Nat'l Convention Servs. v. Applied Underwriters Captive Risk Assurance Co., 15–cv–07063 (JGK)
Citation | 239 F.Supp.3d 761 |
Decision Date | 09 March 2017 |
Docket Number | 15–cv–07063 (JGK) |
Parties | NATIONAL CONVENTION SERVICES, L.L.C. et al, Plaintiffs, v. APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC. et al, Defendants. |
Court | United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York |
Kevin Daniel Page, Joseph Cianflone, Joseph T. Redd, Steven Michael O'Connor, O'Connor Redd LLP, Port Chester, NY, Glen Lawrence Abramson, Peter R. Kahana, Yechiel Michael Twersky, Berger & Montague, P.C., Philadelphia, PA, Terry Cummings, Hitchcock & Cummings LLC, New York, NY, for Plaintiffs.
Anthony Paul Coles, DLA Piper US LLP, Jeffrey David Rotenberg, DLA Piper US LLP, Thomas Arthur Leghorn, Wilson Elser Moskowitz Edelman & Dicker LLP, Shand Scott Stephens, New York, NY, Claire Marie Hankin, Stuart Adam Miller, Wilson Elser,Moskowitz Edelman & Dicker LLP, White Plains, NY, for Defendants.
This dispute arises out of a complicated insurance scheme executed by several affiliated insurance carriers, and their other affiliates, that was allegedly designed to circumvent the insurance laws of, among other states, New York. It involves three allegedly interconnected contracts that, according to the plaintiffs, should be treated as one interdependent transaction: First, a workers' compensation insurance contract between a licensed insurer and an insured; second, a "reinsurance" contract between the licensed insurer and an affiliated "reinsurer"; and third, a "reinsurance and profit sharing" contract between the reinsurer and the insured. The plaintiffs allege that the "reinsurance and profit sharing" contract is not actually a separate contract for reinsurance and profit sharing, but instead is an illegal contract of insurance that modifies the material terms of the workers' compensation insurance contract issued by the licensed insurer. The plaintiffs also claim that the "reinsurance and profit sharing" contract is materially misleading, and leads insureds unwittingly to buy back the very risk that they had yielded to the licensed insurer.
The defendants' insurance scheme was so inventive and novel that it has been patented. In spite of the patent, the scheme has drawn the scrutiny of the insurance regulators of at least three states --- California, Wisconsin, and Vermont --- which have each found that the scheme did in fact violate the insurance laws of those states.
The defendants are Applied Underwriters Inc. ("Applied Underwriters"), Applied Underwriters Captive Risk Assurance Company, Inc. ("AUCRA"), Applied Risk Services Inc. ("ARS"), Applied Risk Services of New York Inc. ("ARSNY"), Continental Indemnity Company ("Continental Insurance"), and California Insurance Company ("California Insurance"). The plaintiffs, on behalf of a purported class, are National Convention Services, LLC, and Exserv, Inc. (the "NCS plaintiffs"); and Madjek Construction, Inc., R.D.D., Inc., and R.D.D. Management, Inc. (the "RDD plaintiffs"). The plaintiffs have brought claims against Continental Insurance and California Insurance for breach of contract (Count III); and against all of the defendants for rescission (Count II), violation of N.Y. Gen. Bus. L. § 349 (Count IV), and unjust enrichment (Count V).1
The NCS plaintiffs brought this action in the New York State Supreme Court, New York County. After the defendants removed the action to this Court pursuant to 28 U.S.C. §§ 1332 and 1441, the NCS plaintiffs filed an amended class action complaint, in which the RDD plaintiffs joined. The RDD plaintiffs had previously filed their own action against the defendants in the New York State Supreme Court, New York County.
The defendants have moved to dismiss the Second Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, the defendants' motion to dismiss is granted in part and denied in part.
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp. , 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden , 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).
While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id. ; seealso Springer v. U.S. Bank Nat'l Ass'n , No. 15-cv-1107 (JGK), 2015 WL 9462083, at *1 (S.D.N.Y. Dec. 23, 2015). When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. Chambers v. Time Warner, Inc. , 282 F.3d 147, 153 (2d Cir. 2002) ; see also Springer , 2015 WL 9462083, at *1.
The allegations in the Second Amended Complaint are accepted as true for the purposes of this motion to dismiss.
Workers' compensation is a form of insurance that provides wage replacement and medical benefits to employees injured during the course of their employment. SAC ¶ 30. New York has enacted a comprehensive regulatory scheme for workers' compensation that shifts the risk of on-the-job injuries from employees to employers. SAC ¶ 30. In turn, under the New York scheme, employers may purchase workers' compensation insurance from insurance carriers that are licensed to market and sell insurance in New York. SAC ¶ 35.
Pursuant to the Workers' Compensation Law ("WCL") §§ 10 and 50, all employers must secure the payment of workers' compensation benefits for their employees. SAC ¶ 30. The WCL provides that employers may secure the payment of workers' compensation for their employees by purchasing a workers' compensation policy from any insurance carrier authorized to transact such business in New York. SAC ¶ 31 (citing WCL § 50(2) ). An insurance carrier must be licensed by the New York Department of Financial Services (the "DFS") in order to issue workers' compensation insurance in New York.2 SAC ¶¶ 9, 35.
The New York Insurance Law ("NYIL") regulates the provision of workers' compensation insurance. SAC ¶ 3. For example, under the NYIL, all workers' compensation insurance policy forms, rates, rating plans, rating rules, and rate manuals must be filed with and approved by the DFS. SAC ¶ 2. An insurance carrier may not vary an already approved rate or policy form without prior approval from the DFS. SAC ¶¶ 3–4, 33–34.
Insurance carriers offer two main types of workers' compensation policies: guaranteed cost ("GC") policies, and retrospective rating plan ("RRP") policies. A GC policy essentially fixes insurance premiums at the outset, meaning that the actual cost of the claims against the policy will not cause premiums to fluctuate during the life of the policy. SAC ¶¶ 35–38, 40–41. Premiums under a GC policy may fluctuate depending upon certain other factors, such as the size of an employer's workforce, and the injury risks associated with a particular field of business, but generally give an employer a degree of certainty as to the cost of the insurance policy. SAC ¶¶ 36–38. By contrast, a RRP policy is loss sensitive, meaning that premiums can fluctuate during the life of the policy depending on the actual cost of the claims (typically, the greater the actual cost of the claims, the greater the premiums owed). SAC ¶¶ 35, 39–40. As compared to large employers, small-to-medium size employers are alleged to prefer GC policies because such employers require accurate estimates of future costs and are materially harmed by increases in costs. See SAC ¶ 94.
The defendants are alleged to be members of the Berkshire Hathaway Group, and are also alleged to be affiliated with each other. SAC ¶ 22; see also SAC, Ex. D (In re: Shasta Linen Supply Inc.) at 9–10 ( ).
Continental Insurance is an Iowa insurance company, with its headquarters and principal place of business in Nebraska. SAC ¶ 20. California Insurance is a California insurance company, with its principal place of business in Nebraska. SAC ¶ 21. During the relevant period, the Second Amended Complaint alleges that both Continental Insurance and California Insurance were doing business in New York as licensed insurance carriers issuing insurance policies, including policies for workers' compensation insurance. SAC ¶¶ 20–21.
Continental Insurance and California Insurance are wholly-owned subsidiaries of North American Casualty Company, which is not named as a party in this action. SAC, Ex. D at 9–10. North American Casualty Company is a wholly owned subsidiary of Applied Underwriters, a Nebraska financial service corporation, with its principal place of business in Nebraska. SAC, Ex. D at 10. Applied Underwriters provides payroll processing services, and solicits and underwrites the sale of workers' compensation insurance to small-to-medium size employers through its affiliated insurance companies. SAC ¶ 16.
Applied Underwriters is also the parent company of AUCRA and ARS. SAC, Ex. D at 9–10. AUCRA is an insurance company that,...
To continue reading
Request your trial-
Cyganowski v. Beechwood Re Ltd. (In re Platinum-Beechwood Litig.)
...is so "when the validity or scope of the contract is difficult to determine." Nat'l Convention Servs., L.L.C. v. Applied Underwriters Captive Risk Assurance Co., Inc., 239 F. Supp. 3d 761, 795 (S.D.N.Y. 2017).Here, there does not appear to be a dispute about the validity or scope of the Rei......
-
Citizens of Humanity, LLC v. Applied Underwriters Captive Risk Assurance Co.
...treatise authority. See 5 Steven Plitt et al., Couch on Insurance 3d § 69:16 (2012). The opinion in Nat. Convention v. Applied Underwriters Captive, 239 F.Supp.3d 761, 769 (S.D.N.Y. 2017), states:A [guaranteed cost] policy essentially fixes insurance premiums at the outset, meaning that the......
-
Milmar Food Grp. II, LLC v. Applied Underwriters, Inc.
...prohibitions." Insurance Law § 3103(a). See , National Convention Services, LLC v. Applied Underwriters Captive Risk Ass. Co., Inc. , 239 F.Supp.3d 761, 778 (S.D.N.Y. 2017) ; Everhome Mortgage Co. v. Charter Oak Fire Ins. Co. , 2012 WL 868961 at *7 (E.D.NY, March 14, 2012). See generally , ......
-
Lubavitch of Old Westbury, Inc. v. Inc. Vill. of Old Westbury
...... Road, Plaintiffs applied for the necessary building permits. Id. ...Interlake. S.S. Co. , No. 06-CV-1641, 2007 WL 2034284, at *2-3 (N.D. ......