Factor King, LLC v Euler Hermes N. Am. Ins. Co.

[*1] Factor King, LLC v Euler Hermes N. Am. Ins. Co. 2013 NY Slip Op 50562(U) Decided on April 12, 2013 Supreme Court, Suffolk County Emerson, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on April 12, 2013
Supreme Court, Suffolk County

Factor King, LLC, Plaintiff,

against

Euler Hermes North America Insurance Company f/k/a EULER HERMES AMERICAN CREDIT INDEMNITY COMPANY, d/b/a EULER HERMES ACI, Defendant



15978-1



WESTERMAN BALL EDERER MILLER & SHARFSTEIN, LLP

Attorneys for Plaintiff

1201 RXR Plaza

Uniondale, New York 11556

HALPERIN BATTAGLIA RAICHT, LLP

Attorneys for Defendant

40 Wall Street, 37th Floor

New York, New York 10005

Elizabeth H. Emerson, J.

Upon the following papers numbered 1-55 read on this motion and cross-motion for partial

summary judgment ;Notice of Motion and supporting papers 1-29A ; Notice of Cross Motion and supporting papers 30-43 ; Answering Affidavits and supporting papers 45-53 ; Replying Affidavits and supporting papers 54-55 ; it is, [*2]

ORDERED that the motion by the plaintiff for partial summary judgment (002) is granted; and it is further

ORDERED that the first cross motion by the defendant for partial summary judgment (003) is deemed withdrawn; and it is further

ORDERED that the second cross motion by the defendant for partial summary judgment (004) is denied.

The defendant failed to pay the motion fee for its initial cross motion for partial summary judgment (003) and made a second cross motion for the same relief for which it paid the motion fee (004). Accordingly, the defendant's first cross motion for partial summary judgment (003) is deemed withdrawn.

The plaintiff ("Factor King") is a factoring business, which purchases the accounts receivable of other businesses in order to provide them with working capital. The defendant ("Euler Hermes") sells credit insurance, which is a type of commercial insurance that insures accounts receivable against defined credit losses, typically those involving the sale of products on credit terms. U.S. Hay Direct, LLC ("US Hay") is a distributor of horse-feed products. It ships hay and other animal-fodder products to various customers throughout the United States. In the fall of 2009, US Hay approached Factor King about factoring its receivables, but Factor King expressed concerns about U.S. Hay's creditworthiness. To address Factor King's concerns, US Hay obtained a credit insurance policy from Euler Hermes. On October 15, 2009, Euler Hermes issued a business-advantage credit insurance policy insuring the collection of US Hay's accounts receivable for the period from October 15, 2009, through October 14, 2010, up to the aggregate limit of $500,000.

The aforementioned credit insurance policy contains a policy beneficiary endorsement in favor of Factor King, which gives Factor King the same rights under the policy as US Hay. Thus, Factor King has the right to file a claim or request a loss settlement within the provisions of the policy. Factor King also has the right to receive any loss payments due under the policy. The policy beneficiary endorsement expressly provides, "[Factor King] will have the same rights under this Policy and none other as [US Hay] would have had if this Endorsement had not been issued." The policy beneficiary endorsement also provides, "[US Hay] and/or [Factor King] must provide all necessary documentation relating to a claim within the prescribed time frames as required by the Policy."

On November 2, 2009, after the aforementioned insurance was in place, Factor King entered into a factoring and security agreement with US Hay. Pursuant to UCC 9-406, US Hay sent notices of assignment to its customers, notifying them that their accounts receivable had been assigned to Factor King and that they were to remit payments of all invoices from US Hay directly to Factor King. US Hay's customers signed and returned the notices of assignment to US Hay, thereby acknowledging the assignments. Factor King sent invoice acknowledgment forms [*3]to US Hay's customers, which they also signed and returned. By signing and returning the invoice acknowledgment forms, US Hay's customers represented and acknowledged to Factor King "that all goods and services relating to the invoices listed above have been completed and accepted. There are no defenses, set-offs or other claims which would prevent payment in full of the invoices listed above."

Despite their acknowledgments, ten of US Hay's customers failed to pay Factor King for invoices issued by US Hay. In May 2010, Factor King filed ten claims with Euler Hermes under the credit insurance policy issued to US Hay. The claims involved a total of 58 invoices issued by US Hay to ten customers whose accounts were assigned to Factor King. The aggregate amount of the claims was $496,920.52. Euler Hermes denied the claims on the ground that the ten customers in question did not owe any money to US Hay. According to Euler Hermes, an inventory of hay valued at approximately $2 million was stolen from US Hay's storage facility. In order to fulfill its contracts, US Hay bartered with the ten customers and had them ship hay that they had obtained from other vendors to US Hay's other customers. Thus, US Hay assumed the debt underlying Factor King's claims.

The credit insurance policy excludes "disputed invoices." A disputed invoice is defined as "an invoice that a Buyer [i.e., customer] has objected to paying either in whole or in part that has not been reduced to a final and enforceable judgment." Accordingly, Factor King proceeded to obtain judgments against each of the ten customers. Even after Factor King obtained such judgments, Euler Hermes continued to deny its claims. This action ensued. The complaint seeks damages for breach of contract as well as a judgment (1) declaring that the credit insurance policy was in full force and effect when Factor King was unable to collect the disputed invoices from U.S. Hay's customers (2) declaring that Factor King's claims are covered losses under the terms and conditions of the credit insurance policy, and (3) directing Euler Hermes to pay Factor King's losses and damages under the credit insurance policy and to reimburse Factor King for all costs, expenses, and fees incurred in connection with its losses. Both sides move for partial summary judgment.

Factor King seeks summary judgment on the discreet issue of its right to assert a direct claim under the credit insurance policy that is the subject of this action. In support thereof, Factor King argues, inter alia, that it is a named beneficiary under the policy beneficiary endorsement, which gives it the same rights under the policy as US Hay. Thus, Factor King argues that it has the same rights to file a claim and to receive payment from Euler Hermes as US Hay. Euler Hermes does not dispute that Factor King, as a policy beneficiary, may assert the same rights to coverage under the policy as US Hay. Euler Hermes argues that Factor King's rights are subject to the same terms and conditions of coverage under the policy as U.S. Hay's rights. Euler Hermes argues that a central condition of coverage for both Factor King and US Hay is that there be actual shipments of covered products, i.e., equine and pet feeds, hay, farm and computer equipment, to U.S. Hay's customers. Euler Hermes argues that Factor King has failed to demonstrate that any covered products were actually shipped. Accordingly, Euler Hermes argues that Factor King's motion should be denied and its cross motion granted. [*4]

To grant summary judgment it must clearly appear that no material and triable issue of fact is presented (Sillman v Twentieth Century-Fox Film Corp. 3 NY2d 395, 404). The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issue of fact (Winegrad v New York Univ. Med. Center, 64 NY2d 851, 853). To defeat the motion, the opponent must present evidentiary facts sufficient to raise a triable issue of fact (Freedman v Chemical Constr. Co., 43 NY2d 260, 264). If the facts are uncontested, summary judgment is appropriate (Andre v Pomeroy, 35 NY2d 361, 365).

The documentary evidence submitted by Factor King clearly establishes that it is a beneficiary of the policy of insurance that is the subject of this action, that it may file a claim or request a loss settlement within the provisions of the policy, and that it has the same rights under the policy as US Hay. Euler Hermes does not dispute any of these assertions. Accordingly, Factor King's motion for partial summary judgment is granted.

In support of the argument that Factor King has not demonstrated that there were actual shipments of covered products to US Hay's customers, Euler Hermes relies on Factor King's failure to submit any shipping documents, such as bills of lading, airway bills, tracking records, manifests, or other records showing the movement of goods, in support of its insurance claims, in support of summary judgment, or in response to specific document requests.

Euler Hermes has not established its entitlement to judgment as a matter of law. As a general rule, a party does not carry its burden in moving for summary judgment by pointing to gaps in its opponent's proof, but must affirmatively demonstrate the merits of its claim or defense (Calderone v Town of Cortlandt, 15 AD3d 602, 603; Mennerich v Esposito, 4 AD3d 399, 400). Euler Hermes has failed to tender any evidence affirmatively demonstrating that no goods were shipped by US Hay and, instead, relies on Factor King's failure to produce such evidence. The failure to make a prima facie showing requires denial of the cross motion regardless of the sufficiency of the opposing papers (see, Winegrad v New York Univ. Med. Center, supra). Accordingly, the cross motion is denied.

Dated:April 12, 2013

J.S.C.