Commonwealth Land Title Insurance Company et al v. American Signature Services, Inc. et al

Filing 23

ORDER granting 17 Motion to Dismiss for Failure to State a Claim. For the reasons set forth herein, the Court grants Alterra's motion to dismiss in its entirety, and the claim against Alterra is dismissed without prejudice. In addition, the Court denies plaintiffs' cross-motion to file the amended complaint because the proposed amendment would be futile given the lack of standing to bring a claim for declaratory relief at this juncture. SO ORDERED. Ordered by Judge Joseph F. Bianco on 2/20/2014. (Gibaldi, Michael)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 13-CV-3266 (JFB) (WDW)

_____________________

COMMONWEALTH LAND TITLE INSURANCE COMPANY AND
FIDELITY NATIONAL TITLE INSURANCE COMPANY,
Plaintiffs,
VERSUS

AMERICAN SIGNATURE SERVICES, INC., GEORGE SANDBERG, AND
ALTERRA EXCESS & SURPLUS INSURANCE COMPANY,
Defendants.
___________________
MEMORANDUM AND ORDER
February 20, 2014
___________________

JOSEPH F. BIANCO, District Judge:

Plaintiffs have cross-moved to file an
amended complaint, which would add a
second cause of action against Alterra
seeking a declaratory judgment that Alterra
owes a duty to defend and indemnify
American Signature and Sandberg against
plaintiffs’ claims. For the reasons that follow,
the Court concludes that plaintiffs have no
standing, at this juncture, to bring either their
current claim for damages or their proposed
claim for declaratory relief against Alterra. In
particular, in Lang v. Hanover Insurance Co.,
3 N.Y.3d 350 (2004), the New York Court of
Appeals made clear that an injured third party
has no cause of action at common law against
an insurer; however, N.Y. Insurance Law
§ 3420 (“Section 3420”) grants a limited
statutory cause of action for the third party if
certain pre-conditions are met, which include
obtaining a judgment in the underlying
action. To the extent plaintiffs suggest that
some common law cause of action exists for

Plaintiffs Commonwealth Land Title
Insurance Company and Fidelity National
Title Insurance Company (“plaintiffs”)
commenced this action against American
Signature Services, Inc. (“American
Signature”), George Sandberg (“Sandberg”),
and Alterra Excess & Surplus Insurance
Company (“Alterra”), alleging that American
Signature and Sandberg’s negligent acts have
caused plaintiffs economic injury. Plaintiffs
assert the right to recover directly from
Alterra, American Signature and Sandberg’s
professional liability insurer.
Presently before the Court is Alterra’s
motion to dismiss. Alterra argues that
plaintiffs, as non-parties to the insurance
contract between Alterra, American
Signature, and Sandberg, have no standing to
bring a claim for damages directly against it.

1

professional liability insurance policies, the
Court rejects that argument, which is
fundamentally inconsistent with Lang.
Moreover, although a particular insurance
policy could furnish a direct cause of action
on behalf of third parties, there is no language
in the policy at issue here that confers such a
right. Therefore, because plaintiffs concede
that the pre-conditions of Section 3420 have
not been met, they have no standing to bring
a claim for damages against Alterra at this
juncture, and such claim must be dismissed
without prejudice. Similarly, plaintiffs’
proposed amendment to the complaint to add
a claim for declaratory relief would be futile
because such a claim would likewise be
premature under Lang given that the
requirements of Section 3420 have not been
met. Accordingly, the Court grants Alterra’s
motion to dismiss in its entirety, without
prejudice, and denies plaintiffs’ motion to file
an amended complaint.

policies to plaintiffs. (Id. ¶ 19.) The agency
agreements also contemplated that American
Signature would manage escrow funds,
which were to be deposited by lenders,
sellers, and buyers of real property for the
express purpose of recording real estate
documents and paying real estate taxes. (Id.)
The agreements required American Signature
to properly maintain and manage these
escrow funds. (Id.) The agency agreements
also contained indemnification provisions,
obligating American Signature to indemnify
plaintiffs for any loss incurred by plaintiffs
by reason of, inter alia, American
Signature’s
mismanagement
or
misappropriation of escrow funds. (Id. ¶¶ 26,
31.)
Plaintiffs
terminated
all
agency
agreements with American Signature on
August 3, 2010. (Id. ¶ 34.) Thereafter, in
January 2011, Sandberg and his attorney
provided plaintiffs with seventeen sets of
files related to title polices underwritten by
plaintiffs. (Id. ¶¶ 35–36.) These files
contained unrecorded real estate documents,
including deeds and mortgages (id. ¶ 36), and
Sandberg estimated that the unpaid taxes and
recording fees totaled approximately
$160,000 (id. ¶ 37). However, American
Signature’s escrow accounts contained
insufficient funds from which to pay these
taxes and fees. (Id.)

I. BACKGROUND
A. Facts
The following facts are taken from the
original complaint. These are not findings of
fact by the Court; instead, the Court assumes
these facts to be true for purposes of deciding
the pending motions and construes them in a
light most favorable to the non-moving
parties.

In order to determine the full extent of
their exposure, plaintiffs sought to audit
American Signature’s books and records. (Id.
¶ 38.) Sandberg denied them full access and
timely cooperation, but they managed to
review some of American Signature’s files.
(Id. ¶¶ 38–40.) Based on the files that they
did review, plaintiffs discovered at least
twenty-nine separate files containing at least
fifty-one unrecorded real estate documents.
(Id. ¶ 40.) Plaintiffs assert that American
Signature’s failure to record these documents
exposes them to potential liability totaling

1. Plaintiffs’ Allegations Against
American Signature and Sandberg
Plaintiffs, two title insurance companies,
were parties to agency agreements with
American Signature, a title insurance
business owned and operated by Sandberg.
(Compl. ¶¶ 11, 16–18.) These agency
agreements authorized American Signature
to issue title insurance policies on behalf of
plaintiffs, and obligated American Signature
to remit the policy premiums for those

2

approximately $13 million. (Id.) In addition,
plaintiffs discovered at least $4,705.00 in
premiums that American Signature did not
remit, but which are due to plaintiffs. (Id.
¶ 42.)

et al., No. 11-CV-4313 (JFB)(WDW)
(E.D.N.Y. Sept. 8, 2011).)2
Plaintiffs assert that they are third party
beneficiaries of the Policy. (Id. ¶ 47–48.)
They claim that the Policy was intended for
their benefit (id. ¶ 48), and that Alterra issued
the Policy to American Signature knowing
that it was for the benefit of those who, like
plaintiffs, were harmed by American
Signature’s negligent performance of its
professional duties (id. ¶ 49). On the theory
that they are third party beneficiaries of the
Policy, plaintiffs seek indemnification
directly from Alterra. (Id. ¶¶ 87–91.) In their
proposed amended complaint, plaintiffs add
a second cause of action against Alterra, in
which they seek declaratory relief that
Alterra owes a duty to defend and indemnify
American Signature and Sandberg against
plaintiffs’ claims. (Am. Compl. ¶¶ 92–94.)

On the basis of these allegations,
plaintiffs bring causes of action against
American Signature, Sandberg, or both for an
accounting, contractual indemnification,
common law indemnification, breach of
contract, aiding and abetting breach of
contract, negligence, and money had and
received.
2. American Signature and Sandberg’s
Professional Liability Insurance Policy
American Signature and Sandberg were
insured by a “Title Agents, Abstractors and
Escrow Agents Professional Liability
Insurance Policy” issued by Alterra (the
“Policy”). (Id. ¶ 43.) On August 3, 2011,
Sandberg notified Alterra that plaintiffs had
commenced a lawsuit against him and
American Signature in New York state court.
(Id. ¶ 45.) Plaintiffs’ allegations in the state
court action were substantially the same as
those made in the present action.1 (Id.)

B. Procedural History
Plaintiffs commenced this action on June
7, 2013. Alterra filed a motion to dismiss on
September 9, 2013. On October 10, 2013,
plaintiffs filed an opposition and crossmotion to file the amended complaint. On
October 22, 2013, Alterra filed a reply
memorandum in support of its motion to
dismiss and in opposition to plaintiff’s
motion to amend. The Court has fully
considered the submissions of the parties.

Alterra has sought to deny coverage to
American Signature and Sandberg. In a
separate action pending before the
undersigned, Alterra seeks rescission of the
Policy and, in the alternative, a declaration
that the Policy does not cover plaintiffs’
claims against American Signature and
Sandberg. (See Compl., Alterra Excess &
Surplus Ins. Co. v. Am. Signature Servs., Inc.

774 (2d Cir. 1991) (“[C]ourts routinely take judicial
notice of documents filed in other courts . . . .”);
Vaughn v. Consumer Home Mortg. Co., Inc., 470 F.
Supp. 2d 248, 256 n.8 (E.D.N.Y. 2007) (“It is . . . well
established that courts may take judicial notice of
court records.”).

1

Plaintiffs allege that the state court action resulted in
a partial settlement, but that the partial settlement does
not affect its current claims. (Compl.¶ 45.) Moreover,
they aver that they intend to seek dismissal of the state
court action, without prejudice, in favor of pursuing
this action. (Id. ¶ 46.)
2
The Court takes judicial notice of this related action.
See, e.g., Kramer v. Time Warner, Inc., 937 F.2d 767,

3

II. STANDARD OF REVIEW

the complaint and relied upon in it, even if
not attached or incorporated by reference, (3)
documents or information contained in
defendant’s motion papers if plaintiff has
knowledge or possession of the material and
relied on it in framing the complaint, (4)
public disclosure documents required by law
to be, and that have been, filed with the
Securities and Exchange Commission, and
(5) facts of which judicial notice may
properly be taken under Rule 201 of the
Federal Rules of Evidence.” In re Merrill
Lynch & Co., 273 F. Supp. 2d 351, 356–57
(S.D.N.Y. 2003) (internal citations omitted),
aff’d in part and rev’d in part on other
grounds sub nom. Lentell v. Merrill Lynch &
Co., 396 F.3d 161 (2d Cir. 2005); see Cortec
Indus., Inc. v. Sum Holding L.P., 949 F.2d 42,
48 (2d Cir. 1991) (“[T]he district court . . .
could have viewed [the documents] on the
motion to dismiss because there was
undisputed notice to plaintiffs of their
contents and they were integral to plaintiffs’
claim.”); Brodeur v. City of New York, No.
04-CV-1859 (JG), 2005 WL 1139908, at *3
(E.D.N.Y. May 13, 2005) (court can consider
documents within the public domain on a
Rule 12(b)(6) motion to dismiss).

A. Motion to Dismiss
In reviewing a motion to dismiss pursuant
to Rule 12(b)(6), the Court must accept the
factual allegations set forth in the complaint
as true and draw all reasonable inferences in
favor of the plaintiff. See Cleveland v.
Caplaw Enters., 448 F.3d 518, 521 (2d Cir.
2006); Nechis v. Oxford Health Plans, Inc.,
421 F.3d 96, 100 (2d Cir. 2005). “In order to
survive a motion to dismiss under Rule
12(b)(6), a complaint must allege a plausible
set of facts sufficient ‘to raise a right to relief
above the speculative level.’” Operating
Local 649 Annuity Trust Fund v. Smith
Barney Fund Mgmt. LLC, 595 F.3d 86, 91 (2d
Cir. 2010) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). This
standard does not require “heightened fact
pleading of specifics, but only enough facts
to state a claim to relief that is plausible on its
face.” Twombly, 550 U.S. at 570.
The Supreme Court clarified the
appropriate pleading standard in Ashcroft v.
Iqbal, setting forth a two-pronged approach
for courts deciding a motion to dismiss. 556
U.S. 662 (2009). The Court instructed district
courts first to “identify[ ] pleadings that,
because they are no more than conclusions,
are not entitled to the assumption of truth.”
Id. at 679. Though “legal conclusions can
provide the framework of a complaint, they
must be supported by factual allegations.” Id.
Second, if a complaint contains “wellpleaded factual allegations, a court should
assume their veracity and then determine
whether they plausibly give rise to an
entitlement to relief.” Id.

B. Motion to Amend
Federal Rule of Civil Procedure 15
applies to motions to amend the pleadings.
“The court should freely give leave [to
amend] when justice so requires,” Fed. R.
Civ. P. 15(a); a motion to amend should be
denied “only for reasons such as undue delay,
bad faith, futility of the amendment or
prejudice to the other party.” Crippen v.
Town of Hempstead, No. 07-CV-3478
(JFB)(ARL), 2013 WL 2322874, at *1
(E.D.N.Y. May 22, 2013); see Burch v.
Pioneer Credit Recovery, Inc., 551 F.3d 122,
125 (2d Cir. 2008) (per curiam) (“[M]otions
to amend should generally be denied in
instances of futility, undue delay, bad faith or
dilatory motive, repeated failure to cure

The Court notes that in adjudicating a
Rule 12(b)(6) motion, it is entitled to
consider: “(1) facts alleged in the complaint
and documents attached to it or incorporated
in it by reference, (2) documents ‘integral’ to
4

N.Y. Insurance Law § 3420 (“Section
3420”), originally enacted in 1917, modified
New York common law by granting injured
third parties a limited cause of action against
insurers. Lang, 3 N.Y.3d at 354. Specifically,
Section 3420(b) states, in relevant part:

deficiencies by amendments previously
allowed, or undue prejudice to the nonmoving party.”). “An amendment to a
pleading is futile if the proposed claim could
not withstand a motion to dismiss pursuant to
Fed. R. Civ. P. 12(b)(6).” Lucente v. Int’l
Bus. Machs. Corp., 310 F.3d 243, 258 (2d
Cir. 2002) (citing Dougherty v. N. Hempstead
Bd. of Zoning Appeals, 282 F.3d 83, 88 (2d
Cir. 2002)).

Subject to the limitations and
conditions of paragraph two
of subsection (a) of this
section, an action may be
maintained by the following
persons against the insurer
upon any policy or contract of
liability insurance that is
governed by such paragraph,
to recover the amount of a
judgment against the insured
or his personal representative:

III. DISCUSSION
The present motions turn on whether
plaintiffs have any legal basis under New
York law to bring claims for damages and
declaratory relief against Alterra. 3 For the
following reasons, the Court concludes that
they do not.
A. Legal Standards

(1) any person who, or the
personal representative of any
person who, has obtained a
judgment against the insured
or the insured’s personal
representative, for damages
for injury sustained or loss or
damage occasioned during the
life of the policy or contract;

“Under [New York] common law, ‘an
injured person possessed no cause of action
against the insurer of the tort feasor.’” Lang,
3 N.Y.3d at 353 (quoting Jackson v. Citizens
Cas. Co., 277 N.Y. 385, 389 (1938)); see also
Cont’l Ins. Co. v. Atl. Cas. Ins. Co., 603 F.3d
169, 175 (2d Cir. 2010); Thrasher v. U.S.
Liab. Ins. Co., 19 N.Y.2d 159, 166 (1967)
(direct action by injured party against insurer
“is a cause of action which was unknown to
the common law”). “When a plaintiff
acquired a judgment against the insured and
the insured failed to satisfy the judgment due
to insolvency, the plaintiff could not sue the
insurance company directly because there
was no privity of contract between plaintiff
and the insurance carrier.” Lang, 3 N.Y.3d at
353 (citing New York cases).

(2) any person who, or the
personal representative of any
person who, has obtained a
judgment against the insured
or the insured’s personal
representative to enforce a
right of contribution or
indemnity, or any person
subrogated to the judgment
creditor’s rights under such
judgment.

3

By citing New York law exclusively, the parties do
not dispute that New York law applies. See, e.g.,
Leadsinger, Inc. v. Cole, No. 05 CIV. 5606 (HBP),
2006 WL 2320544, at *9 n.4 (S.D.N.Y. Aug. 10, 2006)
(“The parties, by citing New York law only, implicitly

agree that New York law governs the claims in
plaintiff’s second amended complaint.” (citing
Hannex Corp. v. GMI, Inc., 140 F.3d 194, 203 n.7 (2d
Cir. 1998))).

5

Paragraph two of subsection (a) provides the
following limitations and conditions alluded
to in subsection (b):

case law pre-Lang, and determining that the
Second Department permitted such an action,
while the First and Fourth Departments did
not). The Second Department had permitted
a declaratory judgment action on the basis
that, “because Section 3420 does not prohibit
a declaratory judgment action, such action
[was] therefore permitted.” Id. at 97
(describing Second Department approach).
By contrast, the First and Fourth
Departments, along with this Court in
Vargas, did not permit such actions,
reasoning that New York common law does
not recognize such actions, that an injured
third party’s cause of action against an
insurer exists solely by virtue of Section
3420, and that strict compliance with the
requirements set forth in Section 3420(a)(2)
(entry of a judgment and a thirty day waiting
period) is a condition precedent to such an
action. See id. at 95–96 (summarizing First
Department’s approach), 96–97 (agreeing
with this approach). The Lang decision
resolved the matter and determined that
compliance with the requirements of Section
3420(a)(2) is a condition precedent to any
direct action against the insurance company.
3 N.Y.3d at 354. Thus, under Lang, an
injured third party has no cause of action
against an insurer at common law, but may
bring such an action under Section 3420 so
long as the plaintiff has met the conditions
precedent set forth in Section 3420(a)(2).

[I]n case judgment against the
insured or the insured’s
personal representative in an
action brought to recover
damages for injury sustained
or loss or damage occasioned
during the life of the policy or
contract
shall
remain
unsatisfied at the expiration of
thirty days from the serving of
notice of entry of judgment
upon the attorney for the
insured, or upon the insured,
and upon the insurer, then an
action may . . . be maintained
against the insurer.
Finally, Section 3420(a) states at the outset
that these provisions apply to insurance
policies “insuring against liability for injury
to person . . . or against liability for injury to,
or destruction of, property.” Putting all these
statutory pieces together, the New York
Court of Appeals has held that Section 3420
grants an injured third party a right to sue an
insurer for damages, in derogation of the
common law, “but only under limited
circumstances—the injured party must first
obtain a judgment against the tortfeasor,
serve the insurance company with a copy of
the judgment and await payment for 30
days.” Lang, 3 N.Y.3d at 354.

Of course, a particular insurance policy
itself could also furnish a direct cause of
action on behalf of third parties. Tillman v.
Fireman’s Fund Ins. Co., 590 F. Supp. 246,
250 (S.D.N.Y. 1984). “After all the insurer
and insured may initially bargain to create
such a right in certain third parties.” Id.
“However, such an intention must be clearly
expressed in the language of the policy itself
before a court can hold that a right of direct
action was intended by the parties.” Id.
(citing Waring v. The Indemnity Fire Ins. Co.,
45 N.Y. 606, 612–13 (1871)); see Premium

Lang resolved a split among New York’s
Appellate Divisions concerning whether an
injured third party could bring an action
against an insurer for declaratory relief to
determine whether the insurer owed a
defense or coverage under a policy,
notwithstanding Section 3420’s conditions
precedent to a similar action for damages. See
Vargas v. Boston Chicken, Inc., 269 F. Supp.
2d 92, 94–97 (E.D.N.Y. 2003) (surveying
6

Mortg. Corp. v. Equifax, Inc., 583 F.3d 103,
108 (2d Cir. 2009) (“A non-party to a
contract governed by New York law lacks
standing to enforce the agreement in the
absence of terms that ‘clearly evidence[ ] an
intent to permit enforcement by the third
party’ in question.” (quoting Fourth Ocean
Putnam Corp. v. Interstate Wrecking Co., 66
N.Y.2d 38, 45 (1985))). Specifically, “[a]
party asserting rights as a third-party
beneficiary must establish (1) the existence
of a valid and binding contract between other
parties, (2) that the contract was intended for
his benefit and (3) that the benefit to him is
sufficiently
immediate,
rather
than
incidental, to indicate the assumption by the
contracting parties of a duty to compensate
him if the benefit is lost.” Madeira v.
Affordable Hous. Found., Inc., 469 F.3d 219,
251 (2d Cir. 2006) (internal citations
omitted); see Bayerische Landesbank, N.Y.
Branch v. Aladdin Capital Mgmt. LLC, 692
F.3d 42, 52–53 (2d Cir. 2012) (“‘[D]ismissal
of a third-party-beneficiary claim is
appropriate where the contract rules out any
intent to benefit the claimant, or where the
complaint relies on language in the contract
or other circumstances that will not support
the inference that the parties intended to
confer a benefit on the claimant.’” (quoting
Subaru Distribs. Corp. v. Subaru of Am., Inc.,
425 F.3d 119, 124 (2d Cir. 2005))).

apply to the Policy at issue here. Plaintiffs
point to N.Y. Insurance Law § 3420(a),
which states that the relevant provisions of
Section 3420 apply to policies “insuring
against liability for injury to person . . . or
against liability for injury to, or destruction
of, property.” N.Y. Ins. Law. § 3420(a).
Here, the Policy was a professional liability
insurance policy that, plaintiffs contend, falls
outside the scope of Section 3420(a).
As Alterra observes, plaintiffs’ argument
misses the mark. By contesting the
application of Section 3420, plaintiffs appear
to misconstrue Section 3420 as a limitation
on direct actions by injured third parties
against insurers. In essence, plaintiffs rely on
pre-Lang, Second Department law, according
to which actions by third parties against
insurers that were not specifically limited by
Section 3420 were otherwise permitted. See
Vargas, 269 F. Supp. 2d at 97 (explaining
reasoning of these Second Department
decisions). 4 Yet, as noted, the New York
Court of Appeals in Lang rejected this
approach, observing that New York common
law does not recognize a third party’s claim
against an insurer because of the lack of
privity between them, and that Section 3420
grants a limited statutory cause of action
where one does not exist under the common
law. 3 N.Y.3d at 353–54. “As such, the
statute is strictly construed and does not
create any rights which are not expressly
provided in it.” Vargas, 269 F. Supp. 2d at 97
(citing Thrasher, 19 N.Y.2d at 166). In other
words, under Lang, the baseline common law
rule is that injured third parties like the
plaintiffs here cannot maintain direct actions
against insurers. Section 3420 grants a
limited cause of action that alters this
common law rule in certain respects, but if

B. Application
Plaintiffs concede that they have not
complied with the requirements of Section
3420, because they have not obtained a
judgment against American Signature or
Sandberg. Nonetheless, plaintiffs insist that
they need not comply with these
requirements because Section 3420 does not
4

In fact, plaintiffs rely primarily on Mortillaro v.
Public Service Mutual Insurance Co., a 2001 Second
Department decision holding that “[a] plaintiff need
not be privy to an insurance contract to commence a

declaratory judgment action to determine the rights
and obligations of the respective parties, so long as the
plaintiff stands to benefit from the policy.” 285 A.D.2d
586, 587 (2d Dep’t 2001).

7

Section 3420 does not apply, then plaintiffs
have no cause of action under common law.
See Tillman, 590 F. Supp. at 249 (“In effect,
by disclaiming any resort to section 167 [the
predecessor to Section 3420] (apparently in
an effort to defeat the fairly strong arguments
[defendant] has raised for dismissing a
section 167 claim), [plaintiff] has
checkmated himself.”); see also U.S.
Underwriters Ins. Co. v. Ziering, No. 06-CV1130 (JFB)(WDW), 2010 WL 3419666, at *5
(E.D.N.Y. Aug. 27, 2010) (citing Lang,
discerning “no common-law right to seek
relief directly from [the] tortfeasor’s
insurer”) (quoting Murphy v. Fed. Ins. Co.,
No. 04-CV-1699 (LTS)(THK), 2005 WL
957410, at *2 (S.D.N.Y. Apr. 22, 2005))).5

which held that a third party did not have
standing to sue an insurer under New York
common law, involved an underlying claim
of employment discrimination, not a claim of
personal injury or property damage. See 269
F. Supp. 2d at 93–94. Likewise, here, the
Court recognizes that New York common
law bars a third party from suing an insurer
because of the lack of privity between them,
even where the third party has not suffered
personal injury or property damage.
Accordingly, this Court need not
determine whether Section 3420 applies to
the Policy. 6 If Section 3420 applies, then
plaintiffs concede that they have not satisfied
its requirements in order to bring the present
action. If Section 3420 does not apply, then
plaintiffs have no cause of action against
Alterra under New York common law.

Moreover, the Court rejects plaintiffs’
suggestion that the New York common law
rule barring actions by third parties against
insurers, as recognized in Lang, applies only
to cases involving personal injury or property
damage. As Lang itself explains, at common
law, a third party could not sue an insurer
“because there was no privity of contract
between plaintiff and the insurance carrier.”
3 N.Y.3d at 353 (emphasis added). A third
party and an insurance carrier do not stand in
privity with one another, whether that third
party seeks to recover personal injury
damages or damages arising out of the breach
of a contract. Indeed, the Vargas decision,

Plaintiffs’ last resort is the language of
the Policy itself. However, it is clear that the
Policy does not demonstrate any intent to
benefit plaintiffs such that they have a cause
of action under the Policy. First of all,
plaintiffs point to no provision in the Policy
that reflects such an intent. Moreover,
Section VII.11 of the Policy actually
prohibits American Signature from assigning
any interest under the policy without

to policies “insuring against liability for injury to
person . . . or against liability for injury to, or
destruction of, property.” However, many decisions,
albeit in the personal injury and property damage
context, have described Section 3420(a) in more
general terms, and suggested that it applies to all
insurance policies issued in New York. See, e.g.,
Cont’l Ins. Co., 603 F.3d at 174 (noting that Section
3420(a) applies to “all New York insurance
contracts”); Lang, 3 N.Y.3d at 354 (explaining that
Section 3420(a) applies to “every insurance policy
issued in New York”). For the reasons discussed
herein, the Court need not address the issue.

5

In a recent decision cited by plaintiff, it appears that
the Second Department continues to adhere to its preLang jurisprudence even after Lang. See RLI Ins. Co.
v. Steely, 65 A.D.3d 539, 539 (2d Dep’t 2009) (quoting
Mortillaro, 285 A.D.2d at 587). To the extent plaintiff
relies on RLI to argue that New York common law
recognizes a cause of action for third parties against
insurers where the underlying dispute does not
concern personal injury or property damage, the Court
notes that RLI itself concerned an insurance coverage
dispute for a boating accident. More importantly,
given the clear import of Lang, this Court declines
plaintiffs’ invitation to follow RLI.
6
The plain language of Section 3420(a) appears to
favor plaintiff’s position, as it states that it applies only

8

Alterra’s written consent. (Compl., Ex. B.)7
Such a provision evinces an intent not to
benefit any third parties. See, e.g., Subaru
Distribs. Corp., 425 F.3d at 125 (“The antiassignment clause suggests an intent to limit
the obligation of the contract to the original
parties.”); Underdog Trucking, LLC, Reggie
Anders v. Verizon Servs. Corp., No. 09-CV8918 (DLC), 2010 WL 2900048, at *5
(S.D.N.Y. July 20, 2010) (contract provision
prohibiting assignment without other party’s
written consent undercut inference of intent
to benefit third party); United Int’l Holdings,
Inc. v. Wharf (Holdings) Ltd., 988 F. Supp.
367, 373 (S.D.N.Y. 1997) (“Nonassignability clauses have been held to negate
third-party beneficiary status, even where
assignment was permitted with prior written
approval.”). Finally, Section VII.4 of the
Policy expressly provides that “[n]o person
or organization has a right under this Policy
to join us as a party or otherwise bring us into
a suit asking for ‘Damages’ from an
‘Insured.’”
This
provision
provides
additional support for Alterra’s position that
the Policy affirmatively avoids benefitting
third parties. 8 See Tillman, 590 F. Supp. at
250–51 (third party had no right of action
against insurer under insurance policy that
expressly prohibited third parties from suing
the insurer).

In sum, plaintiffs have no basis under
New York common law, Section 3420, or the
Policy upon which to bring either a claim for
damages or a claim for declaratory relief
against Alterra. 9 Accordingly, their
indemnification claim against Alterra must
be dismissed. For the same reasons, their
motion to amend their complaint by adding a
claim for declaratory relief against Alterra
must be dismissed, as well, because such
amendment would be futile. See, e.g.,
Lucente, 310 F.3d at 258 (“An amendment to
a pleading is futile if the proposed claim
could not withstand a motion to dismiss
pursuant to Fed. R. Civ. P. 12(b)(6).”).
Because plaintiffs may ultimately obtain a
judgment against American Signature or
Sandberg, the Court dismisses plaintiffs’
indemnification claim against Alterra
without prejudice to plaintiffs bringing a
proper claim under Section 3420 after they
have satisfied that statute’s conditions
precedent.10

7

contract governed by New York law lacks standing to
enforce the agreement in the absence of terms that
‘clearly evidence[ ] an intent to permit enforcement by
the third party’ in question.” (quoting Fourth Ocean
Putnam Corp., 66 N.Y.2d at 45) (emphasis added)).
9
To the extent plaintiffs challenge Alterra’s ability to
bring a separate declaratory judgment action against
American Signature and Sandberg, that argument has
no relevance to the motion to dismiss plaintiffs’ claims
against Alterra in this case and, thus, the Court need
not address it here.
10
In dismissing this claim without prejudice, the Court
takes no position on the applicability of Section 3420
to the Policy.

It is well-settled that, in considering a motion to
dismiss, courts may take judicial notice of documents
attached to, integral to, or referred to in the complaint.
See, e.g., Global Network Commc’ns, Inc. v. City of
New York, 458 F.3d 150, 157 (2d Cir. 2006).
8
To the extent that plaintiffs argue that Section VII.4
of the Policy only prohibits third parties from joining
Alterra in an action for damages against Alterra’s
insureds, and that, inferentially, any other kind of suit
by a third party against Alterra must be permitted, the
Court disagrees. That language does not constitute
clear evidence of an intent to benefit plaintiffs, and
does not confer the right of a third party to bring a
cause of action against Alterra. See, e.g., Premium
Mortg. Corp., 583 F.3d at 108 (“A non-party to a

9

IV. CONCLUSION
For the reasons set forth herein, the Court
grants Alterra’s motion to dismiss in its
entirety, and the claim against Alterra is
dismissed without prejudice. In addition, the
Court denies plaintiffs’ cross-motion to file
the amended complaint because the proposed
amendment would be futile given the lack of
standing to bring a claim for declaratory
relief at this juncture.
SO ORDERED.

_______________________
JOSEPH F. BIANCO
United States District Judge
Dated: February 20, 2014
Central Islip, NY
***
Plaintiffs are represented by Vanessa R.
Elliott, Fidelity National Law Group, 350
Fifth Avenue, Suite 3000, New York, NY
10118. Defendant Alterra Excess & Surplus
Insurance Company is represented by Daniel
Brody and Kevin M. Mattessich, Kaufman
Dolowich & Voluck, LLP, 100 William
Street, Suite 215, New York, NY 10038.

10