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ONEBEACON INSURANCE COMPANY v. FORMAN INTERNATIONAL

January 19, 2005.

ONEBEACON INSURANCE COMPANY, Plaintiff,
v.
FORMAN INTERNATIONAL, LTD., FORMAN INTERNATIONAL, LLC, and WAYNE FORMAN, Defendants.



The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge

OPINION

Defendants Forman International, Ltd. ("Forman International"), Forman International, LLC ("Forman LLC") and Wayne Forman ("Forman") (collectively the "Defendants") have moved under Rule 12(b)(6), Fed.R.Civ.P., to dismiss Counts I, II, III and VI of the complaint of plaintiff OneBeacon Insurance Company ("OneBeacon" or the "Plaintiff"). For the reasons set forth below, the motion is granted, and leave is granted to OneBeacon to replead.

Prior Proceedings

  This action was filed by OneBeacon on March 22, 2004. The complaint alleged six causes of action: negligence (Count I), breach of contract (Count II), breach of fiduciary duty (Count III), common law indemnification (Count IV), contractual indemnification (Count V), and contribution (Count VI).

  The instant motion to dismiss Counts I, II, III, and VI was heard and marked fully submitted on September 8, 2004.

  The Parties OneBeacon is a Pennsylvania corporation with its principal place of business in Boston, Massachusetts, and it is authorized to issue insurance policies in New York.

  Forman International and Forman LLC are New York corporations with their principal places of business in Great Neck, New York, and they are insurance agencies or brokerage firms. Forman is president and managing director of Forman International, and he is a principal of Forman LLC.

  The Complaint

  OneBeacon's complaint alleged that it is an insurer authorized to issue insurance policies in New York, and that it issued an insurance policy to its insured, Century 21, Inc. ("Century 21"), which policy covered Century 21 for property damage and lost business income at its retail locations, including 22 Cortlandt Street in New York City, adjacent to the World Trade Center site. (Compl. ¶¶ 1, 9, 15.) Following the September 11, 2001 destruction of the World Trade Center, Century 21 made a claim to OneBeacon for insurance benefits. (Compl. ¶¶ 9, 23-25.) It is the payment of the Century 21 claim that gives rise to this litigation.

  In 1999 and continuing thereafter, the Defendants agreed to solicit and negotiate policies of insurance written by OneBeacon and its member and predecessor companies "pursuant to written and/or oral agreements" collectively referred to in the complaint as "the Contract." (Compl. ¶ 7.) OneBeacon negotiated the terms of the proposed insurance policy with Century 21, with Forman "acting on behalf of OneBeacon pursuant to the Contract" and Stephen Gerber, an insurance consultant, acting on behalf of Century 21. (Compl. ¶ 11.) Gerber requested that Century 21's insurance policy contain certain business interruption coverage. In particular, Gerber requested policy language that a covered business interruption claim would be "computed from date of occurrence of such loss or damage until such time as the described property could with the exercise of due diligence and dispatch, be restored new to the same normal operating sales condition. . . ." (Compl. ¶¶ 12-13.)

  This requested policy language was unacceptable to OneBeacon, and OneBeacon advised Forman that it would not agree to incorporate such language into OneBeacon's policy. (Compl. ¶ 14.) Subsequently, on or about August 20, 1999, a policy was issued by OneBeacon to Century 21. The policy, as issued, did not contain the business interruption policy language requested by Gerber (Compl. ¶¶ 15-20), and Forman "knew or reasonably should have known that OneBeacon did not and would not have agreed to such language." (Compl. ¶¶ 15, 21.) Notwithstanding this knowledge, Forman "intentionally, negligently, recklessly and/or without authority from OneBeacon, represented to Gerber, Century 21, and/or their agents that the policy was amended or would be amended to incorporate" the business interruption language previously requested by Gerber, but rejected by OneBeacon. (Compl. ¶¶ 20-21.) OneBeacon has alleged that Forman was "not authorized by OneBeacon to amend the policy to include the language" proposed by Gerber, and that Forman's "representations to Century 21 and/or its agents exceeded Forman's authority as a broker and/or agent for OneBeacon." (Compl. ¶ 22.) Forman's allegedly wrongful conduct both before and after September 11, 2001 is at issue in this case. (Compl. ¶¶ 20-22, 25, 33.)

  Following the destruction of the World Trade Center, Century 21 submitted a claim for business interruption based on the period of interruption language proposed by Gerber and rejected by OneBeacon. (Compl. ¶ 25.) Century 21 did so because it believed that Forman, as an agent of OneBeacon, agreed to amend the policy to include Gerber's proposed language. (Compl. ¶ 28-30.) This claim, as calculated by Century 21, greatly exceeded a claim calculated under the period of interruption provisions set forth in the policy as actually issued. (Compl. ¶ 26.) Because Century 21, Gerber, and Forman maintained that Forman, as the agent of and acting on behalf of OneBeacon, had bound insurance coverage or agreed to amend coverage based upon the language originally requested by Gerber, Century 21 argued following the September 11 attack that it was entitled to have the policy reformed to include the proposed language. (Compl. ¶ 28.) OneBeacon honored Century 21's claim and negotiated a resolution with Century 21 pursuant to which OneBeacon made payments to Century 21 for business interruption in excess of $75 million because Century 21 and Gerber believed Forman to be an agent of OneBeacon with authority to bind the company, and because OneBeacon took the position that Century 21, an innocent victim of the World Trade Center attack, should not have been prejudiced in recovering insurance benefits that it reasonably believed, based on Forman's misrepresentations, it was entitled to receive. (Compl. ¶ 29.) Thus, OneBeacon alleges that Forman is liable to it "for the additional amounts OneBeacon was required to pay to Century 21 solely as a result of the improper and unauthorized misrepresentations, acts and/or omissions" of Forman, in the approximate amount of $40 million, the difference between the amount paid to Century 21 and the amount OneBeacon calculated under the policy it issued. (Compl. ¶¶ 29-30.)

  Discussion

  Jurisdiction in this case is based on the diversity of the ...


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