Air-Sea Packing Group, Inc. v Applied Underwriters, Inc.

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Air-Sea Packing Group, Inc. v Applied Underwriters, Inc. 2020 NY Slip Op 32254(U) May 21, 2020 Supreme Court, Queens County Docket Number: 711035/2019 Judge: Marguerite A. Grays Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 FILED 5/22/2020 11:42 AM COUNTY CLERK QUEENS COUNTY Short Form Order NEW YORK SUPREME COURT - QUEENS COUNTY Present: HONORABLE MARGUERITE A. GRAYS IASPART .4. Justice AIR-SEA PACK.ING GROUP, INC., Index Number 711035 2019 Motion Date November 19. 2019 Plaintiff(s) -against- APPLIED UNDERWRITERS, INC., APPLIED UNDERWRITER CAPTIVE RISK ASSURANCE Motion Cal No. COMPANY, INC., APPLIES RISK SERVICES, INC., APPLIES RISK SERVICES OF NEW YORK, Motion Seq. No. INC.,NORIB AMERICAN CASUALTY COMPANY, CONTINENTAL INDEMNITY CO:rvfPANY, AND CALIFORNIA INSURANCE CO:MPANY 1 Defendant(s) The following papers EF l 5-EF24 read on this motion by the defendants for, inter alia, an Order pursuant to CPLR §321 l(a)(l) dismissing the complaint against them, and on this cross-motion by t!ie plaintiff for an Order: (1) pursuant to Insurance Law §1213(c), compelling defendant Applied Underwriters Captive Risk Assurance Company, Inc. and any of the other defendants that are not licensed to do business in New York to post a bond and (2) striking defendants' motion to dismiss, or, alternatively, staying consideration of defendants' motion to dismiss until a bond is posted. Papers Numbered Notice of Motion - Affidavits - Exhibits ....................................... . EF12-EF15 Notice of Cross Motion - Affidavits - Exhibits ............................. . EF17-EF20 Answering Affidavits - Exhibits .................................................... EF22 Reply Affidavits ............................................................................ . EF23-EF24 Upon the foregoing papers it is ordered that the branch of the defendants' motion which is for an Order dismissing the complaint pursuant to CPLR §3211 (a)( 1) because ofthe forum selection c1ause in the Reinsurance Participation Agreement (RPA) is denied. The branch of the motion which is for an Order pursuant to CPLR §321 l(a)(7) dismissing the Third Cause of Action is granted. The branch of the motion which is for an Order pursuant 1 of 9 [*FILED: 2] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 to CPLR §321 l(a)(7) dismissing the Seventh Cause of Action is granted. The remaining branches ofthe defendants' motion are denied. The plaintiffs cross-motion is granted to the extent that defendant Applied Underwriters, Inc. and defendant Applied Underwriters Captive Risk Assurance Company, Inc. shall each post a $1,000,000 bond. I. Background Plaintiff Air-Sea Packing Group, Inc. (Air-Sea) provides moving, packing, shipping, storage, and transportation services. Defendant Applied Underwriters, Inc. is a Nebraska Corporation which allegedly does business in New York State as an underwriter, issuer, reinsurer, claims handler, and administrator of worker's compensation insurance policies. Defendant Applied Underwriters Captive Risk Assurance Company, Inc (AUCRA), an Iowa corporation headquartered in Nebraska, allegedly does business in New York State as a remsurer. Defendant Applied Underwriters, Inc., defendant ADC.RA, and related defendants run a worker's compensation insurance program known as EquityComp which provides losssensitive worker's compensation insurance coverage to businesses. Plaintiff Air-Sea participated in the program from April, 2014 to October, 2016. As part ofits insurance transactions with the defendants, plaintiffAir Sea entered into a Reinsurance Participation Agreement (RP A) with AUCRA. The plaintiff alleges that reinsurance agreements are lawful only between insurance companies under New York Law. The defendants allegedly did not inform the plaintiff that it was illegal for it to purchase reinsurance and did not inform the plaintiffthat AUCRA was not licensed in New York State to write insurance or reinsurance policies. Moreover, the plaintiff alleges that the EquityComp program does not provide actual worker's compensation for the insured, but through the RP A, which was not approved by the New York Compensation Insurance Rating Board, shifts all risk of loss back to the insured. The RPA between AUCRA and plaintiff Air Sea contains a forum selection clause which provides: "Any legal suit, action or proceeding arising out of, related to or based upon this agreement, or the transactions contemplated hereby or thereby must only be instituted in *** the State of Nebraska *** and each party irrevocably submits to the exclusive jurisdiction of such Courts ***." Plaintiff Air Sea began the instant action on June 25, 2019 for the purpose of, inter alia, obtaining a judgment declaring the RPA to be void and unenforceable under Insurance Law § 2347. The First Cause of Action asserts that the RPA violates New York Insurance Law §2347, the Second Cause of Action asserts that the RPA is a reinsurance agreement, the 2 2 of 9 [*FILED: 3] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 Third Cause of Action alleges misrepresentations concerning the RPA, the Fourth Cause of Action seeks the equitable rescission of the RP A, the Fifth Cause of Action alleges that the RPA was, inter ala, prohibited by law, the Sixth Cause ofAction alleges misrepresentations concerning the RPA, and the Seventh Cause of Action alleges negligence in the handling of worker's compensation claims. IL Post Submission Correspondence from the Parties This Court acknowledges that after the submission ofthe instant motion on November 19, 2019 it received a letter dated December 10, 2019 from plaintiff Air-Sea's attorney and a letter dated December 16, 2019 from the defendants' attorney. The letters concern a Conservation Order issued on November 4, 2019 by the Superior Court for San Mateo County California that appointed a conservator for the California Insurance Company (CIC), one ofthe defendants in this case. The parties in this action dispute whether the Conservation Order has, or even can have, a staying effect on this action. The letters raise many complex issues which should be the subject of a motion for a stay, if necessary. These issues cannot be effectively resolved on the basis of letters which do not treat the issues with sufficient depth. Moreover, since the instant motion and cross- motion have already been fully briefed and submitted by the parties, no one would be prejudiced by their disposition at this time. III. Discussion A. The Motion by the Defendants 1. The Forum Selection Clause The instant motion by the defendants first seeks the dismissal of this action pursuant to the forum selection clause in the RPA."(A] contractual forum selection clause is documentary evidence *** that may provide a basis for dismissal pursuant to CPLR §321 l(a)(l) ***" {Lischinskaya v. Carninval Corp., 56 AD3d 116, 123 [ 2008]). A "forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be[, inter alia,] unreasonable, unjust, [or] in contravention of public policy" (Erie Ins. Co. ofNew Yorkv. AE Design, Inc., 104 AD3d 1319, 1320 [2013]). In determining whether a forum selection clause is valid and enforceable, New York Courts will apply New York Law (See, e.g, Erie Ins. Co. ofNew York v. AE Design, Inc, supra). In order to escape a forum selection clause a plaintiff must demonstrate that its enforcement "would be unreasonable, unjust, or would contravene public policy, or that the clause is invalid because of fraud or overreaching ***" (Koko Contracting, Inc. v. Cont'l Envtl. Asbestos Removal Corp., 272 AD2d 585, 586, [ 2000]; Boss v. Am. Exp. Fin. Advisors, Inc., 3 3 of 9 [*FILED: 4] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 1S AD3d 306 (2005], affd 6 NY3d 242 [2006]). In arguing that the forum selection clause compels the dismissal of this entire New York action because it is valid and enforceable, the defendants rely heavily on Mi/mar Food Grp. II, LLCv. Applied Underwriters, Inc., 61Misc.3d812 [(N.Y. Sup. Ct. 2018]) where affiliated New York employers insured under a RPA brought an action against Applied Underwriters, Inc. and related insurance companies for, inter alia, a declaratory judgment that their RP A with the Nebraska insurer was void and unenforceable. As in the case at bar, Milmar participated in the EquityComp program, and, as in this case, the RPA contained a forum selection clause broadly requiring disputes arising under the RPA to be resolved in Nebraska. The Milmar Court held that the forum selection clause in the RPA was valid and enforceable. The Mi/mar Court found that "[t]here is no evidence that it would be unreasonable, unjust, or in contravention of New York public policy to require Milmar to abide by its agreement to litigate its claims against AUCRA in Nebraska" (Mi/mar Food Grp. II, LLC v. Applied Underwriters, Inc., supra, 820). "Moreover," the Mi/mar Court continued, "the RP A's Nebraska forum selection clause may be invalidated due to fraud or overreaching only if the fraud/overreaching is specific to the forum selection clause itself," (Mi/mar Food Grp. JI, LLC v. Applied Underwriters, Inc., supra, 821 ), and "Milmar's claim of fraud and overreaching is directed to the RPA as a whole, and not specifically to the forum selection clause'( Mi/mar Food Grp. JI, LLC v. Applied Underwriters, Inc., supra, 821). Plaintiff Air Sea argues that this court should not follow Mi/mar because of a prior case brought in Nebraska by AUCRA against Air-Sea (Applied Underwriters Captive Risk Assurance Company, Inc. v. Air-Sea Packing Group, Inc., District Court of Douglas County, Nebraska Cl 18-4125). There, AUCRA brought an action in the Nebraska District Court to recover money allegedly owed underthe parties' RPA. AUCRA asserted that the Nebraska Court had jurisdiction over Air-Sea pursuant to the state's long-arm statute and pursuant to the choice of forum clause in the RPA. Noting many similar cases brought in the Douglas District Court where a lack ofpersonal jurisdiction had been found and the affirmance of one of those cases by the Nebraska Court of Appeals (Applied Underwriters Captive Risk Assurance Co., Inc. v. E.M Pizza, Inc., 923 NW2d 789 [2019]), the District Court dismissed the Nebraska action against Air Sea. Finding that "there is no need to rehash the facts and the law," the District Court concluded : "Nebraska courts do not have personal jurisdiction over Air-Sea Packing, and the Choice of Forum clause does not give Nebraska personal jurisdiction over it." InApplied Underwriters Captive RiskAssurance Co., Inc. v. E.M Pizza, Inc. (supra), AUCRA brought an action against E.M. Pizza, Inc., a California corporation with its principal place of business in California, to recover a sum that the insurer claimed was owed under a RP A. The Nebraska Court ofAppeals first rejected A UCRA' s argument that a basis 4 4 of 9 [*FILED: 5] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 for jurisdiction existed under the state's long arm statute "because despite E.M. Pizza's sufficient minimum contacts with Nebraska, it would not be fair and reasonable to exercise personal jurisdiction under Nebraska's long-ann statute" (Applied Underwriters Captive Risk Assurance Co. , Inc. v. E.M Pizza, Inc., supra, 799). The appellate court then went on to reject the exercise ofjurisdiction pursuant to the forum selection clause, stating "Although each party would be equally burdened regardless of the forum chosen, the fact that a Nebraska Court would be required to apply California workers' compensation laws to a dispute that primarily affects California workers necessitates that A UCRA' s forum selection clause be disregarded. Under§ 25-414, Nebraska does not have to be the most convenient forum, but it must be a reasonably convenient forum, and we determine that it is not" (Applied Underwriters CaptiveRiskAssurance Co., Inc. v. E.M Pizza, Inc., supra, 801-02). New York Law requires this court to evaluate the reasonableness ofapplying a forum selection clause (see, Koko Contracting, Inc. v. Cont'! Envtl. Asbestos Removal Corp., supra), and in Applied Underwriters Captive Risk Assurance Co., Inc. v. E.M Pizza, Inc. (supra), the Nebraska Court ofAppeals has already determined that application ofthe forum selection clause would be unreasonable in a very similar case. As far as the reasonableness of applying the forum selection clause is concerned, E.M Pizza cannot be successfully distinguished on the basis that here it is the insured that is bringing the action against the insurer. This court does not have to determine here whether all of the criteria of the Nebraska Choice of Forum Act are met; it need only determine whether the forum selection clause can reasonably be applied. The Nebraska Court of Appeals clearly held that it could not be reasonably applied in a very similar case, and this court will follow E.M Pizza rather than Milmar, which was decided earlier. Thus the defendants are not entitled to a dismissal of this action pursuant to CPLR §321 l(a)(l) because of the forum selection clause in the RPA. II. The Individual Causes of Action A. The First Cause of Action The plaintiff's First Cause of Action seeks a judgment declaring that the RPA is void and unenforceable under Insurance Law §234 7 and awarding damages in an amount commensurate with all premiums paid under the EquityComp Program. Section 234 7 provides, inter alia, "(a) Any rate change affecting the general rate level for the kind of insurance authorized ***shall be approved by the department***." Paragraph 114 of the complaint alleges " Upon information and belief, all Defendants acted in concert in failing to file the RPA with either the NYCIRB or the New York State Department of Financial Services." The defendants argue that the First Cause ofAction should be dismissed because 5 5 of 9 [*FILED: 6] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 there is no private cause of action under Section 2347. Their argument is not persuasive. The plaintiffs cause of action does not seek fines or penalties based upon the defendants' alleged violations of the Insurance Law. The plaintiff seeks a declaration of illegality, the rescission of the RPA, and damages representing premiums paid under the RPA. B. The Second Cause of Action The Second Cause of Action seeks, inter alia, a declaratory judgment that the RPA is void and unenforceable under the Insurance Law as an unlawful reinsurance agreement. The court finds that the plaintiffs submissions on the instant motion adequately state a Cause of Action for a judgment declaring that the RPA was an unlawful reinsurance agreement, and the defendant's submissions to the contrary merely raise issues of fact on the present state of the record that cannot be determined under CPLR §3211(a) (7) (see, Tower Broad., LLC v. Equinox Broad. Corp., 160 AD3d 1435 [2018]). C. The Third Cause of Action The Third Cause of Action is for violation of Insurance Law §4226, "Misrepresentations, misleading statements and incomplete comparisons by insurers" which provides in relevant part: " (a) No insurer authorized to do in this state the business oflife, or accident and health insurance, or to make annuity contracts shall: (1) issue or circulate, or cause or permit to be issued or circulated on its behalf, any illustration, circular, statement or memorandum misrepresenting the terms, benefits or advantages of any of its policies or contracts ***» (Emphasis added) The defendants correctly argue that the statute does not apply to worker's compensation insurance. D. The Fourth Cause of Action The Fourth Cause of Action alleges that the defendants "made knowing misrepresentations offact concerning the alleged workers' compensation program that it was providing to plaintiff' and "as a result of defendants' misrepresentations plaintiff was induced to enter into the RPA***" Contrary to the defendants' contention, Schlessinger v. Valspar Corp. ( 21 NY3d 166 (2013]) does not require the dismissal of the Fourth Cause of Action because here, the plaintiff is not asserting a private right to enforce a statute. The plaintiff is seeking its remedies under the common law. A contract induced by fraud may be rescinded and thereby rendered unenforceable by the culpable party (lnt'l Exterior Fabricators, LLCv. Decoplast, Inc., 128AD3d1016 [ 2015) Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC, 19 AD3d 273 [2005]). "To state a .claim for fraudulent inducement, there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in 6 6 of 9 [*FILED: 7] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 injury***" (Gosmile, Inc. v. Levine, 81 AD3d 77, 81 '[201 OJ). In the case at bar, the Court finds that the plaintiffs submissions on the instant motion adequately state a cause of action for fraud in the inducement, and the defendant's submissions to the contrary merely raise issues of fact on the present state of the record that cannot be detennined under CPLR §321 l(a) (7) (see, Tower Broad., LLC v. Equinox Broad Corp., supra). E. The Fifth Cause of Action The Fifth Cause ofAction is for violation ofGeneral Business Law§ 349 "Deceptive acts and practices unlawful." The statute, a broad consumer protection statute, declares unlawful "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state" (General Business Law§ 349[a]; see, North State Autobahn, Inc. v. Progressive Ins. Group Co., 102 AD3d 5 [2012]). "The elements of a Cause of Action to recover damages for deceptive business practices under General Business Law §349 are that the defendant engaged in a deceptive act or practice, that the challenged act or practice was consumer-oriented, and that the plaintiff suffered an injury as a result of the deceptive act or practice" (Valentine v. Quincy Mut. Fire Ins. Co. , 123 AD3d lOll, 1015 [2014]; Nafash v. Allstate Ins. Co., 137 AD3d 1088 [2016]). Contrary to the defendants' contention, the conduct alleged in the complaint is sufficiently consumer oriented to satisfy the requirements of GBL §349 (See, Accredited Aides Plus, Inc. v. Program Risk Mgmt., Inc., 147 AD3d 122 [2017] [complaint by employer members of group self-insured trust alleged that administrator unlawfully disseminated materially misleading information to employers seeking workers' compensation coverage]; Nat'l Convention Servs., L.L. C. v. Applied Underwriters Captive Risk Assurance Co., Inc., 239 F. Supp. 3d 761[ S.D.N.Y. 2017][rejecting the defendants' argument that an employer's provision of workers' compensation insurance to its employees is inherently not "consumer-oriented" within the meaning of §349]). F. The Sixth Cause of Action The Sixth Cause of Action is for common law fraud. To state a cause of action for common law fraud, a plaintiff must allege: (1) that the defendant made material representations that were false or concealed a material existing fact; (2) that the defendant knew the representations were false and made them with the intent to deceive the plaintiff; (3) that the plaintiff was deceived; (4) that the plaintiffjustifiably relied on the defendant's representations and (5) that the plaintiff was injured as a result of the defendant's representations (see, Lama Holding Co. v. Smith Barney, 88 NY2d 413 [1996];New York Univ. v. Continental Ins. Co.~ 87 NY2d 308 [1995]; Tsinias Enterprises Ltd. v. Taza Grocery, Inc., 172 AD3d 1271 [ 2019]). The plaintiff sufficiently stated a cause of action for common law fraud. 7 7 of 9 [*FILED: 8] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 G. The Seventh Cause of Action The Seventh Cause of Action, which is for negligence, alleges that "[u ]nder the structure of the EquityComp Program, Defendants were responsible for the administration ofworker' s compensation claims brought against the Plaintiff' and "[d]efendants breached their duty to handle workers' compensation claims brought against plaintiff in a competent manner." " [A]simple breach of contract is not to be considered a tort unless a legal duty independent ofthe contract itselfhas been violated." (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389 [ 1987]; OP Solutions, Inc. v Crowell & Moring, LLP, 72 AD3d 622 [ 2010].)) Insofar as the tort of negligence is concerned, the plaintiff did not adequately allege that the defendants violated a legal duty independent of the contract (see, Feinman v Parker, 252 AD2d 869 [ 1998]). The defendants had a contractual duty to perform their work with due care (See, Corrado v East End Pool & Hot Tub, Inc., 69 AD3d 900 [201 O]). A cause of action alleging that work performed under the contract was performed in a less than competent manner sounds in breach of contract, not negligence (see, Park Edge Condominiums, LLC v. Midwood Lumber & Millwork, inc., 109 AD3d 890, [2013]). "[C]laims based on negligent or grossly negligent performance of a contract are not cognizable" (City of New York v. 611 W. l 52nd St., Inc. , 273 AD2d 125, 126 [2000]~ Kordower-Zetlinv. Home Depot U.S.A., Inc. , 134AD3d556 [2015];Drezin v. New Yankee Stadium Cmty. Benefits Fund, Inc., 94 AD3d 542 (2012]). Moreover, to the extent that the plaintiff purports to have alleged a breach of the duty of good faith and fair dealing, such a claim is contractual in nature. ~'In New York, all contracts imply a covenant of good faith and fair dealing in the course ofperformance***" ( 511 W 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 153 [2002]). B. The Cross- Motion by the Plaintiff The plaintiff has cross-moved for an Order pursuant to Insurance Law §1213(c), compelling any defendant which is not licensed to do business in New York to post a bond. Only defendant Applied Underwriters, Inc. and defendant AUCRA are such defendants. Insurance Law §1213 provides in relevant part: "(c)(l) Before any unauthorized foreign or alien insurer files any pleading in any proceeding against it, it shall either:(A) deposit with the clerk of the court in which the proceeding is pending, cash or securities or file with such clerk a bond with good and sufficient sureties, to be approved by the Court, in an amount to be fixed by the Court sufficient to secure payment of any fmal judgment which may be rendered in the proceeding" (see, Chao Jiang v. Ping An Ins. , 179 AD3d 517 [2020]). 8 8 of 9 [*FILED: 9] QUEENS COUNTY CLERK 05/22/2020 11:48 AM NYSCEF DOC. NO. 31 INDEX NO. 711035/2019 RECEIVED NYSCEF: 05/22/2020 Numerous courts in New York, including this court, have required defendant Applied and defendant Aucra to post a bond in similar cases (see, e.g., decision dated July 19, 2017 in Breakaway Courier Corporation v. Berkshire Hathaway, Inc [ Sup Ct NY County, Index No. 654806/2016]; decision dated March 15, 2016, in Energy Conservation GroupLLC v. Applied Underwriters, Inc. [Sup Ct Queens County Index Number. 710762/2015 , Grays, J.); Mi/mar Food Group II v. Applied Underwriters, Inc., 58 Misc3d 497]). Insurance Law §1213(c) requires a bond that is "sufficient to secure payment of any final judgment which may be rendered in the proceeding." The amount of the bond is a matter within the court's discretion (see, Levin v. Intercontinental Cas. Ins. Co. , 95 NY2d 523(2000]), and the Court of Appeals has recognized that "[t]he calculation must be made at an early stage of the litigation, prior to the resolution of potentially complex factual and legal issues" (Levin v. Intercontinental Cas. Ins. Co., supra, 529). Under all of the circumstances of this case, this Court has determined that Applied Underwriters, Inc. and AUCRA shall each post a bond in the amount of$1,000,000. Although this is less than the amount requested by plaintiffAir Sea, it should be "sufficient to secure payment ofany final judgment" from such financially strong insurers. As this Court noted in Energy Conservation Group (supra)," The Applied defendants are Berkshire Hathaway Companies all rated A+ (Superior) by A.M. Best, the leading financial rating service for irisurance companies." Any other requests not specifically addressed herein are denied. Dated: 5 fa (/.P(! FILED 5/22/2020 11:40 AM COUNTY CLERK QUEENS COUNTY 9 9 of 9

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