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Colony Insurance Co. v. Danica Group, LLC

United States District Court, E.D. New York

September 8, 2014

COLONY INSURANCE COMPANY, Plaintiff,
v.
DANICA GROUP, LLC, Defendant.

MEMORANDUM AND ORDER

ROSLYNN R. MAUSKOPF, District Judge.

On March 29, 2013, plaintiff, Colony Insurance Company ("Colony") filed the instant complaint against defendant, Danica Group, LLC ("Danica"), asserting claims for breach of contract, declaratory judgment, and unjust enrichment in connection with three insurance policies that Colony issued to Danica. (Compl. (Doc. No. 1).) Currently before the Court is Danica's motion to dismiss (1) the claims for breach of contract and declaratory judgment with prejudice under New York's election of remedies doctrine; and (2) the entire complaint without prejudice on abstention grounds. For the following reasons, the motion is granted.

BACKGROUND

For purposes of this Memorandum and Order, the Court assumes that the allegations Colony makes in the complaint are true. See, e.g., Ashcroft v. Iqbal, 566 U.S. 662, 678 (2009).

I. The Policies

Colony issued three commercial general liability insurance policies to Danica, for successive one-year policy periods beginning July 19, 2006, and ending July 19, 2009, under policy numbers AR3360115, AR3360115A, and AR3360115B (collectively, the "Policies"). (Compl. ¶ 5.) The Policies provide Danica with $1, 000, 000 in coverage for each qualifying "occurrence, " with $2, 000, 000 in the aggregate, and requires Danica to pay a $10, 000 deductible for each occurrence that caused "bodily injury" or "property damage, " as defined therein. ( Id. ¶¶ 7-9, 13-16, 20-23, 27.)

II. The State Court Action

A. The State Complaint

On December 15, 2010, Colony commenced an action against Danica in New York Supreme Court, New York County (the "State Court Action"), seeking rescission of several policies, including those at issue here, on the ground that Danica had fraudulently induced Colony into issuing the policies by misrepresenting its business. (Compl., Colony Ins. Co. v. Danica Grp, LLC., No. 1:6200/10 (N.Y. Sup.Ct., N.Y. Cnty. Dec. 15, 2010) (Certification of Anthony P. DeCapua Supp. Mot. to Dism. ("DeCapua Decl.") Ex. C ("State Compl.") (Doc. No. 15-5).) Specifically, Colony alleged that on September 25, 2005, unbeknownst to Colony, Danica's predecessor company, which was a plumbing company, entered into a consent order (the "Consent Order") with the New York State Department of Buildings ("DOB") to settle certain charges against the predecessor company. ( See State Compl. ¶ 5.) Pursuant to the Consent Order, Danica's predecessor was required to pay $500, 000 to the Environmental Control Board and would not "engage in business activities as a licensed plumbing facility, " although the predecessor could subcontract its "plumbing and fire suppression piping work." ( Id. ¶¶ 6-8.) Danica was formed as a result of the Consent Order. ( Id. ¶ 9.) Because the Consent Order prohibited Danica from engaging in business activities as a licensed plumbing company, Danica, on April 1, 2007, entered into a Master Subcontract Agreement with Copper Heating and Plumbing, LLC ("Copper"), pursuant to which Copper would perform "completion plumbing work on Danica's existing contracts" and "future plumbing work" on contracts Danica intended to seek. ( Id. ¶ 10.)

On or about July 5, 2006, Danica applied for an insurance policy from Colony. ( Id. ¶ 13.) In this application, Danica made various misrepresentations concerning its business operations, which Danica knew or should have known were false. ( Id. ¶¶ 14-15.) For example, Danica knowingly represented that (1) its business had operated under its present name for twenty years, when, in fact, Danica had been in business for only one year at the time of its initial application; (2) it was performing the same operation as its predecessor, when, in fact, the Consent Order prevented Danica from performing any plumbing operations; (3) it subcontracted out only a portion of its plumbing work, when, in fact, the Consent Order required it to subcontract all of its plumbing work; (4) its projected subcontracting costs were significantly lower than they actually were; and (5) all written contracts it obtained from subcontractors contained provisions holding Danica harmless. ( Id. ¶¶ 15, 48.) Danica also failed to disclose that DOB had raised charges against its predecessor, and that the Consent Order existed. ( Id. ¶ 16.)

In reliance on these representations and omissions, Colony issued policy AR3360115 to Danica. ( Id. ¶¶ 18-22, 48.) Danica made similar misrepresentations and omissions in its July 2007 and July 2008 renewal applications, in reliance on which Colony issued policies AR3360115A and AR3360115B, respectively. ( Id. ¶¶ 23-47.) Upon discovering these misrepresentations and omissions, Colony notified Danica and "elected to rescind" the Policies. ( Id. ¶ 49.)

B. Procedural Posture of State Court Action

On December 14, 2011, Colony served a motion for a default judgment against Danica in the State Court Action. (DeCapua Decl. ¶ 20.) On April 26, 2012, while this motion for a default judgment was pending, Zurich American Insurance Company and Pav-Lak Industries, Inc. (together, "Zurich") moved to stay the State Court Action and to intervene as defendants. ( Id. ¶ 26.) On July 16, 2012, the court granted Zurich's motion. ( Id. ¶ 28.) In subsequent months, Zurich moved to consolidate the State Court Action with four of Zurich's related actions seeking a declaratory judgment. On March 13, 2013, New York Marine and General Insurance Company ("NYMAGIC") moved to consolidate the State Court Action with NYMAGIC's state court action against Danica. ( Id. ¶¶ 32-33.)

On March 27, 2013, the state court granted Colony a default judgment as to Danica's liability for fraudulent inducement, to the extent of deeming true the allegations in the State Complaint. ( Id. ¶ 34; Mar. 27, 2013 Order ( id. Ex. G).) However, the court declined to grant a default judgment as to what relief Colony should receive, explaining that (1) factual questions existed concerning whether Colony made a sufficient "tender of return" of Danica's premiums; (2) Colony might be estopped from obtaining rescission "by virtue of its retention of [Danica's] premiums"; (3) Colony might be entitled to "rescissory damages" instead of rescission; (4) at an inquest, the parties could ...


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