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Kraatz v. Usaa Casualty Insurance Co.

United States District Court, W.D. New York

March 6, 2017

NICHOLAS J. KRAATZ, Plaintiff,
v.
USAA CASUALTY INSURANCE CO., Defendant.

          DECISION AND ORDER

          HON. FRANK P. GERACI, JR. Chief Judge.

         INTRODUCTION

         This case is about a contract dispute. Nicholas J. Kraatz (“Plaintiff”) entered into a homeowner's insurance agreement (“the Policy”) with USAA Casualty Insurance Company (“Defendant”). During the life of that agreement, a snow storm hit Western New York and Plaintiff's home was damaged. Sometime later, Plaintiff reported the damage to Defendant and pursued a claim for insurance coverage. Defendant conducted an investigation and subsequently denied Plaintiff's claim. Plaintiff alleges that, in denying his claim, Defendant breached their contract. Defendant disagrees.

         Whether Defendant breached the contract is not the question currently before the Court because Plaintiff also alleges fraud, constructive fraud, negligent misrepresentation, and violation of New York General Business Law § 349. ECF No. 1. Plaintiff also seeks punitive and consequential damages as well as declaratory and injunctive relief. Id. In response to Plaintiff's complaint, Defendant moved to dismiss Plaintiff's allegations of fraud, constructive fraud, negligent misrepresentation, violation of New York General Business Law § 349, Plaintiff's requests for consequential and punitive damages, and Plaintiff's request for injunctive relief. ECF No. 7. In his response to Defendant's motion to dismiss, Plaintiff moved for summary judgment on his claim for declaratory relief. ECF No. 10. For the reasons stated below, Defendant's motion to dismiss is GRANTED in part and DENIED in part. Plaintiff's motion for summary judgment is DENIED.

         BACKGROUND

         Because the Court is faced with a motion to dismiss and a motion for summary judgment, some parsing of the facts is required. A motion to dismiss tests the sufficiency of the complaint. See Fed. R. Civ. P. 12(b)(6). To that end, the Court must accept the factual allegations articulated in the complaint as true and draw all reasonable inferences in the plaintiff's favor. Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011). Conversely, a motion for summary judgment tests the sufficiency of the evidence. See Fed. R. Civ. P. 56(a). When ruling on a motion for summary judgment, the Court must determine “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). In doing so, the Court must resolve all ambiguities and draw all reasonable inferences in favor of the non-moving party. See Giannullo v. City of New York, 322 F.3d 139, 140 (2d Cir. 2003).

         I. Plaintiff's Factual Allegations

         On December 17, 2013, Plaintiff entered into a one-year contract for homeowner's insurance with Defendant. ECF No. 1-1. The Policy covered, among other things, certain “named perils” including “[w]eight of ice, snow or sleet, which causes damage to property contained in a building.” Id. at 30; ECF No. 1, ¶57. The Policy conditioned coverage on Plaintiff's performance of certain duties, including “promptly notify[ing] [Defendant] or [Defendant's] agent of the loss” and “keep[ing] an accurate record of repair expenses.” ECF No. 1-1, 41.

         From November 17, 2014 to November 19, 2014, five to seven feet of snow an ice accumulated throughout Western New York. ECF No. 1, ¶9. On November 19, 2014, the chimney on Plaintiff's home, the door on Plaintiff's garage, and the roof on Plaintiff's shed collapsed under the weight of that snow and ice. Id. at ¶11. Through the hole left by the collapsed chimney, snow and ice began to accumulate inside Plaintiff's home. Id. Over the next three days, the temperature in Western New York rose to 60 degrees. Id. at ¶¶10, 12. That temperature increase caused the snow and ice that had accumulated inside Plaintiff's home to melt. Id. at ¶12. When the water came into contact with electrical wiring, circuits shorted and fires ignited. Id. at ¶13.

         Twelve days after his property was damaged, Plaintiff called Defendant's customer service number to notify Defendant of the damage. Id. at ¶16. During that call, Plaintiff spoke to a claims representative for 14 minutes. Id. Despite the Policy language that indicated Defendant would cover the cost of damage caused by the weight of snow and ice, the claims representative informed Plaintiff that his claim would be denied. Id. at ¶17. The claims representative said that the damage to his garage might be covered, but the damage to his home would not be. Id. Further, the claims representative told Plaintiff that because of his high deductible, “it would not be in [his] best interest to pursue a claim at that time.” Id. at ¶18.

         Plaintiff took the claim's representative's advice and did not pursue a claim at that time. Id. Instead, he took out a second mortgage on his home to cover the costs of the repairs. Id. at ¶21. On November 5, 2015, the principal balance on the second mortgage was $173, 041.78. Id. at ¶21. On November 6, 2015, the cost of repairs totaled $171, 873.24 and the expenses for replacing damaged personal property totaled $31, 000. Id. at ¶31.

         Nine months after the storm, Plaintiff's friend who works in the insurance business told Plaintiff that he should again attempt to pursue an insurance claim. Id. at ¶24. Taking that advice, Plaintiff contacted Defendant on August 11, 2015. Id. This time, Defendant sent an engineer to inspect the damage to Plaintiff's property. Id. Nonetheless, on September 4, 2015, Defendant sent Plaintiff a letter denying his claim. Id. at ¶25. The denial letter stated that “[t]he claim was not reported promptly and documentation of the cause of loss and damages is not available for review.” Id. at ¶27; ECF No. 1-2. The denial letter did not include a claim number, id. at ¶32, nor did it inform Plaintiff that he had a right to dispute the denial with the New York Department of Financial Services. Id.

         After Plaintiff received Defendant's denial letter, Plaintiff's attorney contacted Defendant and requested that it reverse its coverage decision. Id. at ¶35. At first, Defendant refused. Id. But after some correspondence between the parties, Defendant withdrew its denial and reopened its investigation of the damage to Plaintiff's property. Id. at ¶¶35-37. Defendant demanded that Plaintiff submit to an examination under oath and produce a number of documents. Id. Plaintiff agreed to submit to an examination that was limited to the subject to timeliness, but Defendant refused to limit its investigation. Id. at ¶38. At that point, Plaintiff initiated this action. ECF No. 1.

         II. Material Undisputed Facts

         The parties agree that Plaintiff notified Defendant of the damage to his home and that Defendant conducted an investigation and denied coverage. ECF Nos. 10-7, ¶¶8-9; 17, ¶¶8-9. They further agree that, in its denial letter, Defendant stated that it had “concluded its investigation of [Plaintiff's] loss, ” explained that “[t]he claim was not reported promptly and documentation of the cause of loss and damages is not available for review, ” and noted that coverage was conditioned on Plaintiff fulfilling his duties to notify Defendant promptly of a loss, protect and repair the property, and submit to Defendant's investigation. ECF Nos. 10-7, ¶¶10-12; 17, ¶¶10-12.

         The parties disagree about the cause of the damage, the date of notification, and the substance of Plaintiff's conversation with Defendant's claims representative. ECF Nos. 10-7, ¶¶2-7; 17, ¶¶2-7. Defendant disputes whether the damage to Plaintiff's property was caused by the weight of snow and ice, when the electrical fires occurred, and the extent of the loss. ECF No. 17, ¶2. Further, Defendant disputes whether Plaintiff first reported the loss on December 1, 2014. Id. at ¶3-6. Finally, Defendant disputes that Plaintiff acted on the advice of its claims representative when Plaintiff refrained from formally pursuing his claim until August 11, 2015. Id. at ¶7.

         DISCUSSION

         I. Defendant's Motion to Dismiss

         Defendant has moved to dismiss seven of Plaintiff's claims. ECF No. 7. Defendant argues that Plaintiff's complaint fails to state a claim of fraud, constructive fraud, negligent misrepresentation, violation of New York General Business Law § 349, punitive damages, consequential damages, and injunctive relief. Id.

         To succeed on a motion to dismiss under Rule 12(b)(6), the defendant must show that the complaint contains insufficient facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). A complaint is plausible when the plaintiff pleads sufficient facts that allow the Court to draw reasonable inferences that the defendant is liable for the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Plausibility “is not akin to a probability requirement, ” rather plausibility requires “more than a sheer possibility that a defendant has acted unlawfully.” Id. (quotation marks omitted). “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Id. (quotation marks and citation omitted). A pleading that consists of “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Nor does a complaint suffice if it tenders “naked assertion[s]” devoid of “further factual enhancement.” Id. at 557.

         For the reasons discussed below, Defendant's motion to dismiss Plaintiff's constructive fraud, negligent misrepresentation, punitive damages, and New York General Business Law claims is granted and those claims are dismissed. Defendant's motion to dismiss as it relates to Plaintiff's fraud claim, request for injunctive relief, and claim for consequential damages is denied.

         a. Fraud

         Defendant first moves to dismiss Plaintiff's claim of fraud. To state a claim of fraud under New York law, a plaintiff must allege that the defendant (1) knowingly, (2) made a statement of material fact, (3) that was false, (4) on which the plaintiff justifiably relied, (5) to the plaintiff's injury. Apace Commc's, Ltd. V. Burke, 522 F.Supp. 29 509, 514 (W.D.N.Y. 2007) (citing Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006). In alleging those elements, in addition to meeting the requirements of 12(b)(6), the plaintiff must satisfy heightened pleading requirements. Fed.R.Civ.P. 9(b). Rule 9(b) requires the plaintiff to “state with particularity” the circumstances constituting fraud and “allege[] generally” intent, knowledge, and other conditions of a person's mind. Id. In other words, “Rule 9(b) places two further burdens on fraud plaintiffs-the first goes to the pleading of the circumstances of the fraud, the second to the pleading of the defendant's mental state.” Loreley Financing (Jersey) No. 3 Ltd. V. Wells Fargo Securities, LLC, 797 F.3d 160, 171 (2d Cir. 2015). In pleading the circumstances of the fraud, the plaintiff must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” Minnie Rose LLC v. Yu, 169 F.Supp.3d 504, 511 (S.D.N.Y. 2016) (quoting DiMuro v. Clinique Labs, LLC, 572 Fed. App'x 27, 30 (2d Cir. 2014). Regarding the Defendant's mental state, the plaintiff must “plead the factual basis which gives rise to a ‘strong inference' of fraudulent intent.” Stephenson v. PricewaterhouseCoopers, LLP, 482 Fed.Appx. 618, 622 (2d Cir. 2012) (quoting Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990)).

         Defendant claims that Plaintiff has failed to satisfy both Rule 9(b) requirements. First, Defendant claims that Plaintiff has failed to specify a fraudulent statement. ECF No. 7, 5. Second, Defendant claims that, to the extent that Plaintiff has identified a fraudulent statement, Plaintiff has not sufficiently alleged fraudulent intent. Id. at 5. The Court disagrees. Plaintiff has alleged the circumstances of the fraud ...


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