AFIA v. Continental Ins. Co.

• Court: New York Supreme Court — Appellate Division
• Citation: AFIA v. Continental Ins. Co., 527 N.Y.S.2d 420, 140 A.D.2d 167 (N.Y. App. Div. 1988)
• Decision Date: 05 May 1988
• Parties: AFIA, Plaintiff-Respondent, v. CONTINENTAL INSURANCE COMPANY, Defendant-Appellant.

Page 420

527 N.Y.S.2d 420

140 A.D.2d 167

AFIA, Plaintiff-Respondent, v. CONTINENTAL INSURANCE COMPANY, Defendant-Appellant.

Supreme Court, Appellate Division First Department.

May 5, 1988.

E. Tessler, New York City, for plaintiff-respondent.

J.M. Leonard, New York City, for defendant-appellant.

Before MURPHY, P.J., and SANDLER, ASCH, MILONAS and SMITH, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Ethel B. Danzig, J.), entered October 21, 1987, which granted plaintiff's motion to amend its complaint in order to add a third cause of action seeking, inter alia, punitive damages, unanimously modified, on the law, without costs, to delete that part of the third cause of action which seeks punitive damages, and otherwise affirmed.

This action arose out of a policy of insurance issued by the defendant, Continental Insurance Company, to the plaintiff, AFIA, a company which conducts insurance business outside the continental United States.

In connection with a certain lawsuit, the plaintiff was served with a counterclaim alleging that its effort to terminate a certain underwriting relationship constituted malicious and wilful conspiracy, fraud, tortious interference with a contract, and in which $10 million was sought in compensatory damages, $10 million in punitive damages and $5 million for alleged breach of contract. A copy of the answer with the counterclaims was transmitted to Continental, which, acting through its agent, agreed to assume the plaintiff's defense of the action without reservation, except for denying coverage for the punitive damages. In addition, the defendant accepted the plaintiff's choice of a law firm to represent plaintiff in the action, and agreed to pay reasonable attorney's fees relating to the defense.

The complaint alleges that on July 28, 1981, the plaintiff wrote to Continental's agent requesting settlement authority up to the $1 million policy limit for plaintiff to settle the action for less than $2 million. No response was received to this request, nor was any response received to several follow-up requests. The complaint further alleges that plaintiff was unable to settle the action prior to October 1981 because the defendant failed to respond to its request for settlement authorization, and thereby lost the opportunity to settle the action for less than $2 million. Thereafter, Continental's agent wrote to plaintiff declining the coverage previously extended, setting forth varied grounds for so doing, each of which the complaint asserts to have been unfounded. It is further alleged that the plaintiff spent over $500,000 in defending the action, and ultimately settled the action in May 1982 for $3 million.

In the original complaint setting forth two causes of action, plaintiff sought to recover $500,000 in costs incurred in defending the action, and $1 million (the policy limit) of the money paid to settle the action. The first cause of action sought these sums under the terms of the policy; the second sought them on the basis of estoppel. Giving rise to the issue on this appeal, plaintiff then moved to amend the complaint to set forth a third cause of action alleging that the defendant, in failing to respond to its requests for settlement had violated its obligation to act in good faith. The third cause of action sought "amounts in excess of $1 million plus interest in compensatory damages, and $2 million plus interest in exemplary damages."

Concluding that plaintiff's proposed third cause of action set forth a legally sufficient claim for punitive damages, the IAS Court granted the motion for leave to amend the complaint to include that cause of action. We disagree in...