United States District Court, S.D. New York
May 3, 2005.
DR. STEVEN COHEN, Plaintiff,
UNITED STATES FIDELITY AND GUARANTY COMPANY a/k/a ST. PAUL FIRE AND MARINE INSURANCE, ST. PAUL TRAVELERS, and THE ST. PAUL COMPANIES, INC., Defendants.
The opinion of the court was delivered by: RICHARD BERMAN, District Judge
DECISION AND ORDER
On or about June 24, 2004, Dr. Steven Cohen ("Dr. Cohen" or
"Plaintiff") filed this action against United States Fidelity and
Guaranty Company a/k/a St. Paul Fire and Marine Insurance
("USF&G"), St. Paul Travelers, and The St. Paul Companies, Inc.
(collectively, "Defendants") in New York State Supreme Court for
the County of New York. (See Complaint, dated June 23, 2004.)
On or about July 29, 2004, Defendants removed the action to this
Court on the basis of diversity of citizenship. 18 U.S.C. § 1332.
Plaintiff served an amended complaint on or about November 1,
2004, asserting claims of breach of contract ("First Cause of
Action"), violation of New York's General Business Law § 349
("GBL § 349") ("Second Cause of Action"), and "bad faith refusal
to pay an insurance claim" ("Third Cause of Action"), arising out
of USF&G's alleged refusal to pay business interruption losses
sustained by Plaintiff, a chiropractor, after a water pipe burst
in his office on or about April 18, 2002. (See Amended
Complaint, dated November 1, 2004 ("Amended Complaint" or
"Compl."), ¶¶ 31-50.) Plaintiff seeks "direct damages,"
consequential damages, punitive damages, and attorneys' fees with
respect to his breach of contract and bad faith claims. He seeks actual damages and attorneys' fees pursuant to GBL §
349. (See Compl. ¶¶ 35,42, 45, 50.)
On or about November 18, 2004, Defendants moved pursuant to
Fed.R.Civ.P. 12(b)(6) to dismiss the following of Plaintiff's
claims: GBL § 349 claim; claim for punitive damages; claim for
consequential damages; claim for attorneys' fees (under the
breach of contract claim); and all claims against Defendants
other than USF&G (the "non-USF&G Defendants"). See Memorandum
of Law in support of Defendants' Motion to Dismiss, dated
November 18, 2004 ("Defs'. Mem.").) Plaintiff filed an opposition
on or about December 16, 2004. (See Plaintiff's Memorandum of
Law in Opposition to Defendants' Motion to Dismiss the Amended
Complaint, dated December 8, 2004 ("Pl. Mem.").) Defendants
submitted a reply on December 20, 2004. (See Reply Memorandum
of Law in Further Support of Defendants' Motion to Dismiss, dated
December 20, 2004 ("Defs.' Reply").) Oral argument was held on
May 3, 2005. For the reasons set forth below, the Court grants
Defendants' motion to dismiss. Plaintiff is given leave to
For the purposes of this motion, the allegations contained in
the Amended Complaint are taken as true. See Abraham v. Penn
Mut. Life Ins. Co., No. 98 Civ. 6439, 2000 WL 1051848, at *2
(S.D.N.Y. July 31, 2000).
"On or about July 22, 2001, USF&G issued an insurance policy to
Dr. Cohen, by which USF&G agreed to provide insurance coverage to
Dr. Cohen, including business interruption coverage, in
consideration for which, Dr. Cohen agreed to pay [and did pay]
premiums (the `Policy')." (Compl. ¶¶ 17-18.) On or about April
18, 2002, a pipe burst at Dr. Cohen's office and "water was emitted into and about the Office." (Id. ¶¶
19-20.) "On or about October 11, 2002, Dr. Cohen began to
experience significant losses in his business as a result of the
Pipe Burst." (Id. ¶ 21.) USF&G deemed the pipe burst "to
constitute an occurrence within the meaning of the Policy,
triggering an obligation by USF&G to provide coverage," including
indemnification "for all business losses resulting from
occurrences . . . for a period of up to 12 months." (Id. ¶¶
22-24.) Plaintiff submitted to USF&G a Proof of Loss in the
amount of $86,241. (See id. ¶¶ 25-27.) "Although
acknowledging the existence of coverage and an occurrence, USF&G
has refused to pay the amount of the loss, despite Dr. Cohen's
repeated demands to do so." (Id. ¶ 28.)
Plaintiff alleges that "USF&G has no arguable justification for
failing to pay Dr. Cohen under the Policy" and that "[a]s a
result of USF&G's conduct, Dr. Cohen has been forced to sustain
additional, consequential losses." (Id. ¶¶ 29-30.) Plaintiff
also alleges that:
Upon information and belief, defendants developed a
scheme (the `Scheme') by which they agreed to seek to
artificially reduce the amount they would pay
claimants for all business interruption losses
occurring after the 9/11/01 tragedy. . . . As part of
the Scheme, defendants would inform all insureds
whose businesses were located in downtown New York
City that their base-line income was necessarily and
permanently reduced as a result of the 9/11 Tragedy,
such that, any ensuing business interruption would be
compensable in a lesser amount.
(Id. ¶ 38.)
III. Legal Standard
In ruling on a motion to dismiss pursuant to Fed.R.Civ.P.
12(b)(6), a court "must accept the factual allegations of the
complaint as true, and draw all reasonable inferences in favor of
the plaintiff." Abraham, 2000 WL 1051848, at *2 (citing
Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996)). "Dismissal
of a complaint for failure to state a claim . . . is proper only
where it appears beyond doubt that the plaintiff can prove no set of facts
in support of his claim which would entitle him to relief." Lava
Trading Inc. v. Hartford Fire Ins. Co, 326 F. Supp. 2d 434, 438
(S.D.N.Y. 2004) (internal quotation omitted); see also Conley
v. Gibson, 355 U.S. 41, 45-46 (1957). "`A complaint which
consists of conclusory allegations unsupported by factual
assertions fails even the liberal standard of Rule 12(b)(6).'"
Lava Trading, 326 F. Supp. 2d at 438 (quoting DeJesus v.
Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir. 1996)).
A. GBL § 349 claim
Defendants argue that the Amended Complaint fails to state a
claim under GBL § 349 because the conduct Plaintiff alleges
relates "to a contractual dispute and does not constitute
consumer oriented conduct." (Defs.' Mem. at 8-9.) Defendants also
argue that the Amended Complaint does not (sufficiently) allege,
among other things: (i) "that the challenged acts or practices
were likely to mislead a reasonable consumer, acting reasonably
under the circumstances"; (ii) "that plaintiff suffered injury as
a result of the `scheme'"; and (iii) that Plaintiff "was misled
by the `scheme.'" (Id. at 10-11.) Defendants further contend
that "the conclusory allegations that [the non-USF&G Defendants]
engaged in [the Scheme] are not sufficient to set forth a
cognizable claim against" them. (Id. at 13.)
Plaintiff responds that he has alleged a claim under GBL § 349
because he "alleges that defendants' conduct did, in fact, `have,
a direct impact upon the public at large,'" and "that defendants
entered into an intentional scheme to defraud him and not pay him
his benefits." (Pl. Mem. at 10) (quoting Compl. ¶ 41). Plaintiff
also states that "Dr. Cohen has alleged that USF&G's actions, in
creating and implementing a scheme to defraud the general public,
were part of an overriding conspiracy among all of the defendants."
(Id. at 2) (emphasis in original).
GBL § 349 makes unlawful "[d]eceptive acts or practices in the
conduct of any business, trade or commerce or in the furnishing
of any service." N.Y. Gen. Bus. Law § 349(a). To state a claim
under GBL § 349, a plaintiff must, "at the threshold, charge
conduct that is consumer oriented. The conduct . . . must have
broad impact on consumers at large; `private contract disputes
unique to the parties . . . would not fall within the ambit of
the statute.'" New York Univ. v. Continental Ins. Co.,
662 N.E.2d 763, 770 (N.Y. 1995) (quoting Oswego Laborers' Local 214
Pension Fund v. Marine Midland Bank, 647 N.E.2d 741, 745 (N.Y.
1995). "[C]ourts have found this requirement satisfied where
plaintiffs expressly alleged the existence of a claim settlement
policy designed to deceive certain categories of policyholders."
USAlliance Federal Credit Union v. Cumis Ins. Soc'y, Inc.,
346 F. Supp. 2d 468, 472 (S.D.N.Y. 2004); see also Greenspan v.
Allstate Ins. Co., 937 F. Supp. 288, 294 (S.D.N.Y. 1996).
After meeting this threshold, a plaintiff must establish "that
defendant is engaging in an act or practice that is deceptive in
a material way and that plaintiff has been injured by it." New
York Univ., 662 N.E.2d at 770. A "deceptive act or practice" is
a "representation or omission `likely to mislead a reasonable
consumer acting reasonably under the circumstances.'" Shapiro v.
Berkshire Life Ins. Co., 212 F.3d 121, 126 (2d Cir. 2000)
(quoting Oswego, 647 N.E.2d at 745). "Although it is not
necessary under the statute that a plaintiff establish the
defendant's intent to defraud or mislead, proof of scienter
permits the court to treble the damages up to $1000." Oswego,
647 N.E.2d at 745. Further, "while the statute does not require
proof of justifiable reliance, a plaintiff seeking compensatory
damages must show that the defendant engaged in a material
deceptive act or practice that caused actual, although not
necessarily pecuniary, harm." Id.; see also Gaidon v. Gaurdian Life Ins.
Co. of Am., 725 N.E.2d 598, 603 (N.Y. 1999) ("General Business
Law § 349 contemplates actionable conduct that does not
necessarily rise to the level of fraud.").
Plaintiff sufficiently alleges that the Scheme was "consumer
oriented" and that Defendants informed "all insureds whose
businesses were located in downtown New York City that their
base-line income was necessarily and permanently reduced as a
result of the 9/11 Tragedy, such that any ensuing business
interruption would be compensable in a lesser amount." (Compl. ¶
38.) See Greenspan, 937 F. Supp. at 294. And, these
allegations sufficiently allege the non-USF&G Defendants'
participation in the Scheme. See Fed.R.Civ.P. 8(a).
At the same time, Plaintiff offers only conclusory (and
insufficient) allegations concerning the remaining elements of a
GBL § 349 claim. (See Compl. ¶ 41 ("The Scheme is intentional;
misleading in material aspects, has had, and continues to have, a
direct impact upon the public at large and Dr. Cohen in
particular; and has caused damages to Dr. Cohen.").) See,
e.g., Lava Trading, 326 F. Supp. 2d at 438 ("[C]onclusory
allegations, even of the existence of a claim settlement policy
designed to deceive the public, are not sufficient to state a
claim under Section 349 in the absence of factual allegations in
support thereof."); see also Straker v. Metropolitan Transit
Auth., 333 F. Supp. 2d 91, 102 (E.D.N.Y. 2004).
B. Punitive Damages
Defendants argue that "the amended complaint does not indicate
that the defendants' alleged conduct is actionable as a tort
independent of the [insurance contract]," and, therefore, cannot
give rise to a claim for punitive damages. (Defs.' Mem. at 7.)
Plaintiff responds that "the allegations of the complaint state a
claim for relief under § 349 of the General Business Law . . ., a tort independent of the [breach] of contract claim" and so "Dr.
Cohen may seek punitive damages on his claim arising from § 349
of the General Business Law." (Pl. Mem. at 16).
Because the Court is dismissing Plaintiff's GBL § 349 claim,
Plaintiff's claim for punitive damages, which is predicated upon
Plaintiff's GBL § 349 claim, is also dismissed.*fn1
C. Consequential Damages
Defendants argue that: (i) the Amended Complaint fails to
allege that "the unspecified consequential damages which
[Plaintiff] allegedly sustained were within the contemplation of
USF&G at the time of or prior to issuance of the policy," (Defs.'
Mem. at 5); (ii) "the type of consequential damages which
plaintiff allegedly sustained is not even identified," (Defs.'
Reply at 4); (iii) "the amended complaint fails to identify any
provision or language in the insurance policy which indicates
that recovery of consequential damages was within the
contemplation of the parties," (Defs.' Mem. at 5-6); and (iv) "the policy
specifically excludes coverage for consequential loss. . . ."
(Defs.' Reply at 5.)
Plaintiff responds that: (i) "[t]he complaint adequately
alleges that USF&G knew full well at the time it issued its
policy to Dr. Cohen that, in the event of a bad faith denial of
benefits, it would result in additional, consequential damages";
(ii) there is no requirement "that the Policy contain a specific
provision or language permitting the recovery of consequential
damages"; and (iii) that consequential damages are reasonably
foreseeable and within the contemplation of the parties "in light
of the `specific protection [business interruption] coverage
provides.'" (Pl. Mem. at 12-14) (quoting Sabbeth Indus., Ltd. v.
Pennsylvania Lumbermens Mut. Ins. Co., 656 N.Y.S.2d 475, 477
(N.Y.App. Div. 1997) (3d Dep't)).
Consequential damages "must have been . . . within the
contemplation of the parties as the probable result of a breach
at the time of or prior to contracting." Kenford Co. v. County
of Erie, 537 N.E.2d 176, 178 (N.Y. 1989) (internal quotation
omitted); see also Globecon Group, LLC v. Hartford Fire Ins.
Co., No. 03 Civ. 0023, 2003 WL 22144316, at *3 (S.D.N.Y. Sept.
17, 2003) ("The Second Circuit Court of Appeals, the New York
Court of Appeals, [and] courts in the Southern District . . .
have all held consistently that [consequential] damages are
unavailable in insurance cases, unless the plaintiff alleges that
the specific injury was of a type contemplated by the parties at
the time of contracting."). "In determining the reasonable
contemplation of the parties, the nature, purpose and particular
circumstances of the contract known by the parties should be
considered, as well as what liability the defendant fairly may be
supposed to have assumed consciously, or to have warranted the
plaintiff reasonably to suppose that it assumed, when the
contract was made." Kenford, 537 N.E.2d at 179 (internal
quotations and citations omitted).
The Amended Complaint does not sufficiently state what damages
resulted from USF&G's breach of the Policy and/or that such
damages were within the contemplation of the parties at the time
of or prior to issuance of the Policy. (See Compl. ¶¶ 30 ("As a
result of USF&G's conduct, Dr. Cohen has been forced to sustain
additional, consequential damages."), 35 ("USF&G's breach of
contract proximately caused Dr. Gordon to sustain . . .
consequential damages in an as of yet undetermined amount. . . .
").).*fn2 See Kenford, 537 N.E.2d at 179 (in determining
whether consequential damages were within contemplation of the
parties, courts must consider "what liability the defendant
fairly may be supposed to have assumed consciously, or to have
warranted the plaintiff reasonably to suppose that it assumed,
when the contract was made."); see also Globecon, 2003 WL
22144316, at *3 (plaintiff must allege "that the specific injury
was of a type contemplated by the parties at the time of
D. Attorneys' Fees
Defendants argue that "plaintiff's conclusory allegations are
insufficient to support a claim for attorneys fees." (Def. Reply at 9.) Plaintiff responds
that he has sufficiently alleged that Defendants denied coverage
in bad faith so as to support a claim for attorneys' fees, and
that "an evidentiary showing of bad faith" is not required. (Pl.
Mem. at 7.)
"It is well established that an insured may not recover the
expenses incurred in bringing an affirmative action against an
insurer to settle its rights under the policy." New York Univ.,
662 N.E.2d at 772. An exception exists where "`there has been an
unreasonable, bad faith denial of coverage.'" New York Marine &
Gen. Ins. Co. v. Tradeline (L.L.C.), No. 98 Civ. 7840, 1999 WL
1277244, at *5 (S.D.N.Y. Nov. 29, 1999) (quoting New England
Mut. Life Ins. Co. v. Johnson, 589 N.Y.S.2d 736, 738 (N.Y.
Sup. Ct. 1992)); see also Sukup v. State of New York,
227 N.E.2d 842, 844 (N.Y. 1967); Wurm v. Commercial Ins. Co. of Newark, New
Jersey, 766 N.Y.S.2d 8, 13 (N.Y.App. Div. 2003) (1st Dep't). To
succeed, a plaintiff must make "a showing of such bad faith in
denying coverage that no reasonable carrier would, under the
given facts, be expected to assert it." Sukup,
227 N.E.2d at 844; see also Federal Deposit Ins. Corp. v. National Surety
Corp., 425 F. Supp. 200, 204 (E.D.N.Y. 1977); Dawn Frosted
Meats, Inc. v. Insurance Co. of N. Am., 470 N.Y.S.2d 624, 625
(N.Y.App. Div. 1984) (1st Dep't) ("Bad faith has been said to
exist `where the wrong complained of is morally culpable, or is
actuated by evil and reprehensible motive.'") (quoting Walker v.
Sheldon, 179 N.E.2d 497, 498 (N.Y. 1961)). If the insurer's
reason(s) for denial of coverage is "arguable," then a plaintiff
is not entitled to attorneys' fees. See Sukup,
227 N.E.2d at 844.
Plaintiff's allegations, presumably made in support of his
claim for attorneys' fees, are conclusory. (See Compl. ¶ 48.)*fn4 And, it is unclear how,
if at all, USF&G's refusal to pay Plaintiff's loss is connected
to an alleged scheme to "artificially reduce the amount [it]
would pay claimants for all business interruption losses
occurring after the 9/11/01 tragedy." (Id. ¶ 38.) Plaintiff's
claim for attorneys' fees does not provide fair notice as to "the
grounds upon which it rests." Swierkiewicz v. Sorema N.A.,
534 U.S. 506, 512 (2002) (internal quotation omitted); see also
Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir. 1988) (dismissal
warranted where claim is "confused, ambiguous, vague, or
otherwise unintelligible [such] that its true substance, if any,
is well disguised."); Lava Trading, 326 F. Supp. 2d at 438.
E. Non-USF&G Defendants
Defendants argue that the non-USF&G Defendants "have no
contractual or other relationship to plaintiff" and, therefore,
"there is no basis for a claim of breach of contract against
[them]." (Def. Mem. at 13.)*fn5
To the extent Plaintiff alleges that the non-USF&G Defendants
breached a contract duty (see, e.g., Compl. ¶ 50), such
allegations are dismissed because Plaintiff has not alleged a
contractual relationship with any of the non-USF&G Defendants.
See, e.g., Carruthers v. Flaum, No. 03 Civ. 7768, 2005 WL
767875, at *21 (S.D.N.Y. Mar. 31, 2005) ("It is . . . well
established that a plaintiff in a breach of contract action may
not assert a cause of action to recover damages for breach of
contract against a party with who[m] it is not in privity.")
(internal quotations omitted).
For the reasons stated above, Defendants' motion to dismiss is
granted. Leave to replead is also granted to Plaintiff consistent
with this Decision and Order with respect to Plaintiff's GBL §
349 claim, and Plaintiff's claims for punitive damages,
consequential damages, and attorneys' fees arising out of his
breach of contract claim.
The parties and counsel are directed to appear at a
scheduling/settlement conference with the Court on June 1, 2005
at 9:00 a.m., in Courtroom 706 of the Thurgood Marshall
Courthouse, 40 Centre Street, New York, New York 10007. The
Court directs the parties to engage in good faith settlement
negotiations prior to the conference with the Court.