.E.2d 940 (1994); and see, New York University v. Continental Ins.
Co., 87 N.Y.2d 308, 317, 639 N.Y.S.2d 283 (1995). In Great American Ins.
Co. v. J. Aron & Co., 1995 AMC 1854 (S.D.N.Y. 1995), this Court followed
Rocanova v. Equitable Life and dismissed a counterclaim alleging bad
faith in rejecting coverage for losses under a marine insurance policy.
Applying New York law, the punitive damage counterclaim in the New York
Action will be dismissed as well as the equivalent claim in the Georgia
Because the Policy was made in New York and because New York's interest
predominates over Ohio and Georgia, the claim and counterclaim of Mirasco
based on Georgia statutory law are dismissed. The parties are directed to
consolidate these actions on consent or if necessary by motion.
It is so ordered.