K. Bell & Associates, Inc. v. Lloyd's Underwriters

• Decision Date: 21 July 1993
• Docket Number: No. 92 Civ. 5249 (KTD).,92 Civ. 5249 (KTD).
• Citation: 827 F. Supp. 985
• Parties: K. BELL & ASSOCIATES, INC., Plaintiff, v. LLOYD'S UNDERWRITERS, Defendant.
• Court: U.S. District Court — Southern District of New York

827 F. Supp. 985

K. BELL & ASSOCIATES, INC., Plaintiff, v. LLOYD'S UNDERWRITERS, Defendant.

No. 92 Civ. 5249 (KTD).

United States District Court, S.D. New York.

July 21, 1993.

COPYRIGHT MATERIAL OMITTED

Lilly Sullivan Purcell Barkan & Junge, P.C. (Steven L. Barkan, Armand P. Mele, of counsel), New York City, for plaintiff.

Mendes & Mount (Leo W. Fraser, III, Barbara S. Agulnek, of counsel), New York City, for defendant.

MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, District Judge.

Plaintiff, K. Bell & Associates, Inc., ("K. Bell") commenced this diversity action on July 12, 1992, against defendant, Lloyd's Underwriters ("Lloyd's"). On October 6, 1992, defendant moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6).

BACKGROUND

Facts Alleged

K. Bell, a New York corporation licensed to act as an insurance broker and reinsurance intermediary, obtained two insurance broker's Error and Omissions policies (the "Policies") from Lloyd's Underwriters, a United Kingdom consortium. Complaint ¶¶ 1-4. The complaint alleges that the Policies obligated Lloyd's to:

reimburse plaintiff for all sums which plaintiff should become legally obligated to pay as damages by reason of any negligent act, error, or omission committed or alleged to have been committed by the plaintiff, or by any person for whose negligent acts, errors, or omissions plaintiff was legally responsible, which 2 sic arose out of the conduct of the insured's professional activity as an insurance broker, insurance agent, or general insurance agent.

Id. at ¶ 6. K. Bell's complaint also asserts that the aggregate coverage under the Policies provided coverage for $2,000,000.00 subject to a $10,000.00 deductible. Id. at ¶ 5.

From 1980-1982, K. Bell was the insurance broker to the American Marine Insurance Group ("AMIG"). Id. at ¶ 7. In early August of 1985, AMIG commenced an action (the "Underlying Action") against K. Bell, and others, in New York State Supreme Court, New York County. Id. at ¶¶ 9-10. K. Bell asserts that they promptly notified Lloyd's of this claim by forwarding a copy of the Summons and Complaint to Lloyd's broker, on August 9, 1985. Id. at ¶ 12. After almost ten months had passed, on June 6, 1986, Lloyd's responded reserving its rights in regards to possible late notice of claims, and applications of exclusions (f) and (g) of the Policies, through a letter from its attorneys. Id. at ¶ 14.

Throughout the duration of the Underlying Action, attorney's for Lloyd's periodically requested and received status reports of the Underlying Action from K. Bell's attorneys. Id. at ¶¶ 15-31. On November 18, 1991, summary judgement was entered against K. Bell in the Underlying Action in the amount of $686,266.64 plus interest. K. Bell's attorneys informed Lloyd's of this decision and advised that they expected Lloyd's to either post a bond or letter of undertaking, so that K. Bell could pursue an appeal. Id. at ¶¶ 32, 33. By letter dated February 27, 1992, Lloyd's formally declined coverage under the Policies. Id. at ¶ 38. Subsequently, a final judgement totaling $1,192,233.77 was entered against K. Bell, and, thereafter, AMIG successfully restrained all of K. Bell's funds to ensure satisfaction of the judgment. On or about July 12, 1992, K. Bell commenced the instant action.

K. Bell's Claims

K. Bell's complaint asserts that Lloyd's failure to provide coverage under the Policies constituted a breach of contract. Additionally, K. Bell's complaint asserts that the doctrines of equitable estoppel and waiver preclude Lloyd's from declining coverage under the Policies. K. Bell further claims entitlement to punitive damages due to Lloyd's bad faith.

DISCUSSION

Motion to Dismiss

Defendants now move, pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the complaint. On a motion to dismiss, I must read the complaint in the light most favorable to the claimant. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). Additionally, I cannot dismiss the complaint unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir. 1984).

Breach of Contract

In support of its motion to dismiss, Lloyd's argues that K. Bell has failed to adequately plead a cause of action for breach of contract. The elements required to state a valid claim for breach of contract are: (1) the existence of a contract; (2) due performance of the contract by the plaintiff; (3) breach of contract by the defendant; and, (4) damages resulting from the breach. Nordic Bank PLC v. Trend Group Ltd., 619 F.Supp. 542, 561 (S.D.N.Y.1985). Nevertheless, it is not necessary for a complaint alleging breach of contract to specifically state each element individually. Id. at 561. Posner v. Minnesota Mining & Manufacturing Co., Inc., 713 F.Supp. 562, 563 (E.D.N.Y.1989). Rule 8 of the Federal Rules of Civil Procedure requires only a "short and plain statement of the claim" for the sole purpose of placing defendants on notice of the claims against them. 2A James W. Moore et al., Moore's Federal Practice ¶ 8.177 (2d ed. 1993).

When read in the light most favorable to the claimant, K. Bell, the complaint sufficiently sets forth a cause of action sounding in breach of contract. The complaint clearly alleges the existence of a contract between the parties. Complaint at ¶¶ 4-6. Further, the allegations contained in the complaint indicate that K. Bell, by filing a notice of claim, and by keeping Lloyd's up to date on the status of the Underlying Action, performed its obligations under the Policies in satisfaction of the pleading requirement of due performance. Id. at ¶¶ 12, 16-31. The complaint also satisfies the requirement that plaintiffs asserting a contract breach claim actually allege a breach. Simply stated, K. Bell's allegation that Lloyd's failed to provide coverage due under the Policies suffices to place Lloyd's on notice of a claim against them.¹ Lastly, K. Bell's complaint alleges damages resulting from the alleged breach. Accordingly, K. Bell has adequately pleaded the elements necessary to state a cause of action for breach of contract, and, therefore, Lloyd's motion to dismiss this claim must be denied.

Estoppel

K. Bell's complaint asserts that Lloyd's should be estopped from invoking a policy exclusion to deny coverage six and one-half years after the notice of claim was filed. Premised on the equitable maxim that no party should be permitted to take advantage of its own wrongs, equitable estoppel prevents a party from enforcing or asserting rights where its own conduct has induced another to justifiably and detrimentally rely upon the belief that such enforcement would not be sought. Nassau Trust Co. v. Montrose Concrete Products Corp., 56 N.Y.2d 175, 184, 451 N.Y.S.2d 663, 667, 436 N.E.2d 1265, 1269 (1982); see Travellers Int'l. AG v. Trans World Airlines, Inc., 722 F.Supp. 1087, 1098 (S.D.N.Y.1989). To properly plead equitable estoppel the party seeking its protection must allege: (1) lack of knowledge of the true facts; (2) reliance on the conduct of the party to be estopped; and (3) a prejudicial change in its position. See Broadworth Realty Associates v. Chock 336 Broadway Operating, Inc., 168 A.D.2d 299, 300, 562 N.Y.S.2d 630, 632 (1st Dep't 1990) (citing Airco Alloys Division v. Niagara Mohawk Power, 76 A.D.2d 68, 81, 430 N.Y.S.2d 179, 188 (4th Dep't 1980)).

Reading the complaint in the light most favorable to the claimant it is clear that K. Bell has adequately alleged the essential elements of equitable estoppel. The complaint states that K. Bell: (1) was unaware of Lloyd's intent to deny coverage; (2) relied on the belief that Lloyd's would provide coverage under the terms of the policies; and (3) was prejudiced by Lloyd's delay in denying coverage to the extent that it would have settled the underlying lawsuit prior to the entry of judgment. See Complaint at ¶¶ 47-51.

In support of its motion to dismiss, however, Lloyd's argues that, in the context of insurance law, an estoppel cannot arise where the insured remains in control of its defense throughout the underlying action and the insurer reserved its rights to assert non-coverage under the policy. (Lloyd's Letter in Reply to K. Bell's Opposition to the Motion to Dismiss, at 2, 4). Under New York law it is true that where an insurer undertakes the defense of an action on the behalf of an insured without reserving policy defenses it cannot be heard to argue, subsequently, that coverage does not exist. Albert J. Schiff Assoc., Inc. v. Flack, 51 N.Y.2d 692, 699, 435 N.Y.S.2d 972, 975, 417 N.E.2d 84, 87 (1980). While the contraposition of this principle, as propounded by Lloyd's, may create an inference in favor of preventing an estoppel, it does not prevent the assertion thereof, as other acts of the insurer may have worked to prejudice the insured. See O'Dowd v. American Surety Co. of New York, 3 N.Y.2d 347, 355, 165 N.Y.S.2d 458, 463-64, 144 N.E.2d 359, 363 (1957) (insurer...