The opinion of the court was delivered by: Louis L. Stanton, U.S.D.J.
Plaintiff Morgan Neff brings this action for declaratory judgment and breach of contract, alleging that Defendants wrongfully disclaimed insurance coverage for an underlying lawsuit against Plaintiff in which he is accused of filing a false criminal complaint. Plaintiff seeks compensatory and punitive damages on his breach of contract claims.
Defendants move to dismiss Plaintiff's punitive damages claims pursuant to Fed. R. Civ. P. 12(b)(6).
On July 3, 2008, Plaintiff was sued in the Supreme Court of the State of New York, County of New York for damages arising from his alleged July 12, 2007 filing of a false criminal complaint (the "Underlying Action"). The complaint in the Underlying Action alleges, in part, that Plaintiff "knew or should have known that the aforementioned arrest and imprisonment were false and without probable cause," Premisler Decl. Ex. C ¶ 16, "the aforesaid arrest was made without knowledge of and/or negligent and/or reckless disregard of the material falseness of the criminal complaint filed by" plaintiff, id. ¶ 17, and plaintiff "knew, or should have known through the exercise of reasonable care and proper police procedure that the said investigation into this matter was flawed and incomplete," id. ¶ 26.
Defendant The Automobile Insurance Company of Hartford, Connecticut ("Hartford") issued a homeowners policy to Plaintiff for the period from January 24, 2007 to January 24, 2008 (the "Homeowners Policy"). Defendant The Travelers Indemnity Company of America ("Travelers") issued a commercial general liability policy to Plaintiff for the period from August 17, 2006 to August 17, 2007 (the "CGL Policy").
Plaintiff tendered the Underlying Action to Defendants, and they both disclaimed coverage on various grounds.
Plaintiff now seeks a declaration that Defendants are obligated to defend and indemnify him in the Underlying Action. He also asserts claims for breach of contract based on Defendants' refusals to defend. On his breach of contract claims, Plaintiff demands consequential damages in excess of $100,000 and punitive damages, asserting that Defendants' refusals to defend are "so egregious, morally culpable, willful and wanton as to warrant the imposition of punitive damages in the minimum sum of $1,000,000." Compl. ¶¶ 41, 50.
Under New York law, "Punitive damages are not recoverable for an ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights." Rocanova v. Equitable Life Assurance Soc'y of the United States, 83 N.Y.2d 603, 613 (N.Y. 1994). Rather, "the pleading elements required to state a claim for punitive damages as an additional and exemplary remedy when the claim arises from a breach of contract" are:
(1) defendant's conduct must be actionable as an independent tort; (2) the tortious conduct must be of the egregious nature set forth in Walker v. Sheldon, 10 N.Y.2d 401, 404-405, 223 N.Y.S.2d 488, 179 N.E.2d 497, supra; (3) the egregious conduct must be directed to plaintiff; and (4) it must be part of a pattern directed at the public generally.
New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316 (N.Y. 1995) (citing Rocanova, 83 N.Y.2d at 613) "Where a lawsuit has its genesis in the contractual relationship between the parties, the threshold task for a court considering defendant's motion to dismiss a cause of action for punitive damages is to identify a tort independent of the contract." Id. A tort obligation "is apart from and independent of promises made and therefore apart from the manifested intention of the parties to a contract." Id. (internal quotation marks omitted).
Plaintiff's complaint asserts claims against Defendants for breach of contract based on Defendants' "refusal to provide a defense to plaintiff in the Action." Compl. ¶¶ 39, 48. Moreover, Plaintiff alleges that, id. ¶ 26, Defendants' disclaimer of coverage was without an arguable basis and was deliberately made in bad faith and with knowledge of the lack of a reasonable basis, since Hartford was a party to Automobile Ins. Co. of Hartford v. Cook, 7 N.Y. 3d 131 (2006), which held that Hartford is required to defend its insured in an action where it is alleged that the injury was caused by the negligent conduct of the insured, as negligent conduct is an "occurrence" as defined in the insurance policy. Defendants' continued failure to defend their insureds against claims alleging negligent conduct, in spite of the holding in Cook, is part of a pattern of behavior aimed at the public generally.
Plaintiff argues that "Defendants' continued disclaimer of coverage upon grounds previously rejected by the highest court is evidence of defendants' continued scheme to deny coverage to the public without any legitimate basis" ...