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Erlich v. American International Group, Inc.

Supreme Court, New York County

November 7, 2013

Nusyn Erlich, a/ka/ NATHAN ERLICH and CHAYA ERLICH, individually and on behalf of all others similarly situated, Plaintiffs,
American International Group, Inc., NEW HAMPSHIRE INSURANCE CO., and EVEREST REINSURANCE COMPANY, Defendants.

Unpublished Opinion

Napoli Bern Ripka Shkolnik, LLP & Ambrecht & Maloney, PLLC for plaintiffs.

Robinson & Cole LLP, for AIG and NHIC.

Budd Larner, P.C., for Everest.

Shirley Werner Kornreich, J.

Motion Sequence Numbers 001 and 004 are consolidated for disposition.

Defendants American International Group, Inc. (AIG), New Hampshire Insurance Co. (NHIC), and Everest Reinsurance Company (Everest) move to dismiss the Amended Complaint (the AC) pursuant to CPLR 3211. Defendants' motions are granted for the reasons that follow.

Factual Background & Procedural History

This putative class action seeks to challenge the ability of insurance companies to retain settlement proceeds in subrogation actions against deep pocketed third-party tortfeasors, when the insured has recovered the full value of the policy, but not its uninsured losses. As discussed below, this issue has already been decided the by the Court of Appeals in Winkelmann v Excelsior Ins. Co., 85 N.Y.2d 577 (1995). Moreover, in this particular case, and unlike the facts in Winkelmann, plaintiffs' failure to timely commence their own action against the third-party tortfeasor and their failure to substantiate the existence of their purported uninsured losses further justify dismissal.

As this is a motion to dismiss, the facts recited are taken from the AC. However, as the court is dismissing this case with prejudice, and not granting leave to amend for a second time, the court considers, and rejects, plaintiffs' legal theories asserted for the first time in their briefs (not in the AC), since, in any event, such arguments fail as a matter of law. [1]

Plaintiffs Nusyn Erlich and Chaya Erlich are a married couple who live in a house in Brooklyn. AC ¶ 4. In April 2008, they purchased a water cooler, made by non-party Greenway Home Products, Inc. (Greenway), and installed it in their basement. ¶¶ 14-15. Days later, on April 10, 2008, the water cooler malfunctioned, causing a fire that substantially damaged the Erlichs' home and the property contained therein. Id. The damage was covered by a "multi-peril" homeowners' insurance policy issued by NHIC (the Policy). ¶ 4. NHIC is a subsidiary of AIG, a holding company that has no contractual relationship with plaintiffs and was not involved in the related subrogation proceeding. ¶ 5. NHIC entered into a reinsurance agreement with Everest, which covered the Policy, [2] and, in conjunction, also entered into an assignment agreement, under which NHIC assigned its subrogation rights to Everest. [3] ¶ 12.

The Policy's Replacement Cost Coverage Endorsement provides that plaintiffs are only entitled to such coverage if and when "the damaged or destroyed property is actually repaired or replaced by the INSURED with due diligence and dispatch" (capitalization in original). This endorsement further provides that, as is the case here, where the claim is for the "actual cash value" of the damaged property, and not for repair costs, such claim is subject to a depreciation deduction. Additionally, to make a claim under this endorsement, plaintiffs must give written notice to NHIC within 180 days after the loss.

Plaintiffs retained the services of Ben Gruber Adjusters, Inc. (Gruber), a licensed public insurance adjustor, which helped them file claims and correspond with NHIC and its agent, RJS Adjustment Company (RJS). ¶ 15. Four days after the fire, on April 14, 2008, plaintiffs sent a letter to RJS, stating that they "herewith make [a] claim for any monies withheld under the Replacement cost provision in the [Policy]." On May 7, 2008, plaintiffs submitted a $25, 000 claim to NHIC. On December 17, 2008, plaintiffs submitted a proof of loss to NHIC. ¶ 16. Plaintiffs also submitted further claims for the various damages covered by the Policy (i.e. real property damage, personal property damage, and increased living expenses). ¶¶ 17-18. In all, plaintiffs claimed $124, 123.81 in damages. NHIC promptly paid a total of $111, 956.61 (including payments made directly to plaintiffs and payments made directly to outside vendors, such as those who performed repairs for plaintiffs). Of the full amount claimed by plaintiffs, NHIC "held back" $12, 167.20 to cover plaintiffs' deductible ($1, 000) and depreciation ($11, 167.20). Upon receipt of the money, plaintiffs did not object to the depreciation deduction. Also, before receiving their money, plaintiffs signed Subrogation Receipts, as required by law, which allow NHIC (pursuant to the Policy's subrogation clause) to assert a subrogation claim against the third-party tortfeasor that caused plaintiffs' loss. On December 22, 2009, Gruber wrote to NHIC, asking for information regarding the identity of "the party responsible for [plaintiffs'] loss." NHIC did not respond to this letter.

On March 2, 2010, Everest commenced a subrogation action against Greenway in the United States District Court for the Eastern District of New York (the Subrogation Action). In that action, Everest alleged that Greenway, the manufacturer of plaintiffs' water cooler, was liable for plaintiffs' damages, and thus was obligated to reimburse Everest for the claim payments it made to plaintiffs (as NHIC's reinsurer). Everest settled the Subrogation Action with Greenway in November 2010. However, the settlement payment Everest received from Greenway was less than the amount Everest paid to plaintiffs. In April 2011, Everest sent plaintiffs a check in the amount of $620, "representing [plaintiffs'] pro rata ...

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