Norguard Ins. Co. v. Apex Design & Constr. Corp., 700422/2011
| Decision Date | 19 December 2011 |
| Docket Number | 700422/2011 |
| Citation | 2011 NY Slip Op 52259 |
| Parties | Norguard Insurance Co. v. Apex Design & Construction Corp. |
| Court | New York Supreme Court |
For the Plaintiff: Brandon L. Sipple, Esq., of Staff Counsel of Guard Insurance Group.
For the Defendants: Mavromihalis, Pardalis & Nohavicka, by Joseph D. Nohavicka, Esq.
The following papers numbered 1 to 17 read on this motion by NorGuard Insurance Company ("NorGuard"), to dismiss defendant's counterclaims, pursuant to CPLR sections 3211 (a)(1) and (a)(7), on the grounds that, respectively, a defense is founded upon documentary evidence and that the counterclaims fail to state a cause of action; and a cross-motion by Apex Design and Construction Corp. ("Apex"), for leave to amend the answer to include the affirmative defense of lack of in personam jurisdiction and to dismiss the underlying action, pursuant to CPLR 3211(a)(8).
Notice of Motion - Affidavits - Exhibits.........................................................1 - 8
Notice of Cross Motion - Affidavits - Exhibits ..............................................9 - 11
Answering Affidavits - Exhibits......................................................................12 - 14
NorGuard Insurance Company ("NorGuard"), the plaintiff in this action is an insurance carrier suing for the collection of alleged earned premium due. Defendant Apex Design and Construction Corp. ("Apex"), counterclaims under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO," codified in 18 U.S.C. §§ 1961-1968) and for fraudulent billing practices. Plaintiff moves to dismiss the counterclaims based upon documentary evidence and for failure to state a cause of action. Defendant opposes the motion and cross moves to amend the answer to assert the affirmative defense of lack of in personam jurisdiction and to dismiss the underlying action, pursuant to CPLR 3211(a)(8). Plaintiff NorGuard opposes the cross-motion.
Plaintiff NorGuard is a corporation licensed by the New York Insurance Department to sell insurance in the State of New York. Plaintiff and defendant entered into a written contract wherein plaintiff agreed to provide defendant with workers' compensation and employer's liability insurance in consideration for the payment of premium.
In New York, premium for workers' compensation insurance is calculated by multiplying remuneration paid by an insured-employer by a rate, or series of rates, set by the New York Compensation Insurance Rating Board (the "Board"). Since a company cannot know how much an insured will pay in remuneration in the future, at the beginning of a policy period, the premium for the period is estimated based on information supplied to the insurer, by the insured, on their application for insurance. At the end of the policy period, the actual premium for the policy is calculated by performing an audit wherein actual remuneration figures are ascertained.
Here, the procedure for auditing policies and calculating actual premium is set forth in Part Five of the insurance policy. At audit, the actual remuneration figures are multiplied by the applicable classification code rates to determine actual premium. The estimated premium paid by the insured employer at the beginning of and throughout the policy does not constitute the actual cost of the insurance coverage they have purchased. Instead, it is the actual premium, ascertained at audit, that constitutes the true price for the coverage.
Under Part 5(C) of the policy, a premium is charged based on remuneration paid to officers and employees, as well as other persons performing work that could make plaintiff-NorGuard liable under the policy. Based on this policy provision, plaintiffcharges a premium based on remuneration paid to both employees, as well as subcontractors who have not secured their own workers' compensation coverage based on the risk that the uninsured subcontractors could make plaintiff NorGuard liable under the policy.
NorGuard provided workers' compensation and employer's liability insurance to defendant from March 15, 2010 to March 15, 2011. As per plaintiff's usual practice, estimated premium for this policy was charged based on the information supplied by defendant on its insurance application. The insurance submitted by defendant indicated that its total remuneration was $25,000 and that it did not use subcontractors. Using the information provided by defendant on its application for insurance, plaintiff estimated the premium for the policy term to be $3,630. At the end of the policy term, however, the audit revealed that defendant actually had $159,349 in chargeable remuneration, a sizable variance from the estimate presented on defendant's application. The audit also revealed that, contrary to what was set forth in their application, the defendant utilized the services of subcontractors and that remuneration paid to uninsured subcontractors exceeded the remuneration paid to employees.
The ratio of remuneration paid to subcontractors to remuneration paid to employees far exceeded what is permissible under plaintiff's underwriting guidelines. Plaintiff submits that had it known the actual ratio, it would not have written the policy. However, plaintiff relied on the representations made in defendant's application for insurance, which indicated that it did not use subcontractors. Plaintiff NorGuard also relied on the representations made in defendant's application for insurance in setting overall estimated premium.
Based on the actual remuneration paid to defendant, as revealed by the audit, a premium balance of $16,625 resulted, which defendant has refused to pay. NorGuard filed suit to collect that amount on July 26, 2011. On August 4, 2011, Apex answered the complaint and asserted counterclaims against plaintiff alleging RICO violations, misrepresentation and fraud. Plaintiff now moves to dismiss defendant's counterclaims.
Plaintiff NorGuard moves to dismiss the counterclaims, pursuant to CPLR 3211(a)(1), as barred by documentary evidence and CPLR 3211(a)(7) for failure to state a cause of action.
As a preliminary matter, the Court notes that plaintiff makes the same arguments and submits the same proof with respect to both CPLR sections 3211(a)(1) and3211(a)(7).
Generally, on a motion to dismiss made pursuant to CPLR section 3211(a)(7), the pleading is to be afforded a liberal construction. The Court must accept the allegations of the counterclaims as true and provide the defendant the benefit of every possible favorable inference (see, AG Capital Funding Partners, L.P. v State Street Bank and Trust Co., 5 NY3d 582, 591 [2005]). In determining a motion to dismiss, a court's role is ordinarily limited to determining whether the counterclaim states a legally cognizable claim (Frank v DaimlerChrysler Corp., 292 AD2d 118 [1st Dept.], lv. to appeal denied, 99 NY2d 502 [2002]). Thus, "[w]hether a plaintiff can ultimately establish its allegations, is not part of the calculus in determining a motion to dismiss" (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11, 19 [2005]).
Further, in order to prevail on a CPLR 3211(a)(1) motion, namely, "a defense . . . founded on documentary evidence,", the moving party must show that the documentary evidence conclusively refutes defendant's allegations (see, AG Capital Funding Partners, L.P. v State Street Bank and Trust Co., 5 NY3d at 590—591, supra; Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314, 326 [2002]). Where documentary evidence flatly contradicts the factual claims, the entitlement to the presumption of truth and the favorable inferences is rebutted (Ullmann v Norma Kamali, Inc., 207 AD2d 691, 692 [1st Dept. 1994]).
The first counterclaim asserted by defendant is that plaintiff violated 18 USCA section 1962(c), namely, that plaintiff engaged in racketeering in an effort to defraud defendant. To properly state a RICO claim for damages under section 1962(c), a plaintiff must allege: (1) a violation of the RICO statute; (2) an injury to business or property; and (3) causation of the harm or injury by the RICO violation (see, De Falco v Bernas, 244 F.3d 286, 305 [2d Cir.], cert. denied sub nom. Dirie v De Falco, 534 US 891 [2001]).
Section 1962(c) makes it unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity (18 U.S.C. § 1962[c]). To allege a violation of section 1962(c) , "a plaintiff must show that he was injured by defendants' (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity" (Cofacredit, S.A. v Windsor Plumbing Supply Co., Inc., 187 F.3d 229, 242 [2d Cir.1999]). The requirements of section 1962(c) must be sufficiently alleged as to each defendant (see, De Falco, 244 F.3d at 306, supra).
In considering civil RICO claims, a court must be mindful of the devastating effect such claims may have on defendants (see, Katzman v Victoria's Secret Catalogue, 167F.R.D. 649, 655 [SDNY] () (quotation marks and citation omitted), reargument denied, 939 F Supp 274 [SDNY 1996], judgment aff'd, 113 F3d 1229 [2nd Cir. 1997].
" Because the mere assertion of a RICO claim . . . . has an almost inevitable stigmatizing effect on those named as defendants, . . . courts should strive to flush out frivolous RICO allegations at an early stage of the litigation.' " Allen v New World Coffee, Inc., 2001 WL 293683, slip op. at 3 [SDNY 2001], quoting Schmidt v Fleet Bank, 16 F. Supp. 2d 340, 346 [SDNY 1998] [quotation marks omitted]). "[C]ourts must always be on the lookout for...
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