Court denied defendant’s motion for reconsideration of its order granting plaintiff’s motion to dismiss defendant’s 3rd and 4th counterclaims for consequential and punitive damages where plaintiff relied upon marine surveyor’s report in denying coverage.

The plaintiff insurer filed a declaratory judgment action in the Eastern District of New York, seeking a judgment that damage to the defendant’s yacht was not covered by the marine insurance policy it had issued to him. The district court had granted the plaintiff’s motion to dismiss the defendant’s third and fourth counterclaims for consequential and punitive damages. The defendant now filed a motion for reconsideration of that order. The plaintiff denied the defendant’s claim after a marine surveyor had determined that the incident was caused by normal wear and tear and that the defendant had failed to maintain the vessel in good working condition—both were coverage exclusions under the marine insurance policy. Prior to the start of litigation, defendant’s counsel wrote to the plaintiff, demanding a copy of the marine surveyor’s report. The plaintiff did not provide the report and, instead, initiated the instant litigation. The court subsequently ordered that the report be provided to the defendant. The defendant alleged that the plaintiff’s delay in producing the report denied him the opportunity to adequately oppose the plaintiff’s motion to dismiss. The defendant argued that inconsistencies between the report and the plaintiff’s letter declining coverage supported his claim for bad faith and were sufficient to establish a claim for punitive damages. The court noted that, generally, punitive damages may be awarded for the “bad faith refusal by an insurer to settle an insurance claim for which it is liable.” The court rejected the defendant’s argument that the plaintiff lacked any legitimate basis for denying coverage. It was clear to the court that the plaintiff had relied upon the marine surveyor’s report in deciding to deny coverage and that the decision to deny coverage was arguably supported by the findings of the report. Thus, the defendant’s motion for reconsideration was denied.

Case Law Alert - 1st Quarter 2013