Tinlee Enterprises, Inc. v. Aetna Cas. & Sur. Co.

• Decision Date: 13 October 1993
• Docket Number: No. CV 92-4714 (ADS).,CV 92-4714 (ADS).
• Citation: 834 F. Supp. 605
• Parties: TINLEE ENTERPRISES, INC., Plaintiff, v. AETNA CASUALTY & SURETY COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of New York

834 F. Supp. 605

TINLEE ENTERPRISES, INC., Plaintiff, v. AETNA CASUALTY & SURETY COMPANY, Defendant.

No. CV 92-4714 (ADS).

United States District Court, E.D. New York.

October 13, 1993.

Hopkins, Kopilow & Hopkins, Garden City, NY (Stanley R. Kopilow, Michael Hopkins, of counsel), for plaintiff.

Feldman & Rudy, Westbury, NY (Michael Troisi, of counsel), for defendant.

DECISION AND ORDER

SPATT, District Judge.

In this action to recover under the terms of a commercial insurance policy, the defendant moves to dismiss those portions of the plaintiff's Amended Complaint brought pursuant to New York General Business Law § 349 as well as those seeking punitive damages.

I. FACTUAL BACKGROUND

The plaintiff Tinlee Enterprises, Inc. ("Tinlee") is a New York corporation which owned and operated a business known as Eddie's Enterprises Market ("Eddie's") in Woodmere, New York. The defendant Aetna Casualty & Surety Company ("Aetna") insured Eddie's under several policies against various events to its business and property, including among other things, fire, theft and business interruption. This case was brought in the Federal District Court on the basis of diversity jurisdiction.

This case concerns two incidents involving loss to Eddie's. First, the plaintiff claims a loss from the theft of property valued at $64,766.15 which occurred on November 7, 1990. Second, on November 20, 1990, a fire occurred at the same location, allegedly resulting in $660,000 in damages. As a result of the fire, the plaintiff asserts that it sustained $120,000 damages in lost business. These two occurrences were "events" covered by the Aetna insurance policies at issue. The plaintiff is suing for payment of these damages pursuant to the insurance agreement, as well as for interest running from the respective dates of loss.

The defendant Aetna has accepted coverage liability for the November 7, 1990 theft, but the parties have been unable to reach a mutually acceptable settlement figure as to the damages arising from that occurrence. Aetna has disclaimed coverage liability for the damages and alleged lost business earnings resulting from the fire. It is the defendant's contention that the fire was willfully set by the plaintiff or the plaintiff's agents. According to Aetna, the deliberate setting of the fire and subsequent submission of documents which contain false and fraudulent statements would trigger the "concealment, fraud" exclusion of the insurance agreement. Aetna also disclaims liability on the ground that if the plaintiff caused the fire, that behavior would trigger an insurance policy exclusion suspending coverage "while the hazard is increased by any means within the control or knowledge of the insured." The plaintiff denies any responsibility for the fire.

Four causes of action are set forth in the Amended Complaint. Three of the claims are asserted on the theory of breach of contract involving coverage for the burglary, fire, and resulting business losses. In the fourth cause of action, which is the subject of the instant motion, the plaintiff claims that the defendant's actions on this claim and "other similar claims" constitute deceptive business acts and practices as set forth in section 349 of the General Business Law of New York. Included in this claim is plaintiff's contention that Aetna has violated section 2601 of the Insurance Law, which constitutes a violation of Gen.Bus.L. § 349, and is therefore liable for punitive damages.

II. PROCEDURAL SETTING

The defendant moves for judgment on the pleadings, pursuant to Fed.R.Civ.P. 12(b)(6), 12(c), and 12(h)(2), dismissing those portions of the plaintiff's Amended Complaint which seek damages pursuant to Gen.Bus.L. § 349 as well as punitive damages. Aetna claims these portions of the Amended Complaint fail to state claims upon which relief can be granted.

Counsel for the defendant claims that under both New York and federal law, the plaintiff must set forth in its complaint specific allegations of a deceptive or unfair practice, in addition to demonstrating that the conduct complained of is recurring and has ramifications for the public at large. Aetna contends that the bare allegations found in the plaintiff's Amended Complaint are insufficient as a matter of law to state a claim upon which relief can be granted and that this case is a simple contract dispute with no consequences for the public at large.

Aetna also seeks dismissal of those portions of the Amended Complaint which seek punitive damages. As support for this argument, the defendant claims that the substantial body of case law in New York uniformly rejects claims against first-party insurers for punitive damages based on an alleged failure or refusal by the insurer to pay an insurance claim. According to Aetna, under New York law, a claim for punitive damages against a first-party insurer is properly pleaded only where a plaintiff has made sufficient evidentiary allegations of ultimate facts of a fraudulent and deceitful scheme in dealing with the general public so as to imply criminal indifference to civil obligations. Aetna argues that the mere allegation that an insurer failed to pay the insured for a loss which the insured contends was covered is insufficient as a matter of law to sustain a claim for punitive damages.

The plaintiff cross-moves for costs and sanctions pursuant to Fed.R.Civ.P. 11. The attorneys for the plaintiff claim that their adversary's involvement in factually and procedurally similar cases precludes the argument in this case that Aetna's motion is warranted by existing law or a good faith modification of existing law. Further, the plaintiff contends that the defendant has made this motion solely to continue its allegedly unfair claims settlement procedures.

Based upon previous decisions by other courts against the defendant in similar situations, the plaintiff argues that the defendant could not reasonably have hoped to succeed in its present motion, and therefore Rule 11 sanctions are warranted. The plaintiff maintains that the Amended Complaint as drawn is sufficient to state a claim and to withstand a Rule 12(b) motion. Further, counsel argues that once the plaintiff has had an opportunity to conduct discovery, it will be in a position to assert more specific allegations concerning the defendant's systemic practices and procedures designed to inhibit legitimate claims and settlement practices.

III. THE GOVERNING LAW

A. Rule 12(b)(6) and 12(c)

The standard applicable on a Rule 12(c) motion is the same as that on a Rule 12(b)(6) motion. On a motion to dismiss for failure to state a claim, "the court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears `beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" (Goldman v. Belden, 754 F.2d 1059, 1065 2d Cir.1985 quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 1957; see also Branum v. Clark, 927 F.2d 698 2d Cir.1991). In addition, such a motion is addressed solely to the face of a pleading, and "the court's function ... 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, supra, at p. 1067).

In assessing the sufficiency of a pleading on a motion to dismiss, it is well settled that "all factual allegations in the complaint must be taken as true" (La Bounty v. Adler, 933 F.2d 121, 123 2d Cir.1991; see also Branum v. Clark, supra; Procter & Gamble Co. v. Big Apple Industrial Bldgs., Inc., 879 F.2d 10, 14 2d Cir.1989, cert. denied, 493 U.S. 1022, 110 S.Ct. 723, 107 L.Ed.2d 743 1990; Cruz v. Robert Abbey, Inc., 778 F.Supp. 605, 607 E.D.N.Y.1991), and all reasonable inferences must be construed in favor of the plaintiff (see Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 1974; Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1099 2d Cir.1988, cert. denied sub nom. Soifer v. Bankers Trust Co., 490 U.S. 1007, 109 S.Ct. 1642, 104 L.Ed.2d 158 1989; see also La Bounty v. Adler, supra). A motion to dismiss is addressed solely to the face of the pleading, and "the court's function ... 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, supra, 754 F.2d at p. 1067).

The Court is also mindful that under the modern rules of pleading, the plaintiff need only aver "a short and plain statement showing that the pleader is entitled to relief" (Fed.R.Civ.P. 8a2), and that "all pleadings shall be so construed as to do substantial justice" (Fed.R.Civ.P. 8f).

B. General Business Law § 349

Section 349 of New York's General Business Law provides in pertinent part as follows:

"(a) Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.

* * * * * *

(h) In addition to the right of action granted to the attorney general pursuant to this section, any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions. The court may, in its discretion, increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or knowingly violated this section. The court may award reasonable attorney's fees to a prevailing plaintiff."

IV. DISCUSSION

Section 349(h) provides private parties with a cause of action for injuries "resulting from deceptive practices." "The typical violation contemplated by the statute involves an individual consumer who falls victim to misrepresentations made by a seller of consumer goods usually by way of false and...