Holborn Corporation v. Sawgrass Mutual Insurance Company
Filing
40
MEMORANDUM OPINION & ORDER: re: 27 MOTION to Dismiss Amended Counterclaims I and II filed by Holborn Corporation. Plaintiff's motion to dismiss Counts I and II of Defendant's Amended Counterclaims is granted. This resolves Docket Number 27. The Court will schedule an initial pretrial conference in this matter under separate order. SO ORDERED. (Signed by Judge Alison J. Nathan on 1/17/2018) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
Holborn Corporation,
Plaintiff,
16-cv-09147 (AJN)
-vMEMORANDUM
OPINION & ORDER
Sawgrass Mutual Insurance Company,
Defendant.
ALISON J. NATHAN, District Judge:
In this diversity action, Plaintiff Holborn Corporation asserts that Defendant Sawgrass
Mutual Insurance Company breached its contract by failing to pay premiums to Holborn in
exchange for Holborn acting as Sawgrass's reinsurance broker. Sawgrass asserts counterclaims
against Holborn, alleging first that Holborn acted negligently and breached its fiduciary duty by
failing to recommend a particular type of reinsurance, and second that Holborn breached its
contract by failing to repay certain sum~ to Sawgrass. Before the Court is Holborn's motion to
dismiss Counts I and II (negligence and breach of fiduciary duty) of Sawgrass' s Amended
Counterclaims under Federal Rule of Civil Procedure 12(b)(6). Because the Court concludes
that New York law applies and that Sawgrass has failed to sufficiently allege facts that would
support Sawgrass' s claims under New York law, the motion is granted.
I.
Background
The following facts are taken from the allegations contained in the Defendant's Amended
Counterclaims, as required in deciding this motion to dismiss. See Kassner v. 2nd Ave.
Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). Defendant Sawgrass is a mutual insurance
corporation existing in and organized under the laws of the state of Florida. Defendant/Counter1
Plaintiffs Amended Counterclaims ("Counterclaims"), Dkt. No. 22, ~ 1. It writes homeowners
insurance policies in the state of Florida.
Counterclaims~
4. Plaintiff Holborn is a reinsurance
intermediary organized under the laws of the state of Delaware, with offices in New York,
Minnesota, and Kansas. Counterclaims ,[ 2.
In 2012, Holborn had a series of conversations with Sawgrass's then-President and CEO,
James Esse, aimed at convincing Esse to let Holborn procure reinsurance for Sawgrass.
Counterclaims~
5. During these conversations, Esse advised Holborn that it would need to
"carefully analyze" Sawgrass's potential risk exposure under its homeowners policies, as well as
"design a specific reinsurance program custom tailored to Sawgrass' unique business needs."
Counterclaims~
7. Given the magnitude of Sawgrass's risk, any reinsurance deal would likely
require Sawgrass to pay nearly $10 million in annual reinsurance premiums for nearly $100
million in coverage. Counterclaims~ 8. Holborn was likely to receive nearly $1 million in
annual commissions.
Counterclaims~
8. As a result, Sawgrass alleges, Holborn "understood
that if Sawgrass retained it as its reinsurance intermediary that the relationship would be one of
trust and confidence, and that Holborn would have a duty to counsel and advise Sawgrass on the
reinsurance program that would be most advantageous to its particular business needs."
Counterclaims ~ 9.
In addition, according to Sawgrass, Holborn made "a series of representations concerning
its expertise in an effort to induce Sawgrass to retain its services," which were "substantially the
same" as the representations currently made on Holborn's website.
Counterclaims~
10. These
representations include:
a.
b.
Holborn is an independent reinsurance brokerage offering advanced
analytic tools, global market access, and responsive account services to
clients across the United States.
Holborn is "committed to understanding each clients' needs, corporate
2
c.
d.
e.
culture, risk tolerance and overall business approach."
Holborn promises to "maintain a relentless commitment to giving clients
what they truly need, with no two client solutions exactly the same."
Holborn "take[s] a comprehensive approach to reinsurance structure design
and placement by understanding each client's business philosophy and risk
appetite. Each client team incorporates dedicated placement & claims
brokers, cat modelers, actuaries, contracts professionals and accountants,
who collaborate to deliver an exceptional client experience throughout the
year. By being client focused, instead of product-focused, [its] team
understands the whole picture and the implications of each recommendation
and ultimate decision made by our clients."
Holborn "keeps [its] finger on the pulse of both the traditional market and
alternative market, when exploring risk solutions, to ensure [its] clients have
the most efficient, innovative and secure reinsurance program available."
Counterclaims i110. Sawgrass considered these representations material to its decision to retain
Holborn and alleges that Holborn knew or should have known this. Counterclaims ~ 11.
On March 14, 2012, Sawgrass executed a Broker Authorization Contract (the "2012
BAC"), which designated Holborn as Sawgrass's reinsurance intermediary from June 1, 2012
through May 31, 2015.
Counterclaims~
12; see also 2012 BAC, Dkt. No. 29-1. On November
6, 2013, Holborn and Sawgrass executed a superseding Broker Authorization Contract (the
"2014 BAC"), which designated Holborn as Sawgrass's reinsurance intermediary from June 1,
2014 through May 31, 2017.
Counterclaims~
12; see also 2014 BAC, Dkt. No. 29-2. In
addition, the parties signed two other agreements: a "Consulting Agreement" that amended the
2012 BAC and specified that Holborn would provide consulting services for a period of time
even if the contract were terminated, Counterclaims ~ 14, and a contract authorizing Sawgrass to
use Holborn's proprietary Portfolio Optimization Tool, see P01ifolio Optimization Tool Use
Agreement, Dkt. No. 29-3.
According to Sawgrass, Holborn recommended a specific program of reinsurance
coverage that it represented was the most advantageous for Sawgrass.
Counterclaims~
Based on these representations, Sawgrass purchased the recommended reinsurance.
3
16.
Counterclaims ~ 17. At some point thereafter, Sawgrass learned that Holborn had failed to
recommend "Top and Drop" reinsurance coverage, a multi-layer insurance product which allows
the insured to reuse the top excess-of-loss layer of reinsurance if it is not breached by the first
loss event.
Counterclaims~~
18-19. Sawgrass alleges that ifHolborn had recommended Top
and Drop coverage, Saw grass would have saved hundreds of thousands of dollars.
Counterclaims~
20.
Sawgrass subsequently terminated Holborn pursuant to paragraph 2 of the 2014 BAC,
which allowed Sawgrass to terminate Holborn at any time for cause.
Counterclaims~
27; 2014
BAC ~~ 2-3. On November 23, 2016, Holborn filed a complaint against Sawgrass alleging
breach of contract. Complaint, Dkt. No. 1, ~ 1. Specifically, Holborn alleged that Sawgrass
"prematurely terminat[ ed] the Contract without cause and fail[ ed] to pay Holborn its full share of
brokerage on all reinsurance procured or placed" during the period of time covered by the 2014
BAC. Complaint~ 1. In response, Sawgrass brought three counterclaims against Holborn
alleging negligence, breach of fiduciary duty, and breach of contract. Counterclaims~~ 34-55.
Sawgrass alleges that Holborn's failure to recommend Top and Drop insurance constituted a
breach of its duty of care, Counterclaims~ 40, and a breach of its fiduciary duty, Counterclaims
~
47. It also alleges that Holborn breached the terms of the 2014 BAC by failing to remit a
percentage of the brokerage earned by Holborn as required.
Counterclaims~~
53-54.
On April 11, 2017, Holborn filed a motion to dismiss Sawgrass' s first and second
counterclaims. Dkt. No. 27. Holborn argues that the tort-based claims of negligence and breach
of fiduciary duty are barred by the economic loss doctrine under New York law and therefore
must be dismissed. Memo. in Support of Motion to Dismiss ("Support"), Dkt. No. 28, at 1.
II.
Legal Standard
4
To survive a motion to dismiss under Rule 12(b)(6), the complaint must "state a claim to
relief that is plausible on its face." Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A
claim achieves "facial plausibility when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged."
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Plausibility is "not akin to a 'probability
requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully."
Id. Assessing the plausibility of a complaint is a "context-specific task that requires the
reviewing court to draw on its judicial experience and common sense." Id. at 679. To plausibly
allege a claim, the plaintiff must do more than provide "bare assertions" that "amount to nothing
more than a 'formulaic recitation of the elements"' of a claim. Id. at 681 (quoting Twombly, 550
U.S. at 555). "Plausibility thus depends on a host of considerations: the full factual picture
presented by the complaint, the particular cause of action and its elements, and the existence of
alternative explanations so obvious that they render plaintiffs inferences unreasonable." L-7
Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011). "A motion to dismiss a
counterclaim is evaluated under the same standard as a motion to dismiss a complaint."
Orientview Techs. LLC v. Seven.for All Mankind, LLC, No. 13-cv-0538 (PAE), 2013 WL
4016302, at *2 (S.D.N.Y. Aug. 7, 2013) (citation omitted). In reviewing a motion to dismiss, the
court "may consider any written instrument attached to the complaint, statements or documents
incorporated into the complaint by reference, ... and documents possessed by or known to the
plaintiff and upon which it relied in bringing the suit." ATS! Commc 'ns, Inc. v. Shaar Fund,
Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
III.
Discussion
Before the Court are Sawgrass' s Counterclaims alleging the torts of negligence and
5
breach of fiduciary duty based on money Sawgrass lost due to Holborn' s alleged failure to secure
Top and Drop reinsurance for Sawgrass. Holborn argues that these claims are legally improper
under New York's economic loss doctrine. "New York law holds that a negligence action
seeking recovery for economic loss will not lie." Cty. of Suffolk v. Long Island Lighting Co., 728
F .2d 52, 62 (2d Cir. 1984 ). In particular, if the parties have a remedy in contract, they may not
also bring claims sounding in tort that claim only economic damages independent of physical
injmy or damage to property. This principle seeks to "prevent[] the encroachment of tort law
into the domain of contract" and "protect[] parties' abilities to allocate risk by mutual agreement
and thereby form reliable expectations about their potential financial exposure with respect to the
duties and liabilities that they have contractually assumed." Travelers Cas. & Sur. Co. v.
Dormitory Auth.-State of N. Y, 734 F. Supp. 2d 368, 379 (S.D.N.Y. 2010). However, an
exception to the economic loss doctrine exists "where the defendant has a duty independent of
contractual obligations." Nebraska/and, Inc. v. Sunoco, Inc., No. 10-cv-1091 (RJD) (CLP), 2011
WL 6131313, at *4 (E.D.N.Y. July 13, 2011) (report and recommendation) (citation omitted),
adopted2011WL6131298 (E.D.N.Y. Dec. 8, 2011).
Because the relationship between Holborn and Sawgrass is governed by the contracts
they executed (namely, the 2012 BAC and 2014 BAC), the economic loss doctrine would
generally bar Sawgrass's tort-based counterclaims. To avoid application of the economic loss
doctrine, Sawgrass makes two arguments. First, it argues that this case should be governed by
Florida law rather than New York law. Because Florida recognizes only a much narrower
economic loss doctrine that applies only to product liabilities cases, Sawgrass's counterclaims
may be properly brought if Florida law governs. Second, Sawgrass argues that Sawgrass and
Holborn formed a special relationship giving rise to duties "independent of contractual
6
obligations," Nebraska/and, 2011WL6131313, at *4 (citation omitted), and that Sawgrass may
bring legal theories alleging breaches of those independent obligations. For the reasons
explained below, the Court disagrees with Sawgrass's contentions.
A.
New York Law Governs this Case
In response to the motion to dismiss, Sawgrass first argues that Florida law, rather than
New York law, applies to this case and that, as a result, New York's economic loss doctrine is
inapplicable. Memo. in Opp. to Motion to Dismiss ("Opp."), Dkt. No. 35, at 6. The Court
concludes that New York law governs this case.
1.
Choice-of-Law Doctrine
"Because a choice of law analysis is fact intensive, courts often decline to make a choice
of law determination at the motion to dismiss stage." Smith v. Railworks Corp., No. 1O-cv-3980
(NRB), 2011 WL 2016293, at* 6 n.12 (S.D.N.Y. May 17, 2011). "But where ... the relevant
facts are sufficiently clear, courts in this Circuit have engaged in choice-of-law analysis at the
motion to dismiss stage." Patel v. New York Life Ins. Co., No. l l-cv-4895 (JPO), 2012 WL
1883529, at *3 (S.D.N.Y. May 21, 2012).
"A federal court exercising diversity jurisdiction must apply the choice of law analysis of
the forum state." Globa!Net Financial.com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 382 (2d
Cir. 2006). "In New York, ... the first question to resolve in determining whether to unde1iake a
choice of law analysis is whether there is an actual conflict of laws." Curley v. AMR Corp., 153
F.3d 5, 12 (2d Cir. 1998). An actual conflict oflaw exists if "the applicable law from each
jurisdiction provides different substantive rules," id., and the differences "have a 'significant
possible effect on the outcome of the trial,"' Fin. One Pub. Co. v. Lehman Bros. Special Fin.,
Inc., 414 F.3d 325, 331 (2d Cir. 2005) (quoting Simon v. Philip Morris, Inc., 124 F. Supp. 2d 46,
7
71 (2002)).
If an actual conflict exists, courts must decide which choice-of-law test is most
appropriate. "The New York Court of Appeals has held that 'the relevant analytical approach to
choice of law in tort actions in New York' is the '[i]nterest test."' GlobalNet Financial, 449
F.3d at 384 (alteration in original) (quoting Schultz v. Boy Scouts ofAm., Inc., 480 N.E.2d 679,
684 (N. Y. 1985)). Under this test, courts "seek to apply the law of the jurisdiction with the most
significant interest in, or relationship to, the dispute." White Plains Coat & Apron Co. v. Cintas
Corp., 460 F.3d 281, 284 (2d Cir. 2006) (quoting Lazard Freres & Co. v. Protective Life Ins.
Co., 108 F.3d 1531, 1539 (2d Cir. 1997)). The states' interests are defined primarily by "the
parties' domiciles and the locus of the tort." Schultz, 480 N.E.2d at 684. New York tort laws are
either considered conduct-regulating or loss-allocating depending on their primary purposes.
GlobalNet Financial, 449 F.3d at 384. "If conflicting conduct-regulating laws are at issue, the
law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has
the greatest interest in regulating behavior within its borders." White Plains Coat & Apron Co.,
460 F.3d at 284 (quoting Cooney v. Osgood Mach., Inc., 612 N.E.2d 277, 280 (N.Y. 1993)).
New York courts treat negligence and breach of fiduciary duty laws as conduct-regulating laws.
Rose v. Arthur J Gallagher & Co., 928 N.Y.S.2d 783, 784 (App. Div. 2011).
While the parties generally agree that the above standards govern the Court's choice-oflaw inquiry, see Support at 7-9; Opp. at 6-7, they disagree on which Second Circuit precedent
interpreting New York law governs when the allegedly tortious conduct and the resulting injury
happen in different locations. Sawgrass relies on the Second Circuit's statement in White Plains
Coat & Apron Co. that "where negligent conduct occurs in one jurisdiction but the plaintiff's
injuries are suffered in another, the situs of the tort is where the last event necessary for liability
8
occurred." 460 F.3d at 285; Opp. at 7, 11 (citations omitted). Holborn, on the other hand, points
to the Second Circuit's decision in Licci ex rel. Licci v. Leb. Can. Bank, SAL, 739 F.3d 45 (2d
Cir. 2013 ), which "reject[ed] the view ... that the law of the place of injury ordinarily or always
governs where conduct-regulating rules are involved" and instead held that "where [wrongful
conduct and injury] do not [take place in the same jurisdiction], it is the place of the allegedly
wrongful conduct that generally has superior 'interests in protecting the reasonable expectations
of the parties who relied on [the laws of that place] to govern their primary conduct and in the
admonitory effect that applying its law will have on similar conduct in the future.'" 739 F.3d at
50-51 (third alteration in original) (quoting Schultz, 480 N.E.2d at 684-85); see also Support at 9.
The Court concludes that it must follow the decision in Licci and presume that the state
with the greatest interest in this case is the state in which the alleged wrongful conduct occurred.
In reaching this conclusion, the Court relies on the fact that in Licci, the Second Circuit explicitly
considered whether the law of the place of injury or the law of the place of wrongful conduct
governed a choice-of-law analysis in New York. See Licci, 739 F.3d at 50-51. In contrast, in
White Plains Coat & Apron Co., the Second Circuit considered both where the majority of the
conduct had taken place and where plaintiffs' injuries had occurred simultaneously in
determining which state had the greatest interest in the case. See 460 F.3d at 284-85. As a
result, White Plains Coat & Apron Co. does not stand for the proposition that the location in
which a plaintiff was injured has a greater interest than the location in which the wrongful
conduct occurred.
Additionally, the case on which the Second Circuit relied in White Plains Coat & Apron
Co. for the proposition that the location of the last event necessary for liability had the greatest
interest was Schultz v. Boy Scouts o,fAmerica, a case that concerned states' interests in loss-
9
allocating laws rather than conduct-regulating laws. See Schultz, 480 N.E.2d at 685; see also
White Plains Coat & Apron Co., 460 F.3d at 285 (citing Schultz for the proposition that in New
York, "the situs of the tort is where the last event necessary for liability occurred"). In Schultz,
the New York Court of Appeals concluded that where conflicting laws were loss-allocating, "the
locus jurisdiction has at best a minimal interest in determining the right of recovery or the extent
of the remedy,'' while the injured party's domiciliary state has an interest in seeing that its "lossdistributing rules are enforced so that the underlying policy ... is effectuated." 480 N.E.2d at
685-86. As a result, Schultz is inapposite to application of the interest test for conduct-regulating
tort laws, and thus the statement in White Plains Coat & Apron Co. relying on Schultz is
similarly inapposite to the choice of law analysis in this case where conduct-regulating laws are
at issue.
Finally, the rule in Licci is most consistent with the Second Circuit's holding in
GlobalNet Financial, the case that most resembles this controversy, and in which the Court of
Appeals affirmed the District Court's conclusion that New York law rather than Florida law
should govern a tort claim relating to an insurance broker's failure to notify its client of
important information. 449 F.3d at 384-85. In GlobalNet Financial, the Second Circuit
disagreed with the appellant's contention that "its tort claims should be analyzed under the
substantive law of Florida because that state has a significant interest in regulating the conduct of
brokers who knowingly deal with a Florida-based insured to provide coverage for a risk that was
primarily located in Florida." Id. at 385. Instead, it concluded that the District Court had
correctly determined that "New York has a greater interest than Florida in this litigation
involving a tort that occurred [in New York] and in regulating the conduct of brokers, insurance
agents, premium finance companies and insurers licensed within the state." Id. (alteration in
10
original). In reaching this conclusion, the Second Circuit pointed to the fact that the defendant
was "licensed in New York and maintain[ed] its principal place of business in New York." Id.
The Comi further reasoned that because the defendant received mail and phone calls at its New
York office, the defendant's failure to notify the plaintiff of information it had received "was
centered in New York." Id. (citing Northwestern Mutual Life Ins. Co. v. Wender, 940 F. Supp.
62, 66 (S.D.N.Y. 1996)). In reaching its conclusion, the Second Circuit clearly assumed that the
location of the insurance company's allegedly tortious conduct was the operative consideration
rather than the location in which the plaintiff was injured. As a result, this Court adopts the same
approach and presumes that the state in which tortious conduct occurred will be the state whose
substantive law applies.
2.
Application to the Present Case
The Court first concludes that it must undertake a choice-of-law analysis because there is
an actual conflict of law. As both parties recognize, New York prevents insureds from suing
insurance brokers in tort under the economic loss doctrine, while under Florida law, the
economic loss doctrine is limited to product liability cases. Support at 8; Opp. at 6. Compare
Cornelia Fifth Ave., LLCv. Canizales, No. 12-cv-7660 (ALC), 2017 WL 1034644, at *4
(S.D.N.Y. Mar. 16, 2017) (explaining New York's economic loss doctrine), with Tiara Condo.
Ass 'n, Inc. v. Marsh & McLennan Cos., 110 So. 3d 399, 407 (Fla. 2013) (explaining that
Florida's economic loss doctrine applies only in products liability). Thus, New York and Florida
employ different substantive rules that have a "significant possible effect on the outcome of the
trial," Fin. One Pub. Co., 414 F.3d at 331 (citation omitted), by potentially eliminating two of
Sawgrass's counterclaims.
The Court next concludes that New York has the greatest interest in this case, and that
11
New York law therefore governs Sawgrass's counterclaims. While it is undisputed that
Sawgrass suffered injury in Florida where it is domiciled, the Court finds that the actual tortious
conduct alleged in Sawgrass's counterclaims occurred in New York. The wrongful conduct
alleged in Sawgrass's counterclaims is a failure to recommend Top and Drop insurance.
Sawgrass alleges that Holborn was negligent because it "breached its duty of care by failing to
use reasonable skill and care to recommend and secure appropriate reinsurance for Sawgrass,
including Top and Drop coverage."
Counterclaims~
40. Likewise, Holborn "breached its
fiduciary duty by failing to recommend and secure the reinsurance products appropriate for
Sawgrass' particular business needs, including Top and Drop coverage."
Counterclaims~
47.
Sawgrass repeatedly characterizes Holborn's tortious conduct as a "failure to recommend and
secure" Top and Drop coverage, Counterclaims ~ 21; see also Counterclaims ~ 18 ("Sawgrass
learned that Holborn, contrary to its duties and fiduciary obligations, failed to recommend a
reinsurance product known as 'Top and Drop' reinsurance coverage ('Top and Drop')."). This
failure occurred when Holborn considered, recommended, and secured reinsurance for Sawgrass.
The Court finds that Sawgrass has failed to plausibly allege that this failure occurred in
Florida. Specifically, Sawgrass does not allege with pai1icularity that Holborn's agents were in
Florida when they were considering and selecting reinsurance or when they recommended a
particular reinsurance plan to Sawgrass. Rather, Sawgrass only specifically states that Holborn
agents traveled to Florida "to meet with Sawgrass during the course of negotiations" and more
generally alleges that Holborn agents traveled to Florida during the course of "the ensuing
relationship."
Counterclaims~
28. It does not specifically allege that any of these meetings
concerned Holborn's choice of a reinsurance plan or its recommendation of that reinsurance plan
to Sawgrass. Similarly, in its opposition to Holborn's motion to dismiss, Sawgrass does not
12
allege that any of Holborn's actions other than its alleged pre-contract representations about the
services it would provide took place in Florida:
Here, Holborn traveled to Florida, and while in Florida made representations to
Sawgrass that it would custom tailor a reinsurance program to meet its unique
business needs. Holborn then drafted and presented a Reinsurance Contract to
Sawgrass that itself contained a Florida choice of law provision, which Holborn
recommended Sawgrass execute because it met its business needs, and which
Sawgrass executed in Florida.
Opp. at 10. Sawgrass specifically avoids asserting that Holborn was in Florida during the
consideration, drafting, or presentation of the proposed reinsurance contract. Further
underscoring the dearth of specific allegations that the purportedly tortious conduct took place in
Florida is Sawgrass's argument in its opposition to the motion to dismiss that the allegedly
tortious conduct may have occurred in Minnesota or Kansas. In arguing against application of
New York law, Sawgrass states that "Holborn also maintains offices in Minnesota and Kansas,
and is incorporated in Delaware," and that "there is no record support for what activities
occurred at any of Holborn's varied locations." Opp. at 10. In effect, Sawgrass admits that it
does not know where Holborn was when it acted but that Holborn's allegedly tortious conduct
took place at one of its locations rather than in Florida during any meeting between Sawgrass and
Holborn. 1 As a result, the Court concludes that Sawgrass's allegations fail to rise above the level
of "bare assertions" that tortious conduct occurred in Florida, which caimot be credited. See
Iqbal, 556 U.S. at 681. The Court finds that the allegedly tortious actions of Holborn occurred in
1
The Couii separately rejects Sawgrass's contention that Holborn's conduct may have occurred in
Minnesota or Kansas rather than in New York. Nowhere in the Amended Counterclaims does Sawgrass
allege that Holborn conducted any business related to Sawgrass out of its other offices or that it has
reason to believe that any of the agents with whom Sawgrass worked traveled to these other offices. The
only reference to these other offices in the Counterclaims is the statement that "[u]pon information and
belief, Holborn ... [has] offices in New York, Minnesota, and Kansas." Counterclaims~ 2. But the
contracts that are incorporated into the Amended Counterclaims all require communications between
Sawgrass and Holborn to be sent to Holborn's New York office. See 2012 BAC at 2, 3; 2014 BAC at 3.
13
New York. As in GlobalNet Financial, Holborn is licensed in New York and its principal place
of business is New York.
Counterclaims~
2; Support at 3; 2012 BAC at 2, 3; 2014 BAC at 3;
NY License, Dkt. No. 29-4. The contracts between Sawgrass and Holborn required all
communications with Holborn to be sent to a New York address and that Holborn's agent could
be reached at a New York City phone number. 2012 BAC at 2, 3; 2014 BAC at 3. Holborn's
failure to recommend a specific policy therefore is centered in New York under GlobalNet
Financial (and absent contrary specific allegations by Sawgrass), and the Court concludes that
New York has the greatest interest in this case. See Licci, 739 F.3d at 50-51; GlobalNet
Financial, 449 F.3d at 385.
Sawgrass argues that even if Holborn's failure to recommend Top and Drop insurance
occurred in New York, Florida law should nevertheless govern this case because Holborn made
fraudulent misrepresentations during meetings with Sawgrass in Florida. Opp. at 8.
Specifically, Sawgrass states that its claims "relate to the misrepresentations Holborn made that
it would carefully analyze Sawgrass' potential exposure and recommend a specific reinsurance
program custom tailored to its needs, and then failed to do so resulting in damages." Opp. at 8.
This claim is unavailing. Sawgrass has not sued Holborn for fraud or alleged that Holborn
knowingly made misrepresentations to Sawgrass. Rather, Sawgrass claims that Holborn's later
failure tofuljill these promises was negligent and a breach of fiduciary duty. As a result, the
tortious conduct at issue in Sawgrass 's counterclaims is that subsequent failure, not the initial
representations. Because Sawgrass has not sufficiently alleged that Holborn's failure occurred in
Florida, and against the backdrop of GlobalNet Financial, the Court concludes that the alleged
failure occurred in New York and thus is governed by New York law.
The Court likewise sees no merit in Sawgrass's argument that Florida law applies in this
14
case because the reinsurance contract Sawgrass ultimately signed with third parties was executed
in Florida and governed by Florida law. Opp. at 8. Holborn was not a party to that contract, nor
did that contract implicate Holborn's contractual relationship to Sawgrass. See Reinsurance
Contract, Dkt. No. 35-1. Rather, the contract merely governed the obligations between Sawgrass
and its many reinsurers. As a result, although that contract has a choice-of-law provision stating
that Florida law governs the contract, Reinsurance Contract at 22, that contract has no bearing on
where Holborn's allegedly t01iious conduct occurred or which state has the greatest interest in
the actions by the reinsurance broker rather than the actions of the reinsured and reinsurers. See
GlobalNet Financial, 449 F.3d at 385 (holding that a state did not have the greatest interest in a
tort arising from an insurance relationship merely because the ultimate insurance risk would be
borne in that state).
Sawgrass next argues that, despite the normal rule that the state in which a conductregulating tort occurred will generally have the greatest interest in the case, see White Plains
Coat & Apron Co., 460 F.3d at 284, Florida has the greatest interest in this case, Opp. at 11. In
support of this position, Sawgrass states that it is domiciled in Florida, Holborn traveled to
Florida to negotiate its relationship with Sawgrass, the reinsurance Holborn secured covered
exclusively Florida risks on Florida-issued insurance policies, and the ultimate reinsurance
contract secured by Holborn had a choice-of-law provision applying Florida law. Opp. at 11.
This argument is largely foreclosed by the Second Circuit's holding in GlobalNet Financial. In
that case, the plaintifflikewise argued that Florida had the greater interest because the plaintiff
was domiciled in Florida and the defendant had provided insurance coverage "for a risk that was
primarily located in Florida." 449 F.3d at 385. Nevertheless, the Second Circuit concluded that
New York had the greater interest in the outcome because it was where the defendant's conduct
15
had occurred. Id. Because the facts of GlobalNet Financial are not meaningfully distinguishable
from the facts presented here, the Court disagrees with Sawgrass's suggestion that Florida law
should govern.
Finally, Sawgrass counsels that if the Court is not persuaded that Florida law applies, it
should defer ruling on the choice-of-law question until after discovery has occurred. Opp. at 7,
12-13. In support of this position, it states only that delaying resolution of the question until
after discovery "will allow the parties to present the Court with additional facts germane to the
issue." Opp. at 12. While the Court recognizes that courts often decline to rule on choice oflaw
at the motion to dismiss stage because it requires fact-intensive analysis, Smith, 2011 WL
2016293 at *6 n.12, the Court finds it appropriate to rule that New York law governs this case.
The Court's determination in this case does not require a fact-intensive inquiry: even treating all
of Sawgrass's allegations as true and viewing all facts in the light most favorable to it, it has
failed to allege any facts that would cause Florida law to govern this case. Because the failure is
one of pleading rather than one of factual support, the Court sees no reason to allow the choiceof-law issue to become the subject of extensive discovery. See Patel, 2012 WL 1883529, at *4
(deciding the choice oflaw question at the motion to dismiss stage because plaintiff had not
plausibly alleged that the locus of the tort had been anywhere other than Georgia).
The Court thus concludes that New York law governs Sawgrass's counterclaims. As a
result, New York's economic loss doctrine will foreclose Sawgrass's claims absent application
of an exception to that general rule.
B.
The Parties Did Not Have a Special Relationship Creating Additional Duties
Owed by Holborn to Sawgrass
Sawgrass next argues that the economic loss doctrine is inapplicable in this case because
the parties had a special relationship giving rise to additional duties independent of the operative
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contracts. Under New York law, insurance brokers "have a common-law duty to obtain
requested coverage for their clients within a reasonable time or inform the client of the inability
to do so" but "have no continuing duty to advise, guide or direct a client to obtain additional
coverage." Am. Bldg. Supply Corp. v. Petrocelli Grp., Inc., 979 N.E.2d 1181, 1184 (N.Y. 2012)
(quoting Murphy v. Kuhn, 682 N.E.2d 972, 974 (N.Y. 1997)). However, the New York Court of
Appeals has held that"[ w ]here a special relationship develops between the broker and client,"
the broker "may be liable ... for failing to advise or direct the client to obtain additional
coverage." Voss v. Neth. Ins. Co., 8 N.E.3d 823, 828 (N.Y. 2014). A special relationship may be
established in one of three ways:
(1) the agent receives compensation for consultation apart from payment of the
premiums, (2) there was some interaction regarding a question of coverage, with
the insured relying on the expertise of the agent, or (3) there is a course of dealing
over an extended period of time which would have put objectively reasonable
insurance agents on notice that their advice was being sought and specially relied
on.
Murphy, 682 N.E.2d at 975-76 (citations omitted).
If a special relationship exists, the special duties that attach to the parties are "governed
by the particular relationship between the parties and [are] best determined on a case-by-case
basis." Id. at 975. An insurance broker may be found negligent for failure to fulfill the duties
that attach due to a special relationship. See Voss, 8 N.E.3d at 828-29. A special relationship
will also support a claim for breach of fiduciary duty because "[t]he 'duty' element of
[negligence and fiduciary duty] causes of action requires the same inquiry." Muller-P aisner v.
TIAA, 289 F. App'x 461, 465 (2d Cir. 2008); see also Edelman v. O'Toole-Ewald Art Assocs.,
Inc., 814 N.Y.S.2d 98, 99 (App. Div. 2006) ("[I]nsurance companies do not owe a fiduciary duty
to their insureds, absent a showing of some special relationship."). "[S]pecial relationships in the
insurance brokerage context are the exception, not the norm .... " Voss, 8 N.E.3d at 829.
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Insureds bear the burden of proving a special relationship. Murphy, 682 N.E.2d at 976.
Sawgrass alleges that a special relationship existed between itself and Holborn based on
the second method identified in Murphy: an interaction regarding a question of coverage with the
insured relying on the expertise of an agent. Opp. at 14-18. In order to satisfy this requirement,
co mis have generally required that the insured make a specific request about the feature of the
proposed insurance at issue in the subsequent suit. For example, in Voss, the plaintiff asked the
defendant whether an insurance policy that covered $75,000 in loss due to business interruption
would be sufficient for her based on the size and revenue of her business. 8 N.E.3d at 825-26.
The defendant "allegedly assured her that it would suffice based on ... the size of her
businesses," and the plaintiff subsequently accepted the policy. Id. at 826. The Court of Appeals
concluded that a special relationship might exist, and thus summary judgment was inappropriate,
because the two parties "discussed business interruption insurance from the inception of their
business relationship," the defendant obtained "relevant data in order to calculate the proper level
of coverage," and the plaintiff "questioned that amount [of $75,000 of coverage]" and the
defendant "assured her that it was adequate based on his review of her business finances." Id. at
829. In contrast, in Murphy, the Court of Appeals found no special relationship between an
insurer and insured where the plaintiff "never asked [the defendant] to increase the liability
limits" on the auto insurance policy at issue and, "[i]n fact, there is no indication that [the
plaintiff] ever inquired or discussed with [the defendant] any issues involving the liability limits
of the automobile policy." 682 N.E.2d at 975. The comi concluded that "[s]uch lack of
initiative or personal indifference cannot qualify as legally recognizable or justifiable reliance."
Id.
Here, Sawgrass has not alleged that a particular conversation about Top and Drop
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insurance ever occurred between the parties, nor has it alleged that it relied on Holborn to
procure Top and Drop insurance specifically. Instead, Sawgrass merely alleges that it required
Holborn "to carefully analyze Sawgrass' potential exposure ... [and] design a specific
reinsurance program custom tailored to Sawgrass' unique business needs." Counterclaims ii 7.
Similarly, Sawgrass argues that Holborn recommended a reinsurance policy "that it represented
as having been the most advantageous for its unique business needs,'' and that Sawgrass "relied
on Holborn's analysis and recommendations and purchased the reinsurance that Holborn
recommended." Counterclaims iii! 16-17. An alleged conversation in which the parties
discussed "the most advantageous" policy - without either party specifically mentioning Top and
Drop insurance - is insufficient to create a special relationship under Murphy. See 682 N.E.2d at
975. All insurance customers are seeking the most advantageous insurance policy, and as a
result, a discussion generally about what policy will be the most advantageous does not suggest
"that the Plaintiff enjoyed anything other than an ordinary consumer-agent insurance
relationship." Long Beach Road Holdings, LLC v. Foremost Ins. Co., 75 F. Supp. 3d 575, 590
(E.D .N. Y. 2015). If such a generalized and common inquiry were sufficient to create a special
relationship between an insurance broker and customer, courts would be required to find the
existence of a special relationship in nearly every insurance purchase and the exception would
swallow the general rule. See Voss, 8 N.E.3d at 829 (describing a special relationship between
an insurance broker and customer as the "exception" to the general rule).
Sawgrass argues that it need not allege "the precise coverage discussed, and the precise
question presented" because only a short, plain statement of the claim is required at the motion to
dismiss stage. Opp. at 15 n.7 (discussing the requirement of Federal Rule of Civil Procedure
8(a)(2)). While the Court agrees that Sawgrass need not plead every fact in its Amended
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Counterclaims, Rule 8(a)(2) requires it to plead a sufficient statement to "show[] that the pleader
is entitled to relief." Fed. R. Civ. Proc. 8(a)(2). In this case, Sawgrass has failed to allege
sufficient facts to demonstrate that a special relationship was created between itself and Holborn
that would require Holborn to recommend Top and Drop reinsurance. It has thus failed to allege
that it is entitled to relief for Holborn's actions under either a negligence theory or breach-offiduciary-duty theory.
IV.
Conclusion
Plaintiff's motion to dismiss Counts I and II of Defendant's Amended Counterclaims is
granted. This resolves Docket Number 27.
The Court will schedule an initial pretrial conference in this matter under separate order.
SO ORDERED.
Dated: Januaryil, 2018
New York, New York
United States District Judge
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