United States District Court, S.D. New York
June 28, 2005.
NUTMEG INSURANCE COMPANY, Plaintiff,
IOWA MUTUAL INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: CHARLES HAIGHT, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Nutmeg Insurance Company ("Nutmeg"), an issuer of
errors and omissions liability and financial products insurance,
brings this action against defendant Iowa Mutual Insurance
Company ("IMIC") seeking declaratory judgments that (1) it is not
obligated to reimburse IMIC for Loss or Claims Expenses resulting
from IMIC's settlement payment to the Estate of Marquise
Henderson ("the Estate") and (2) IMIC's settlement with the
Estate does not constitute a "Loss" covered under Nutmeg's
contractual obligations to IMIC. Currently before the Court is
IMIC's motion, pursuant to Fed.R.Civ.P. 12(b)(2), to dismiss
the complaint on grounds of lack of personal jurisdiction and
12(b)(3) for improper venue.
A. Facts Leading to this Motion
This litigation between insurers arises out of an automobile
accident that occurred on November 14, 1998. While driving drunk,
Richard Thompson struck from behind a vehicle occupied by Marquis
Henderson, killing him. The decedent's mother, Dessazzar
Henderson, acting as special administrator of his estate, filed a
suit against Thompson in the Circuit Court of St. Clair County,
Illinois. Following a one-day bench trial, the Estate was awarded
$1,453,000. Thompson then assigned to the Estate his rights against two
insurers, County Mutual Insurance Company and IMIC.*fn1 Both
insurers eventually settled with the Estate of Henderson; County
Mutual for $1,161,000 and IMIC for $500,000.*fn2
Before settling with the Estate, IMIC notified Nutmeg an
issuer of financial products insurance of the claim, and sought
coverage under Error and Omissions Policy No. NDE 0102033-98H
(the "E&O Policy" or "Policy") which Nutmeg had issued to IMIC.
According to this Policy, the Policy Period ran from July 1, 2000
to June 1, 2001. The limit of liability was $3,000,000 for each
claim as well as for the Policy in aggregate. Nutmeg denied
coverage under the Policy on various grounds, and now seeks a
declaratory judgment that it has no liability under the Policy
for Loss or Claims Expenses as a result of any claim made by
Dessazzar Henderson, as the special administrator for the Estate.
B. The Parties
IMIC is a mutual insurance company organized under the laws of
the State of Iowa, with its principal place of business in
Dewitt, Iowa. IMIC is licensed to do business in eleven states:
Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana,
Nebraska, North Dakota, South Dakota, and Wisconsin. IMIC has
never maintained any office or other facility in New York. It is
not licensed to do business in, nor does it have any agents in
Nutmeg is a corporation organized under the laws of the State
of Connecticut, with its principal place of business in Hartford,
Connecticut. It is in the business of, inter alia, issuing
certain policies of errors and omissions liability and financial
products insurance. Nutmeg transacts business in the State of New York and avails itself to
the laws of the State of New York.
Both Nutmeg and IMIC hired intermediaries to negotiate the E&O
Policy on their behalf. IMIC hired Daniel Molyneaux, an insurance
agent for Molyneaux Insurance, based in Davenport Iowa, and
licensed to do business in the State of Iowa, while Nutmeg relied
on the assistance of Wendy Johnston, agent for Heath Insurance
Brokers, Inc. ("Heath"), located in Dallas, Texas. Molyneaux and
Johnston negotiated the E&O Policy over the phone.
Once negotiations were complete, Heath requested that the
Reliance Insurance Company of Illinois ("Reliance"), from its
offices in New York, underwrite and issue the E&O Policy. This
task was performed by Assistant Vice President and Underwriter
Jason Hawkins, under the supervision of Assistant Vice President
and Underwriter Thomas Iorio, in Reliance's New York office.
Subsequent to this action, Reliance sold its Financial Products
Team to The Hartford, an investment and insurance company with
corporate headquarters in Hartford, Connecticut. Nutmeg is a
wholly owned subsidiary of The Hartford, and is licensed to act
as its agent for purposes of procuring insurance in different
states. After the acquisition, Hawkins, on behalf of Nutmeg and
as employee of The Hartford, cancelled, rewrote, and reissued the
E&O Policy to accommodate the merger of Reliance's Financial
Products Team to The Hartford. The material terms of the E&O
Policy do not appear to have changed upon reissuance.
On this motion, IMIC contends that this Court does not have
personal jurisdiction over it. Nutmeg contends that personal
jurisdiction is proper over IMIC since it entered into a contract
(the E&O Policy) with Nutmeg that ultimately was underwritten and
issued in New York. IMIC responds that any action taken by
Reliance, The Hartford, or Nutmeg with respect to the issuance of the Policy is only reflective of the unilateral activities of
plaintiff Nutmeg and do not establish IMIC's presence in New York
for purposes of personal jurisdiction.
II. STANDARD OF REVIEW
To determine whether an out-of-state party is amenable to a
suit in a federal district court, the court must apply the
standards for personal jurisdiction for the state in which it
sits. Arrowsmith v. United Press Int'l, 320 F.2d 219, 223 (2d
Cir. 1963). As the plaintiff, Nutmeg has the burden of
demonstrating a sufficient factual basis to sustain jurisdiction.
Lehigh Valley Indus. v. Birenbaum, 527 F.2d 87 (2d Cir. 1975).
Plaintiff alleges that this Court has jurisdiction over
defendant on the basis of the New York long-arm statute, C.P.L.R.
§ 302(a)(1), which provides:
(a) Acts which are the basis of jurisdiction. As to a
cause of action arising from any of the acts
enumerated in this section, a court may exercise
personal jurisdiction over any non-domiciliary, or
his executor or administrator, who in person or
through an agent: 1. transacts any business within
the state or contracts anywhere to supply goods or
services in the state . . .
Courts have previously held that actions taken in furtherance
of a contract within New York are sufficient to invoke long-arm
jurisdiction in the state. In Iroquois Gas Corp v. Collins,
42 Misc.2d 632 (Sup.Ct. Erie County 1964), aff'd,
258 N.Y.S.2d 376 (4th Dept. 1965), defendant's agents "on two separate
occasions spent several days in this State in furthering a
contract to construct a pipeline across Niagara River." Id. at
635. The New York court found this was sufficient to establish
personal jurisdiction over the defendant in the state. Similarly,
in New Generation Foods, Inc. v. Spicer's Int'l,
669 F.Supp. 599 (S.D.N.Y. 1987), this Court held that personal jurisdiction
was established where two individual defendants "visited Mineola,
New York, where they negotiated and executed the fourth and fifth
contracts, which are the subject of this dispute." Id. at 600. This was so even though
"defendants were only in New York for one day." Id. at 601.
Moreover, if the material terms of a contract have been
negotiated in New York, the fact that the contract in its final
form is executed outside the boundaries of the state is not
dispositive for jurisdictional analysis. For instance, in
Longines-Wittnauer Watch Co. v. Barnes & Reinecke, Inc.,
15 N.Y.2d 443, 455, cert. denied, 382 U.S. 905 (1965), the
corporate defendant sent key officers to New York to "discuss the
terms of the agreement" with plaintiff. After further meetings,
defendant executed a written contract in Chicago. When plaintiff
sued defendant for a subsequent breach of contract, defendant
argued that since the contract was not actually executed in New
York, "its activities in this State preliminary and subsequent to
the execution of the contract cannot be regarded as amounting to
the transaction of `business' under the statute." Id. at 456.
The Court disagreed, holding that "even though the last act
marking the formal execution of the contract may not have
occurred within New York, the statutory test may be satisfied by
a showing of other purposeful acts performed by the appellant in
this State in relation to the contract." Id. at 457.
Similarly, the Second Circuit reversed the District Court's
dismissal of a complaint for lack of jurisdiction in Liquid
Carriers Corp. v. American Marine Corp., 375 F.2d 951 (2d Cir.
1967), where "a high-level agent and officer of American Marine
made three separate trips to New York over a period of two months
to meet and negotiate with Liquid Carriers in connection with the
contract involved in this suit." Id. at 951. This was
sufficient to meet the "transacts any business" requirement of
C.P.L.R. § 302(a) even though the vice president of the defendant
corporation had "returned to New Orleans [to] execute the
contract on behalf of American Marine." Id. at 952-53. Thus, if actions are taken within the state in furtherance of a
contract including the negotiation of the contractual terms
this is sufficient to establish jurisdiction over a party. The
formal act of contract execution has been deemed nondispositive
so long as a foreign party has performed "other purposeful acts"
within the state. The final critical question for our purposes,
then, is whether jurisdiction exists when the conditions are
reversed, so that a contract is formally executed within the
state, but no other acts have been taken in New York in
furtherance of the contract.
Several cases, both in this Court and New York State courts,
answer that question in the negative. In Green and White Constr.
Co. v. Columbus Asphalt Corp., 293 F.Supp. 279 (S.D.N.Y. 1968),
defendant, an Indiana based corporation with no ties to New York,
entered into a contract with plaintiff, the negotiation of which
took place in Indiana. Defendant asserted that the contract was
also executed in Indiana, while plaintiff alleged it was signed
and executed in New York. That dispute turned out to be moot, as
Judge Motley dismissed the complaint for plaintiff's failure to
demonstrate personal jurisdiction over the defendant, stating:
"Clearly, the fact that plaintiff may have signed the contract in
New York is not determinative." Id. at 279.
Similarly, there was no jurisdiction over the defendant in a
breach of contract action in Standard Wine & Liquor Co. v.
Bombay Spirits Co., 20 N.Y.2d 13 (Ct.App. 1967), where the
corporate defendant had no contacts in New York but entered into
a contract with plaintiff, and "plaintiff was the last to sign
[the contract], one of the officers doing so in New York." Id.
at 15. The Court held "it is not determinative that the plaintiff
signed the contract in New York." Id. at 17 (citations
omitted). See also Amstar Corp. v. SS Alexandros,
457 F.Supp. 717 (S.D.N.Y. 1978) (holding, in an action for damage to a
shipment of cargo loaded in Guatemala and discharged in Philadelphia, that the mere fact that the
subcharter agreement was executed in New Your was not sufficient
to satisfy the transaction of business test for personal
Based on this precedent, a nonresident defendant may be subject
to long-arm jurisdiction based on the "transacts any business"
clause of N.Y.C.P.L.R. § 302(a)(1) if the defendant negotiated
for and executed a contract in New York. Furthermore, the mere
act of negotiating for a contract within the state may, in
certain instances, be sufficient to establish jurisdiction,
regardless of where the contract is finally issued. On the other
hand, the execution of a contract within the state, standing
alone, is insufficient to support long-arm jurisdiction, when the
parties (or their agents) negotiated for the contract outside of
These rules are not mere technicalities, but reflect the
underlying rationale behind long-arm jurisdiction. When a person
or entity has entered into the State of New York (physically or
otherwise) in order to negotiate the terms of a contract with
another party, that party has purposefully established
significant contact with the state, availed itself of the
benefits conferred by its laws, and consequently may fairly and
reasonably be subjected to the state's jurisdiction in respect of
litigation that may arise out of the contract.
On the other hand, if New York State is merely the place in
which a contract was unilaterally executed in its final form
after all of the material terms of the contract had previously
been negotiated by nonresident the parties in other states it
would be unfair and prejudicial to subject a party to the
contract to New York jurisdiction, since in those circumstances
the party has not established any purposeful contract with the
state or availed itself of the benefit of its laws. Such a grant
of personal jurisdiction could also give future parties an incentive to issue a fully negotiated contract in a
particular state solely for forum-shopping purposes.
The terms of IMIC's E&O Policy were negotiated by Molyneaux,
who spoke on the telephone with Johnston. Molyneaux was in Iowa
and Heath in Texas at all times during the course of
negotiations. There is no evidence that Molyneaux or anyone else
acting as agent or representative for IMIC had any contact with
Hawkins, Iorio, or any other agent or representative of Nutmeg in
New York. Under these circumstances, it is clear that the E&O
Policy was solely issued in New York, but negotiated for
elsewhere. IMIC has not transacted any business within the state,
and therefore New York's long-arm jurisdiction does not reach it.
Plaintiff's reliance on Parke-Bernet Galleries, Inc. v.
Franklyn, 308 N.Y.S.2d 337 (1970), is misplaced. In that case,
plaintiff, a prominent auction house based in New York, sued the
individual defendant for non-payment for two paintings for which
defendant had been the highest bidder at an auction. Defendant
was a resident of California and moved to dismiss the case for
lack of personal jurisdiction. However, prior to and over the
course of the auction, defendant had sent a letter to plaintiff
in New York as well as a telegram, and had the plaintiff keep an
open telephone line on the night of the auction, during which
defendant made several phone calls from California to plaintiff
and his employee in the course of bidding. The Court ruled that
though "never actually present," the defendant was nevertheless
an "active participant" in the auction and therefore found the
defendant subject to New York jurisdiction with respect to the
cause of action arising out of the auction. Id. at 338.
In this case, there is no evidence that IMIC or any of its
employees or agents had any contact with any Nutmeg employee or
agent in New York. It cannot be said that IMIC was an active
participant in Hawkins's performance in underwriting and issuing
the E&O Policy. At most, IMIC was an active participant in the negotiation of the
terms of the Policy with Nutmeg's intermediary in Texas. But IMIC
has not demonstrated any action that indicates its intention to
avail itself of the benefits of New York law or to subject itself
to New York jurisdiction.
Because I dismiss this case for lack of personal jurisdiction,
I need not and do not reach defendant's alternative argument
concerning improper venue.
For the foregoing reasons, I conclude that defendant Iowa
International Insurance Company is not subject to personal
jurisdiction in this Court. Accordingly the Clerk is directed to
dismiss the complaint. Because the dismissal is on jurisdictional
grounds, it is without prejudice.
It is SO ORDERED.