Samovar of Russia Jewelry Antique Corp. v. Generali the General Ins. Co. of Trieste and Venice

• Decision Date: 21 June 1984
• Citation: 102 A.D.2d 279,476 N.Y.S.2d 869
• Parties: SAMOVAR OF RUSSIA JEWELRY ANTIQUE CORP., Plaintiff-Respondent, v. GENERALI, The General Insurance Company of Trieste and Venice, Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 869

476 N.Y.S.2d 869

102 A.D.2d 279

SAMOVAR OF RUSSIA JEWELRY ANTIQUE CORP., Plaintiff-Respondent, v. GENERALI, The General Insurance Company of Trieste and Venice, Defendant-Appellant.

Supreme Court, Appellate Division First Department.

June 21, 1984.

Eugene A. Leiman, New York City, of counsel (Rein, Mound & Cotton, New York City, attys.), for defendant-appellant.

Raymond B. Grunewald, New York City, of counsel (Grunewald & Unger, New York City, attys.), for plaintiff-respondent.

Before KUPFERMAN, J.P., and ASCH, SILVERMAN and KASSAL, JJ.

KASSAL, Justice.

This is an action to recover on an insurance policy issued by defendant, which insured against, inter alia, theft of jewelry, antiques and antique jewelry at plaintiff's principal place of business at 225 East 14th Street, New York, New York. Defendant appeals from an order which denied its motion, pursuant to CPLR 3211(a)(7), to dismiss so much of the complaint by which plaintiff sought punitive damages and attorneys' fees.

It is alleged that on December 8, 1982, while the policy was in effect, an armed robbery occurred, resulting in a loss to plaintiff of property and jewelry valued at $218,168. After notice of the loss and demand for payment, the insurer cancelled the policy, effective January 13, 1983, pursuant to the policy provision which authorized either party to cancel at any time, the insurer on five days written notice.

In November 1983, plaintiff brought this action to recover on the policy, commenced within the 12 month limitations period. In support of its demand for punitive damages and counsel fees, the insured alleged that the insurer had acted in bad faith and had delayed processing the claim and further, had refused to make an offer to settle or otherwise advise its assured that it would be barred from any remedy unless a suit was instituted within the contractual period of limitations. As alleged in the complaint, the acts of the insurer amounted to "a denial of coverage in a manner calculated to prevent lawful redress by an assured and constitute wilful, malicious and fraudulent breach of contract."

In denying the motion to dismiss the claims in the complaint for punitive damages and attorneys' fees, Special Term, relying upon Gordon v. Nationwide Mutual Insurance Co., 30 N.Y.2d 427, 334 N.Y.S.2d 601, 285 N.E.2d 849, held that punitive damages could be recovered upon a showing of bad faith, by proof of a disingenuous or dishonest failure to carry out a contract. Construing the pleaded allegations of the complaint liberally and giving the plaintiff every favorable inference which can be reasonably drawn therefrom, the court found that plaintiff could recover if it demonstrated wilful, malicious and fraudulent acts on the part of the defendant. It observed that the complaint charged that the insurer had intentionally delayed so as to cause the 12 month period of limitations to expire and that the delay, which was to the insurer's financial benefit, was designed to prevent the insured from timely instituting suit.

We disagree and find, as a matter of law, that the complaint fails to state a cause of action to recover punitive damages or attorneys' fees in what is concededly a private breach of contract action and, accordingly, we reverse the order to the extent appealed from and dismiss so much of the complaint as seeks exemplary damages and counsel fees. ^*

Gordon v. Nationwide Mutual Insurance Co., supra, relied upon by Special Term, concerns a situation where liability was sought to be imposed on a liability insurance carrier for the failure or refusal of the insurer to settle within policy limits an underlying negligence action brought by a third party. In such a situation, liability in excess of the face amount of the policy may be fastened on the carrier upon a showing of bad faith in failing to settle the underlying action within the insurance coverage. This, however, is conceptually and legally a far different situation than that posed in this case, where an insured seeks to recover a claim for coverage under its own insurance policy. The Court of Appeals recognized in Halpin v. Prudential Insurance Company, 48 N.Y.2d 906, 907, 425 N.Y.S.2d 48, 401 N.E.2d 171, that the principle of Gordon v. Nationwide Mutual Insurance Co., supra, does not apply to an action involving a first party claim by an insured against its own insurer.

Generally, an insurer's liability is limited to the face amount of the policy, plus appropriate interest. Allegations that the breach by the insurer of its obligations under the policy was done "wilfully and without justification" are insufficient to authorize a recovery of punitive damages (Diamond v. Mutual Life Ins. Co. of N.Y., 77 Misc.2d 528, 356 N.Y.S.2d 164). It is well established in this state that a claim for punitive damages against an insurance company requires a showing of morally reprehensible conduct directed at the general public, i.e., a public wrong as opposed to a mere private wrong. The operative standard originated in Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 179 N.E.2d 497, a fraud action, where the Court upheld a cause of action for punitive damages where the fraud was directed at the general public and involved a high degree of moral culpability. In adopting the public wrong standard, the Court of Appeals observed (10 N.Y.2d at 406, 223 N.Y.S.2d 488, 179 N.E.2d 497):

"It may be difficult to formulate an all-inclusive rule or principle as to what is an appropriate case for the recovery of punitive damages, but it is our conclusion that the allegations of the complaint before us, if proved, would justify such an award. The pleading charges that defrauding the general public into entering publishing contracts, such as the one involved in the present case, was the very basis of the defendants' business. What is asserted is not an isolated transaction incident to an otherwise legitimate business but a gross and wanton fraud upon the public. It follows, therefore, that the courts below were thoroughly justified in refusing to strike the allegations which pertain to punitive damages."

We have consistently adhered to the standard of Walker v. Sheldon, supra, in rejecting claims for punitive damages unless there is a showing of wanton dishonesty as to imply a criminal indifference to civil obligations--morally culpable conduct directed at the general public, a public as opposed to a mere private wrong. The principle has been adopted by the Court of Appeals (Halpin v. Prudential Insurance Company of America, supra, 48 N.Y.2d 906, 425 N.Y.S.2d 48, 401 N.E.2d 171) and has been consistently followed in this Department (Royal Globe Ins. Co. v. Chock Full O'Nuts Corp., 86 A.D.2d 315, 449 N.Y.S.2d 740; Cook v. The Hartford Fire Ins. Co., 97 A.D.2d 731, 469 N.Y.S.2d 4; Holoness Realty Corp. v. New York Prop. Ins. Underwriting Assn., 75 A.D.2d 569, 427 N.Y.S.2d 264; Cohen v. New York Prop. Ins. Underwriting Assn., 65 A.D.2d 71, 410 N.Y.S.2d 597; Kleiner v. Jefferson Life Ins. Co., 63 A.D.2d 636, 405 N.Y.S.2d 255; John C. Supermarket, Inc. v. New York Prop. Ins. Underwriting Assn., 60 A.D.2d 807, 400 N.Y.S.2d 824; Marvex Processing & Finishing v. Allendale Mut. Ins. Co., 60 A.D.2d 800, 400 N.Y.S.2d 616, affg. 91 Misc.2d 683, 398 N.Y.S.2d 464). The decisions in the Second Department are to the same effect (Shapiro v. Prudential Ins. Co. of America, 81 A.D.2d 661, 438 N.Y.S.2d 363; Waterview Catering Corp. v. New York Prop. Ins. Underwriting Assn., 79 A.D.2d 973, 434 N.Y.S.2d 456; M.S.R. Assoc. v. Consolidated Mut. Ins. Co., 58 A.D.2d 858, 396...