Mercantile & General Reinsurance Co., PLC v. Colonial Assur. Co.

• Decision Date: 18 November 1993
• Citation: 82 N.Y.2d 248,604 N.Y.S.2d 492,624 N.E.2d 629
• Parties: , 624 N.E.2d 629 MERCANTILE & GENERAL REINSURANCE CO., PLC, Appellant, v. COLONIAL ASSURANCE COMPANY et al., Defendants, and Spanno Corporation, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 492

604 N.Y.S.2d 492

82 N.Y.2d 248, 624 N.E.2d 629

MERCANTILE & GENERAL REINSURANCE CO., PLC, Appellant, v. COLONIAL ASSURANCE COMPANY et al., Defendants and Spanno Corporation, Respondent.

Court of Appeals of New York.

Nov. 18, 1993.

Mound, Cotton & Wollan, New York City (Stuart Cotton, Andrew Maneval, Guy P. Dauerty, Diane P. Simon and Marilu Cain, of counsel), for appellant.

Stein, Garr & Rosenfeld, New York City (Ira E. Garr and Steven E. Rosenfeld, of counsel), Hall, O'Brien & Sack, Miami, FL (Andrew C. Hall, of counsel, of the Florida Bar, admitted pro hac vice) and Cooper & Wolfe, Miami, FL (Marc Cooper and Maureen E. Lefebvre of counsel, of the Florida Bar, admitted pro hac vice), for respondent.

OPINION OF THE COURT

SIMONS, Judge.

This appeal presents a question on the role of the jury, and the conclusiveness of its findings, in actions in which both legal and equitable claims are advanced by the parties.

The defendant Spanno Corporation was in the business of guaranteeing prospective purchasers of capital equipment that the equipment would have a stated residual value at a given future date. Since Spanno had to assure its customers that it would be able to make good on its guarantees, it obtained insurance for that purpose from the defendants Colonial Assurance Company and Union International Insurance Company. They, in turn, reinsured the risks with plaintiff.

Plaintiff instituted this action seeking to rescind the contracts of reinsurance with the insurers, claiming that Spanno had made material misrepresentations which had induced it to enter into the contracts. Rescission claims, of course, are equitable in nature and, thus, are to be tried by the court (Motor Vehicle Mfrs. Assn. v. State of New York, 75 N.Y.2d 175, 182-183, 551 N.Y.S.2d 470, 550 N.E.2d 919). Spanno, named as a defendant, asserted a legal counterclaim alleging that it was a third-party beneficiary to the reinsurance contracts with Colonial and Union, which were then in liquidation. It claimed that it had been injured because of nonpayments to its customers and its inability to obtain new customers and demanded damages for plaintiff's breach of the reinsurance contracts and its tortious interference with the insurance contracts with Colonial and Union.

At trial Supreme Court treated plaintiff's claim of material misrepresentation as an equitable defense and counterclaim to Spanno's contract action and ruled that the jury's verdict on equitable issues would be advisory (see, CPLR 4101, 4212; see also, Phoenix Mut. Life Ins. Co. v. Conway, 11 N.Y.2d 367, 229 N.Y.S.2d 740, 183 N.E.2d 754). It asked the jury to answer six interrogatories which addressed both the legal and equitable causes of action. In response, the jury concluded that Spanno was entitled to recover on the contract and that it made no material misrepresentations warranting rescission by plaintiff. It awarded damages of $14,708,779 on the breach of contract and tortious interference claims. Supreme Court set aside the verdict on Spanno's legal counterclaims. It treated the verdict on rescission as advisory and, contrary to the jury's determination, held that Spanno had made material misrepresentations entitling plaintiff to rescission of the reinsurance contract. On appeal, the Appellate Division reversed, holding that the Judge erred in setting aside the jury's verdict because there was a reasonable view of the evidence that could support it (see, Cohen v. Hallmark Cards, 45 N.Y.2d 493, 410 N.Y.S.2d 282, 382 N.E.2d 1145). It expressly held that the jury's finding of misrepresentation should have been treated as dispositive, not advisory (184 A.D.2d 177, 181, 591 N.Y.S.2d 1015).

The principal question presented is the legal effect of the jury's misrepresentation finding on the trial court's power to make a contrary factual finding. Defendant Spanno asserts that the jury's determination that there had been no material misrepresentations was a necessary part of its determination on the breach of contract action and not merely an advisory verdict on plaintiff's action for rescission. It concludes, therefore, that the jury's misrepresentation finding operated as a "type of collateral estoppel" and precluded the Judge from adjudicating the issue anew as part of plaintiff's action for rescission.

Spanno's argument fails because its original premise--that a determination on misrepresentation was necessary to resolve the breach of contract claim--is erroneous.

As the case was presented, plaintiff's action for rescission constituted an equitable defense and...