52 F. Supp. 3d 601
S.D.N.Y.2014Background
- Mariah Re Ltd., a special-purpose vehicle that raised $100 million to provide reinsurance to American Family for severe-weather losses, sued American Family, PCS (ISO/Property Claim Services), and AIR Worldwide after an April 2011 storm ("Catastrophe 42").
- PCS issued an Original Catastrophe Bulletin (Apr. 5, 2011) estimating state losses; on Nov. 3, 2011 PCS posted a two-page insertion (Kansas-specific locations) to the Original Bulletin (the "Revised Original Bulletin").
- AIR used the Revised Original Bulletin to prepare an Event Report (Nov. 23, 2011) that classified certain Kansas losses as "metro," triggering a higher payout factor; AIR’s calculation produced a $100 million payout from Mariah to American Family, wiping out Mariah’s collateral.
- Mariah alleges breaches of the PCS and AIR contracts, breaches of the implied covenant of good faith and fair dealing, unjust enrichment, conversion, tortious interference with the Indenture, and seeks declaratory and equitable relief.
- Defendants moved to dismiss under Rule 12(b)(6). The court applied New York law and dismissed all claims with prejudice, finding the contracts permitted PCS’s revision, allowed AIR to rely on the latest bulletin, and authorized American Family to withdraw funds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PCS breached §6(b) (dissemination per "current business practices") by issuing the Revised Original Bulletin and failing to e-mail subscribers | PCS deviated from its normal practice by inserting Kansas-specific data after the Final Estimate and not e-mailing notice | Exhibit C and §6(b) give PCS broad discretion; posting on ISOnet satisfied dissemination; email notice requirement applies only to Preliminary/Resurvey Estimates | Dismissed — PCS acted within contract and Exhibit C; no breach pled |
| Whether PCS breached §6(g) (record-keeping) by replacing Original Bulletin on ISOnet | PCS removed/altered records, violating the record-keeping clause | §6(g) requires PCS to keep records of documents disseminated but does not mandate specific storage on ISOnet; no damages alleged from any record change | Dismissed — construction of §6(g) and failure to plead damages |
| Whether PCS breached §1(e) (change in methodology) by issuing the insertion | The insertion altered PCS's general methodology without prior written notice | §1(e) governs methodology for estimating losses; the insertion did not change the loss-estimation methodology or the $710M Kansas estimate | Dismissed — no plausible alteration of methodology alleged |
| Whether AIR breached §3(a)(i) by using the Revised Original Bulletin for Event Report | AIR improperly relied on a "falsified" or post-Final Development Date bulletin and thus misapportioned metro/non-metro losses | AIR was required to use the latest Catastrophe Bulletins available five business days before Event Reporting Date; the Revised Original Bulletin fit the definition and did not change the Insured Industry Loss Amount | Dismissed — Revised bulletin was a valid Catastrophe Bulletin and did not violate Final Development Date restriction |
| Whether implied covenant claims against PCS, AIR, and American Family survive separate from contract claims | Parties acted in bad faith to deprive Mariah of contractual benefits | Defendants point to explicit contractual terms granting the contested rights (discretion to revise, withdrawal rights, and procedures) | Dismissed — implied covenant claims duplicative or precluded where contract controls |
| Whether American Family liable for unjust enrichment, conversion, tortious interference, or declaratory relief for withdrawing funds | Retention of funds was unjust, and transfers breached the Indenture; declaratory relief declaring Event Report and withdrawals void | The Reinsurance Agreement and Indenture govern the subject matter and authorize withdrawal; no independent duty alleged; Event Report procedures followed | All dismissed — contract governs (precludes quasi-contract claims), no breach of Indenture adequately alleged, declaratory relief unnecessary |
Key Cases Cited
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (complaint must provide grounds for relief under Rule 8)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (legal conclusions not entitled to assumption of truth)
- LJL 33rd St. Assocs. v. Pitcairn Props. Inc., 725 F.3d 184 (2d Cir. 2013) (implied covenant cannot create duties that negate explicit contract rights)
- Cruz v. FXDirectDealer, LLC, 720 F.3d 115 (2d Cir. 2013) (duplicative implied covenant claims should be dismissed)
- Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73 (2d Cir. 2002) (New York law does not recognize separate implied covenant claim when based on same facts as breach of contract)
- Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382 (N.Y. 1987) (presence of a valid contract ordinarily precludes quasi-contract recovery)