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CORE-MARK INTERNATIONAL CORP. v. COMMONWEALTH INS. CO.

July 19, 2005.

CORE-MARK INTERNATIONAL CORP., Plaintiff,
v.
COMMONWEALTH INSURANCE CO. et al., Defendants.



The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

MEMORANDUM AND ORDER

This action stems from a coverage dispute under an excess property insurance policy issued by Defendant Commonwealth Insurance Co. ("Commonwealth") to Plaintiff Core-Mark International Corp. ("Core-Mark"). Commonwealth moves to dismiss Core-Mark's bad faith claim and its application for punitive damages and attorneys' fees. For the reasons set forth below, Commonwealth's motion is granted.

PROCEDURAL BACKGROUND

  Core-Mark initially filed this action in New York State Supreme Court in Westchester County. On January 7, 2005, Commonwealth removed the action to the Southern District of New York. At the initial pretrial conference on April 7, 2005, this Court entered a Scheduling Order on consent that allowed amendments to pleadings by May 31, 2005. (Scheduling Order No. 2, dated Apr. 8, 2005.) This Court also established a briefing schedule for Commonwealth's motion to dismiss Core-Mark's bad faith claim and its applications for punitive damages and attorneys' fees at that April 7, 2005 conference. (Scheduling Order No. 1, dated Apr. 8, 2005.) The parties ventilated that issue in letters to the Court concerning the proposed motion prior to the April 7, 2005 conference. Defendant Commonwealth filed its motion the next day.

  After the motion was fully briefed, this Court heard oral argument on May 13, 2005. The parties' memoranda revealed that New York law favored Commonwealth's motion. Thereafter, Core-Mark filed an Amended Complaint naming Swett & Crawford ("Swett") as an additional defendant on May 31, 2005. Then, by letter dated June 24, 2005, Core-Mark suggested — for the first time — that Swett's inclusion in this action divested this Court of diversity jurisdiction.

  BACKGROUND

  In June 2002, Commonwealth issued Core-Mark a $10 million excess property insurance policy over $10 million of primary insurance (the "Policy") to cover all Core-Mark locations. (Amended Complaint, dated May 27, 2005 ("Compl.") ¶ 8.) On December 21, 2002, one of Core-Mark's facilities, a warehouse at 3650 Fraser Street in Aurora, Colorado, was burglarized and set afire, resulting in over $19 million in losses. (Compl. ¶¶ 9, 11.) To date, Commonwealth has paid only $3,065,777 of its $9,294,939.89 obligation. (Compl. ¶¶ 12-13.)

  Core-Mark alleges that, pursuant to the Policy, Commonwealth has the "obligation promptly to investigate, adjust and pay Core-Mark's claims," and has failed to do so. (Compl. ¶ 14.) Commonwealth received the independent adjuster's report in June 2004, which showed an undisputed loss of $11,688,694.80. (Compl. ¶ 14.) While the primary carrier made payment in a timely manner, Commonwealth only paid $1 million of the undisputed excess loss of $1,688,694.80. That is, "even as to losses concerning which there was absolutely no dispute whatsoever, Commonwealth unjustifiably refused to pay" until after this action was filed. (Compl. ¶ 14.)

  Core-Mark alleges that Commonwealth's refusal to pay the balance owed under the Policy constitutes bad faith. (Compl. ¶¶ 15, 21-27.) In particular, Core-Mark alleges:
Commonwealth has engaged in a blatant pattern of stalling and diversion, raising one smokescreen after another in a unlawful effort to avoid fulfilling its obligations under the Policy to reimburse Core-Mark for the balance of Core-Mark's losses. For instance, Commonwealth has repeatedly questioned the dollar amount of various claimed losses, only to then admit that it had no dispute as to the amount claimed. Similarly, Commonwealth has tried to evade and reduce the $10,000,000 face amount of the Policy by seeking to convert Core-Mark's loss into an arbitrary, separate series of lower "scheduled" losses, which would have the supposed net result of allowing Commonwealth to avoid several million dollars of its indisputable liability under the $10,000,000 Policy.
(Compl. ¶ 15.) Based on these allegations, Core-Mark contends that "Commonwealth's conduct has evinced a bad faith effort to avoid payment of Core-Mark's losses, a wanton and unreasonable disregard for Commonwealth's obligations, and an interest only in furthering Commonwealth's own pecuniary interests at the expense of Core-Mark." (Compl. ¶ 22.) It further contends that Commonwealth's actions constitute wrongful conduct that is "outside" the Policy and is intended to defeat the Policy's provisions. (Compl. ¶ 23.) In addition to its damages, Plaintiff seeks punitive damages and attorneys' fees. DISCUSSION

  I. Joinder of Swett & Crawford

  As noted, subsequent to the oral argument in this action, Core-Mark filed an Amended Complaint naming Swett as an additional defendant. Three weeks later, Core-Mark noted — for the first time — that Swett's inclusion in this action divested this Court of its diversity jurisdiction. Under the circumstances, this Court concludes that Core-Mark named Swett as a defendant solely to defeat diversity, and therefore Swett's joinder is denied. 28 U.S.C. § 1447(e); see also Briarpatch Ltd. v. Geisler Roberdeau, Inc., 148 F. Supp. 2d 321, 329-30 (S.D.N.Y. 2001) (declining to allow joinder of party where "plaintiffs had an improper motive for seeking to add" the new defendant). This finding is further supported by the fact that Swett does not appear to be a necessary party, because Core-Mark can obtain complete relief from Commonwealth without joining Swett. Fed.R.Civ.P. 19 (a) ("A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties.").

  II. Motion to Dismiss

  Commonwealth moves to dismiss Core-Mark's bad faith claim, arguing that New York does not allow such a claim by a first-party insured. (Memorandum of Law in Support of Commonwealth's Motion to Dismiss, dated Apr. 7, 2005 ("Def. Mem.") at 3.) Commonwealth also argues that New York law does not allow claims for punitive damages or attorneys' fees for breach of an insurance policy. (Def. Mem. at 6-7.) On a motion to dismiss pursuant to Rule 12(b)(6), a court typically must accept the material facts alleged in the complaint as true and construe all reasonable inferences in a plaintiff's favor. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). A court should not dismiss a complaint for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995). Dismissal is proper when the plaintiff fails to plead the basic elements of a cause of action. See Wright v. Giuliani, No. 99 Civ. 10091 (WHP), 2000 WL 777940, at ...


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