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United States District Court, S.D. New York

July 19, 2005.


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


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.


  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.


  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 *4 (S.D.N.Y.), aff'd, 230 F.3d 543 (2d Cir. 2000). The issue on a motion to dismiss "is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (citation omitted).

  A. Bad Faith Claim

  As an initial matter, Core-Mark argues that the Policy dictates that its bad faith claim not be examined under New York law. (Memorandum of Law in Opposition to Motion to Dismiss, dated Apr. 28, 2005 ("Opp. Mem.") at 13-15.) This Court disagrees. Because CoreM-ark filed this action in New York State, the Policy requires this Court to apply New York law:

  It is agreed that in the event of the failure of Insurers to pay any amount claimed to be due hereunder, Insurers, at the request of the Insured, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court. (Compl. Ex. A: Policy, dated June 6, 2002 (emphasis added).) See Lexington Ins. Co. v. Unionamerica Ins. Co., No. 85 Civ. 9181 (MJL), 1987 WL 11684, at *4 (S.D.N.Y. May 28, 1987) ("[I]t appears that the portion of the `service of suit' clause which reads `all matters arising hereunder shall be determined in accordance with the law and practice of such Court' is a valid choice of law provision, which makes New York law . . . applicable.").*fn1

  Commonwealth contends that Core-Mark has failed to allege sufficient facts to support its bad faith claim. This Court agrees. New York does not recognize the tort of bad faith denial of insurance coverage. Polidoro v. Chubb Corp., 354 F. Supp. 2d 349, 352 (S.D.N.Y. 2005) ("Plaintiff's claim for bad-faith conduct in handling insurance claims is not legally-cognizable under New York law."); see also USAlliance Fed. Credit Union v. CUMIS Ins. Soc'y, Inc., 346 F. Supp. 2d 468, 470 (S.D.N.Y. 2004) ("Plaintiff's claim for bad faith denial of coverage is crafted as an independent cause of action in its complaint but, as the Defendant correctly points out, an independent tort action for bad faith denial of insurance coverage is not recognized in New York."); accord Cont'l Info. Sys. Corp. v. Fed. Ins. Co., No. 02 Civ. 4168 (NRB), 2003 WL 145561, at *3 (S.D.N.Y. Jan. 17, 2003).

  Core-Mark responds that under Acquista v. New York Life Insurance Company, 285 A.D.2d 73 (1st Dep't. 2001), its bad faith claim is viable. (Opp. Mem. at 10.) However, as discussed below, Acquista, conflicts with New York Court of Appeals decisions because it creates a separate extra-contractual damages claim for the bad faith denial of insurance coverage. Cont'l Info., 2003 WL 145561, at *3 ("As there are no such allegations of an independent tort committed by the insurer in the instant case, we find that allowing plaintiffs to claim extra-contractual damages under the contract-based remedy created in Acquista would be inconsistent with controlling Court of Appeals precedent."); accord Brown v. Paul Revere Life Ins. Co., No. 00 Civ. 9110 (KMW) (HBP), 2001 WL 1230528, at *5 (S.D.N.Y. Oct 16, 2001). Therefore, this Court rejects the holding of Acquista.

  In New York University v. Continental Insurance Company, plaintiffs asserted a bad faith claim against the defendant insurer, seeking compensatory damages. 87 N.Y.2d 308 (1995). The New York Court of Appeals held that plaintiffs' "bad faith" allegations were "nothing more than a claim based on the alleged breach of the implied covenant of good faith and fair dealing" and concluded that plaintiffs' allegations were "duplicative" of the breach of contract claim and should have been dismissed by the lower court. New York Univ., 87 N.Y.2d at 319-20. Thus, because Core-Mark's tort allegations stem solely from Commonwealth's alleged failure to handle Core-mark's insurance claims under the Policy, Core-Mark's bad faith claim is not actionable under New York law. See, e.g., Cont'l Info., 2003 WL 145561, at *4 ("[W]e will not allow plaintiffs to circumvent controlling authority from the Court of Appeals by cloaking their bad faith claim under the broad heading `breaches of contract'; whether based on a tort or a contract theory, we find that New York case law does not recognize a claim for extra-contractual damages predicated solely on bad faith denial of insurance coverage.").

  Dismissal of the bad faith claim also necessitates dismissal of the demand for punitive damages and attorneys' fees. Rocanova v. Equitable Life Assurance Soc'y of the United States, 83 N.Y.2d 603, 615 (1994) (refusing to allow punitive damages on an alleged bad faith denial of an insurance claim); Cont'l Info., 2003 WL 145561, at *5 (dismissing claim for attorneys' fees); see New York Univ., 87 N.Y.2d at 319-20 (noting that punitive damages are available as an additional remedy to a breach of contract claim when the defendant's conduct is actionable as an independent tort). Because Core-Mark does not allege a tort independent from its contractual claim, it cannot seek punitive damages or attorneys' fees. CONCLUSION

  Accordingly, this Court dismisses Core-Mark's bad faith claim and its demand for punitive damages and attorneys' fees with prejudice.


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