United States District Court, S.D. New York
MEMORANDUM OPINION & ORDER
J. NATHAN, United States District Judge
diversity action, Plaintiff Holborn Corporation asserts that
Defendant Sawgrass Mutual Insurance Company breached its
contract by failing to pay premiums to Holborn in exchange
for Holborn acting as Sawgrass's reinsurance broker.
Sawgrass asserts counterclaims against Holborn, alleging
first that Holborn acted negligently and breached its
fiduciary duty by failing to recommend a particular type of
reinsurance, and second that Holborn breached its contract by
failing to repay certain sums to Sawgrass. Before the Court
is Holborn's motion to dismiss Counts I and II
(negligence and breach of fiduciary duty) of Sawgrass's
Amended Counterclaims under Federal Rule of Civil Procedure
12(b)(6). Because the Court concludes that New York law
applies and that Sawgrass has failed to sufficiently allege
facts that would support Sawgrass's claims under New York
law, the motion is granted.
following facts are taken from the allegations contained in
the Defendant's Amended Counterclaims, as required in
deciding this motion to dismiss. See Kassner v. 2nd Ave.
Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007).
Defendant Sawgrass is a mutual insurance corporation existing
in and organized under the laws of the state of Florida.
Defendant/Counter- Plaintiffs Amended Counterclaims
("Counterclaims"), Dkt. No. 22, ¶1. It writes
homeowners insurance policies in the state of Florida.
Counterclaims ¶ 4. Plaintiff Holborn is a reinsurance
intermediary organized under the laws of the state of
Delaware, with offices in New York, Minnesota, and Kansas.
Counterclaims ¶ 2.
2012, Holborn had a series of conversations with
Sawgrass's then-President and CEO, James Esse, aimed at
convincing Esse to let Holborn procure reinsurance for
Sawgrass. Counterclaims ¶ 5. During these conversations,
Esse advised Holborn that it would need to "carefully
analyze" Sawgrass's potential risk exposure under
its homeowners policies, as well as "design a specific
reinsurance program custom tailored to Sawgrass' unique
business needs." Counterclaims ¶ 7. Given the
magnitude of Sawgrass's risk, any reinsurance deal would
likely require Sawgrass to pay nearly $10 million in annual
reinsurance premiums for nearly $100 million in coverage.
Counterclaims ¶ 8. Holborn was likely to receive nearly
$1 million in annual commissions. Counterclaims ¶ 8. As
a result, Sawgrass alleges, Holborn "understood that if
Sawgrass retained it as its reinsurance intermediary that the
relationship would be one of trust and confidence, and that
Holborn would have a duty to counsel and advise Sawgrass on
the reinsurance program that would be most advantageous to
its particular business needs." Counterclaims ¶ 9.
addition, according to Sawgrass, Holborn made "a series
of representations concerning its expertise in an effort to
induce Sawgrass to retain its services, " which were
"substantially the same" as the representations
currently made on Holborn's website. Counterclaims ¶
10. These representations include:
a. Holborn is an independent reinsurance brokerage offering
advanced analytic tools, global market access, and responsive
account services to clients across the United States.
b. Holborn is "committed to understanding each
clients' needs, corporate culture, risk tolerance and
overall business approach."
c. Holborn promises to "maintain a relentless commitment
to giving clients what they truly need, with no two client
solutions exactly the same."
d. Holborn "take[s] a comprehensive approach to
reinsurance structure design and placement by understanding
each client's business philosophy and risk appetite. Each
client team incorporates dedicated placement & claims
brokers, cat modelers, actuaries, contracts professionals and
accountants, who collaborate to deliver an exceptional client
experience throughout the year. By being client focused,
instead of product-focused, [its] team understands the whole
picture and the implications of each recommendation and
ultimate decision made by our clients."
e. Holborn "keeps [its] finger on the pulse of both the
traditional market and alternative market, when exploring
risk solutions, to ensure [its] clients have the most
efficient, innovative and secure reinsurance program
Counterclaims ¶ 10. Sawgrass considered these
representations material to its decision to retain Holborn
and alleges that Holborn knew or should have known this.
Counterclaims ¶ 11.
March 14, 2012, Sawgrass executed a Broker Authorization
Contract (the "2012 BAC"), which designated Holborn
as Sawgrass's reinsurance intermediary from June 1, 2012
through May 31, 2015. Counterclaims ¶ 12; see
also 2012 BAC, Dkt. No. 29-1. On November 6, 2013,
Holborn and Sawgrass executed a superseding Broker
Authorization Contract (the "2014 BAC"), which
designated Holborn as Sawgrass's reinsurance intermediary
from June 1, 2014 through May 31, 2017. Counterclaims ¶
12; see also 2014 BAC, Dkt. No. 29-2. In addition,
the parties signed two other agreements: a "Consulting
Agreement" that amended the 2012 BAC and specified that
Holborn would provide consulting services for a period of
time even if the contract were terminated, Counterclaims
¶14, and a contract authorizing Sawgrass to use
Holborn's proprietary Portfolio Optimization Tool,
see Portfolio Optimization Tool Use Agreement, Dkt.
to Sawgrass, Holborn recommended a specific program of
reinsurance coverage that it represented was the most
advantageous for Sawgrass. Counterclaims ¶ 16. Based on
these representations, Sawgrass purchased the recommended
reinsurance. Counterclaims ¶ 17. At some point
thereafter, Sawgrass learned that Holborn had failed to
recommend "Top and Drop" reinsurance coverage, a
multi-layer insurance product which allows the insured to
reuse the top excess-of-loss layer of reinsurance if it is
not breached by the first loss event. Counterclaims ¶
18-19. Sawgrass alleges that if Holborn had recommended Top
and Drop coverage, Sawgrass would have saved hundreds of
thousands of dollars. Counterclaims ¶ 20.
subsequently terminated Holborn pursuant to paragraph 2 of
the 2014 BAC, which allowed Sawgrass to terminate Holborn at
any time for cause. Counterclaims ¶ 27; 2014 BAC
¶¶ 2-3. On November 23, 2016, Holborn filed a
complaint against Sawgrass alleging breach of contract.
Complaint, Dkt. No. 1, ¶ 1. Specifically, Holborn
alleged that Sawgrass "prematurely terminated] the
Contract without cause and fail[ed] to pay Holborn its full
share of brokerage on all reinsurance procured or
placed" during the period of time covered by the 2014
BAC. Complaint ¶ 1. In response, Sawgrass brought three
counterclaims against Holborn alleging negligence, breach of
fiduciary duty, and breach of contract. Counterclaims
¶¶ 34-55. Sawgrass alleges that Holborn's
failure to recommend Top and Drop insurance constituted a
breach of its duty of care, Counterclaims ¶ 40, and a
breach of its fiduciary duty, Counterclaims ¶ 47. It
also alleges that Holborn breached the terms of the 2014 BAC
by failing to remit a percentage of the brokerage earned by
Holborn as required. Counterclaims ¶¶ 53-54.
April 11, 2017, Holborn filed a motion to dismiss
Sawgrass's first and second counterclaims. Dkt. No. 27.
Holborn argues that the tort-based claims of negligence and
breach of fiduciary duty are barred by the economic loss
doctrine under New York law and therefore must be dismissed.
Memo, in Support of Motion to Dismiss ("Support"),
Dkt. No. 28, at 1.