Tuesday, March 3, 2009

Negligence, Slander and Punitive Damages Claims Dismissed Against Property Insurer and Its Special Investigator -- Continuation of EUO Ordered

LeBaron v. Erie Ins. Co.

(4th Dept., decided 2/6/2009)

If you had read just the Fourth Department's "ORDERED that the order so appealed from is unanimously affirmed without costs for reasons stated in the decision at Supreme Court" memorandum of February 6, 2009, you might have passed right over this case.  What caught my eye, however, was the court's description of the order appealed from, viz, one granting "those parts of the motion of defendants seeking dismissal of the negligence and slander causes of action and the punitive damages claim."

The term "slip ops" refers to court decisions that may or may not later be published officially in the New York State Reporter.  Written decisions from the New York Court of Appeals and four departments of the Appellate Division are always published officially.  Less than 6% of the decisions received from the Appellate Term and trial-level courts get published officially in the Miscellaneous Reports.  Under a program approved by the Court of Appeals, however, most of the remainder are selected for publication electronically in the New York Slip Opinion Service.  These opinions are classified by subject to the Official Reports Digest-Index and are assigned a unique Slip Opinion citation (e.g., 2007 NY Slip Op 52588[U]) and pagination to permit point-page citations. Some opinions are published in image (PDF) format.

The statutory criteria used to select a lower court decision for publication in the Miscellaneous Reports (the books, not just online),  are:  precedential significance; novelty; public importance; practical significance;subject matter diversity; geographical diversity; author diversity; and literary quality.  Both judges and lawyers can and do submit lower court decisions to the New York Law Reporting Bureau for consideration and possible publication in the Miscellaneous Reports. 

There are several ways of searching for an "unpublished" lower court decision other than by using a paid legal research service such as LexisNexis or Westlaw.  I found the motion court's decision in this case by checking the New York Official Reports and using its Advanced Search tab or feature.  Searching "LeBaron" produced several results, including Stueben County Supreme Court Justice Peter Bradstreet's decision of December 12, 2007, which formed the basis of the parties' appeal and cross appeal to the Fourth Department.  Another way of searching for written decisions that may not get published electronically as a slip opinion is through the eCourts portal of the New York State Unified Court System.  Written decisions are sometimes saved as PDF files to the court's electronic files and can be found by searching with an index number, party's name, judge's name, and or venue.

Which brings us back to this case. It's the trial-level decision that provides the procedural and substantive information, and plenty of it.  

On July 29, 2006, a fire in plaintiff LeBaron's van damaged many of the tools and machinery plaintiff used in his business. After plaintiff reported the loss, defendant Erie Insurance Company began an investigation into the claim.  In August 2006, after Erie had reviewed the list of items plaintiff claimed were damaged in the fire, Erie's special investigator Piontkowski met with representatives of the Corning Police and Fire Departments. According to a Corning Police Department report, Piontkowski told the police and fire investigators that there were inconsistencies between the items listed on plaintiff's claim and the items that were actually damaged in the fire. The police report further indicated that Piontkowski was going to re-interview plaintiff and then forward the matter to the New York State Insurance Frauds Bureau.

In September 2006, the parties attempted to schedule an examination under oath (EUO) of plaintiff. Conflicts between counsel for the parties developed immediately thereafter when plaintiff, prior to the EUO, refused to release a jet washer, one of the items allegedly damaged in the fire, without receiving adequate assurances that the item would be protected. After more than two months of correspondences between counsel, in which the parties argued about Erie's right to inspect and test the disputed item, Erie finally was able to inspect the jet washer in December 2006 after which its expert found that the item was not damaged by the van fire.

On April 12, 2007, counsel for Erie finally conducted the EUO of plaintiff. After some introductory questions, counsel for Erie asked plaintiff whether he had spoken with anyone other than his attorney about the testimony he was to give at the EUO. Plaintiff responded that he had discussed the matter with his wife. When Erie's counsel for inquired about the nature of the discussions with his wife, plaintiff's counsel refused to allow plaintiff to answer the question, citing a spousal privilege. Plaintiff's counsel indicated that Erie's counsel for could ask plaintiff any other questions, but that plaintiff would not answer any questions concerning conversations plaintiff may have had with his wife. Based upon plaintiff's refusal, Erie's counsel declined to ask any further questions and the EUO ended.

Ultimately Erie denied plaintiff's claim, presumably based in part on plaintiff's noncooperation and refusal to answer questions during his EUO.  Plaintiff sued Erie and Piontkowski, asserting causes of action sounding in breach of contract, negligence, slander and punitive damages.  Erie moved to dismiss the action as premature, based on plaintiff's asserted noncooperation with Erie's investigation, including his delay in providing the jet washer for inspection and refusal to answer questions during his EUO.  Erie aslo sought dismissal of the slander claim against Piontkowksi based on qualified privilege, and the negligence claim based on the absence of any duty independent of the insurance contract.

Plaintiff cross-moved for leave to serve an amended complaint specifying his causes of action sounding in negligence, slander and punitive damages.  In opposition to defedants' motion to dismiss, plaintiff argued that defendants had not shown sufficiently willful noncompliance with the insurance contract to warrant dismissal of the action since plaintiff acted reasonably in insisting that proper safeguards be established before he submitted the jet washer for testing and inspection. Plaintiff also contended that he correctly asserted a spousal privilege during the EUO, that he was not required to adhere to Erie's "almost Godlike stance that he who represents an insurance company must be obeyed", and that Erie's position that plaintiff and his wife were involved in a conspiracy to obtain insurance proceeds was "preposterous".

As for his slander claim, plaintiff argued that his allegations did raise questions as to whether defendant Piontowski acted with malice in discussing the insurance claim with the police. As to his negligence claim, plaintiff contended that a separate tort action is allowable because defendants breached their duty of good faith which is independent of the insurance contract. Finally, plaintiff asserted that the complaint's allegation that Piontowski's statements to the police were willful, wanton and reckless supported an award of punitive damages.

Steuben County Supreme Court Justice Peter Bradstreet: (1) conditionally granted defendants' motion to dismiss the complaint unless plainitiff submitted to another EUO within 60 days of the court's decsion and answered "all material and relevant questions, consistent with this Decision and Order"; (2) granted defendants' motion dismissing the negligence, slander and punitive damages claims; and (3) denied plaintiff's cross motion to serve an amended complaint on those causes of action.

In declining to dismiss the entire action based on defendants' noncooperation defense, the court found that plaintiff's delay in providing the jet washer for testing did not, in and of itself, constitute the type of willful noncooperation necessary to warrant a dismissal of the action. "Plaintiff's actions, while not particularly reasonable, did not rise to the level of 'willful and avowed obstruction'".

With respect to plaintiff's assertion of the spousal privilege at his EUO, the court found this to be "more problematic."  In reviewing this issue, the court noted that the purpose of a policy's EUO condition is to enable the insurer to obtain all knowledge and facts concerning the cause of the fire and the loss involved while the information is still fresh in order to protect itself from false and fraudulent claims; that the right to examine under the cooperation clause of an insurance policy is much broader than the right of discovery under the CPLR; that an insurer is permitted to ask, and an insured is required to answer, any material and relevant questions concerning the claim; and that an insured risks the loss of coverage under a fire insurance policy even when refusing to answer questions at an EUO or provide information to the insurer upon the advice of counsel.

Based on these principles, the court held that plaintiff had no basis to refuse to answer questions at the EUO concerning conversations he had with his wife prior to testifying. 
While the Court recognizes the importance of protecting confidential communications between a husband and a wife, if an insured is not permitted to invoke at an EUO a basic Constitutional right, it certainly cannot be said that Plaintiff can refuse to answer questions at an EUO based upon a spousal privilege. 
Although having found that plaintiff improperly refused to answer questions during his EUO regarding his conversations with his wife, the court declined to dismiss the action, instead finding that a conditional order of dismissal was the appropriate remedy in this case because counsel for Erie had terminated rather than continued the EUO when plaintiff invoked the spousal privilege:
While, as noted above, Plaintiff improperly asserted a spousal privilege during the EUO, the record demonstrates that it was counsel for Erie who stopped the EUO and refused to ask any further questions. Cf, Davis v. Allstate Insurance Company, 204 AD2d 592; Evans v. International Insurance Company, 168 AD2d 374; Pizzirusso v. Allstate Insurance Company, 143 AD2d 340. Had counsel continued with the EUO, the record may have revealed that questions concerning conversations Plaintiff had with his wife would, indeed, be information material and relevant to the subject claim. As such, Defendants have, at this point, failed to establish that they acted diligently in seeking Plaintiff's cooperation (Blinco v. Preferred Mutual Insurance Company, 11 AD3d 924) and, notwithstanding Plaintiff's breach of his contractual obligation by failing to answer certain questions at the EUO, and his delay in submitting to Defendants the jet washer, Plaintiff's noncompliance was not so willful or extreme as to warrant dismissal of the action without giving him one last chance to answer the questions. Marmorato v. Allstate Insurance Company, 226 AD2d 156 (1st Dept, 1996).
On plantiff's negligence and bad faith claims, the court agreed with defendants that no such separate claims had been stated:
It is a well established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated. Bristol-Myers Squibb, Industrial Division v. Delta Star, Inc., 206 AD2d 177 (4th Dept, 1994); City of Watertown v. Stebbins Engineering and Manufacturing Company, 206 AD2d 828 (4th Dept, 1994). Because a tort obligation is apart from and independent of promises made in a contract, a defendant may be liable in tort only when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations. New York University v. Continental Insurance Company, 87 NY2d 308 (1995). 

In the instant case, the essence of Plaintiff's negligence cause of action is Erie's breach of the insurance policy by failing to timely provide him with the benefits to which Plaintiff contends he is entitled due to damages he sustained in the van fire. The Complaint does not allege the creation of a relationship between Plaintiff and Defendants separate from their contractual relationship (Alexander v. Geico Insurance Company, 35 AD3d 989) and there is no separate tort for the bad faith refusal to comply with an insurance contract. New York University v. Continental Insurance Company, 87 NY2d 308; Paterra v. Nationwide Mutual Fire Insurance Co., 38 AD3d 511 (2nd Dept, 2007); Johnson v. Allstate Insurance Company, 33 AD3d 665 (2nd Dept, 2006); Alexander v. Geico Insurance Company, 35 AD3d 989.
On plaintiff's slander claim, the court agreed with defendants that Erie's special investigator was protected by the doctrine of qualified privilege:
A communication is subject to a qualified privilege where it is made (1) in good faith by a person in the discharge of some public or private duty, legal or moral, or in the conduct of his or her own affairs, in a matter where his or her interest is concerned (Toker v. Pollak, 44 NY2d 211 (1978); or (2) by one person to another upon a subject in which both have a common interest. Liberman v. Gelstein, 80 NY2d 429 (1992); East Point Collision Works, Inc., v. Liberty Mutual Insurance Company, 271 AD2d 471 (2nd Dept, 2000); Herlihy v. Metropolitan Museum of Art, 214 AD2d 250 (1st Dept, 1995). The defense of qualified privilege will be defeated by demonstrating that the party spoke with malice, i.e., where it is shown that the motivation for making such statements was spite or ill will (common law malice), or that the statements were made with a high degree of awareness of their probable falsity (constitutional malice). Foster v. Churchill, 87 NY2d 744 (1996); Liberman v. Gelstein, 80 NY2d 429; Kondo-Dresser v. Buffalo Public Schools, 17 AD3d 1114 (4th Dept, 2005); Fregoe v. Fregoe, 33 AD3d 1182 (3rd Dept, 2006). 

In the instant case, Defendant Piontkowski is protected by a qualified privilege in that the statements he gave were part of his duties to report possible false insurance claims to the police. Chapo v. Premier Liquor Corporation, 259 AD2d 1050 (4th Dept, 1999). There can be no liability for merely giving information to legal authorities who are left entirely free to use their own judgment in proceeding any further with respect to that information. Lowmack v. Eckerd Corporation, 303 AD2d 998 (4th Dept, 2003); Cobb v. Willis, 208 AD2d 1155 (4th Dept, 1994). Moreover, Defendants and the police certainly have a common interest in the investigation of potentially false insurance claims. Liberman v. Gelstein, 80 NY2d 429; Herlihy v. Metropolitan Museum of Art, 214 AD2d 250.

The Court further finds that both the original and Amended Complaints fail to raise sufficient allegations that Defendant Piontkowski acted with malice in speaking with the police. According to the police report provided by Plaintiff, Defendant Piontkowski's discussion with the police dealt only with possible inconsistencies between the items Plaintiff claimed were damaged by the fire and the photographs taken by the police. While the papers submitted in support of Plaintiff's cross-motion make repeated suggestions that Defendants had falsely accused Plaintiff of arson, the Amended Complaint alleges only that Defendant Piontkowski "did wrongfully advise" the police about the insurance claim. Construing the Amended Complaint in the light most favorable to Plaintiff, the Court finds Defendant Piontkowski's qualified privilege is not overcome by the vague and conclusory allegations set forth in the Amended Complaint that the statements to the police were made with ill will or with a high degree of awareness of their probable falsity. Doherty v. New York Telephone Company, 202 AD2d 627 (2nd Dept, 1994); East Point Collision Works, Inc., v. Liberty Mutual Insurance Company, 271 AD2d 471; cf, Labarge v. Holmes, 30 AD3d 1087 (4th Dept, 2006); Kondo-Dresser v. Buffalo Public Schools, 17 AD3d 1114.
Finally, in dismissing the plantiff's punitive damages claim,  Justice Bradstreet held:
First, inasmuch as the Court is dismissing Plaintiff's negligence and slander claims, there is no independent tort action upon which a punitive damages claim can lie. Even if the negligence and slander claims were to survive, and affording the original and Amended Complaints every possible inference, the Court finds Plaintiff's allegations fail to rise to the level of willful or wanton negligence, recklessness, or moral culpability. Hunter v. Galland, 37 AD3d 1048. Plaintiff's claims that Defendants' behavior "may also be possibly tied to a pattern" of similar behavior towards other claimants is wholly conclusory and completed unsupported in the Complaint. In sum, the acts alleged by Plaintiff constitute private wrongs for which punitive damages may not recovered. Westinghouse Electric Supply Company v. Pyramid Champlain Company, 193 AD2d 928. 
Lots and lots of good stuff in the motion court's decision, which the Fourth Department affirmed wholesale.  Take a look.

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