420 F.Supp.3d 123
S.D.N.Y.2019Background
- Pilkington (insured) owned an Illinois plant that suffered $60–$100M in damage from a February 28, 2017 tornado; the loss was submitted under a commercial property/business-interruption policy issued by Mitsui Sumitomo Insurance Co. of America (MSI).
- Aon Risk Services (Aon) brokered Pilkington’s coverage and had a standing services contract (ARS US Business Terms) obligating Aon to review policy terms, administer insurer relationships, consult on program options, and provide written coverage details.
- MSI proposed an endorsement (during 2015–2016 renewals) that revised the Policy’s Windstorm Sublimit wording; the revised sublimit ultimately capped coverage at $15M for certain wind events (including the tornado), unlike the original sublimit.
- Aon discussed the endorsement with MSI and then advised Pilkington that the endorsement only adjusted limits/valuations; Pilkington consented based on Aon’s guidance; Aon later incorporated the revised sublimit into the 2016–2017 renewal without flagging the substantive wording change to Pilkington.
- Pilkington sued Aon and MSI alleging breach of contract, torts (negligence, negligent and intentional misrepresentation, breach of fiduciary duty), reformation, breach of implied covenant of good faith, and declaratory relief. Aon and MSI moved to dismiss under Rules 12(b)(6) and 9(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Aon breach its services contract with Pilkington by failing to disclose and review the endorsement? | Aon failed to review and notify Pilkington of material changes to the Windstorm Sublimit and failed to consult before incorporating the change into renewal. | Aon says the contract language is generic, and its actions satisfied contractual duties; any breach allegations are conclusory. | Court: Contract claim survives — Complaint plausibly alleges breaches of the Contract’s review/consultation/written disclosure duties. |
| Do tort claims against Aon survive the economic-loss doctrine (i.e., was there a special relationship)? | Pilkington alleges a special relationship: long course of dealing, reliance on Aon’s expertise, and a specific discussion about the endorsement. | Aon contends tort claims are barred by the economic-loss rule and that no special relationship exists. | Court: Pilkington plausibly alleged a special relationship (analogous to Voss); economic-loss doctrine does not bar tort claims at this stage. |
| Are the fraud-based (intentional and negligent misrepresentation) claims against Aon plead with the particularity required by Rule 9(b)? | Pilkington alleges specific meetings, emails, and an oral January 2016 call in which Aon misrepresented the endorsement’s effect. | Aon contends misrepresentation allegations rely on "information and belief," fail to identify speakers/participants/locations, and lack particularity. | Court: Fraud/negligent-misrep claims against Aon fail Rule 9(b) for lack of particularized factual allegations; dismissal without prejudice and leave to amend. |
| Can Pilkington obtain reformation of the policy from MSI based on mutual mistake or fraudulently induced unilateral mistake? | Reformation is warranted because the revised sublimit was not the parties’ true agreement (mutual mistake) or was fraudulently induced. | MSI argues it drafted and circulated the revised wording and therefore there was no mutual mistake; fraud is not adequately pleaded (no strong inference of scienter). | Court: Reformation claim dismissed — mutual mistake implausible and fraud insufficiently pleaded (scienter not adequately alleged). |
| Does Pilkington state an implied covenant (good faith) and declaratory relief claim against MSI? | MSI’s misrepresentations about the endorsement deprived Pilkington of the contract’s benefits; declaratory relief needed to resolve coverage. | MSI contends implied-covenant claims cannot reach negotiation-stage conduct and disputes causation. | Court: Implied covenant and declaratory relief survive — conduct relates to performance/coverage and Pilkington plausibly alleges causation and injury. |
| Is Pilkington’s breach-of-contract claim against MSI viable (separate from reformation)? | If the policy is reformed, MSI breached by failing to pay full loss; alternatively, MSI’s conduct breached contractual duties. | MSI says it honored the policy as written; reformation failed so breach claim fails. | Court: Breach-of-contract claim against MSI dismissed because reformation failed and MSI is deemed to have honored the written policy. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must plausibly support liability)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard articulated)
- Subaru Distributors Corp. v. Subaru of Am., Inc., 425 F.3d 119 (2d Cir. 2005) (on resolving contractual ambiguities in plaintiff's favor at motion to dismiss)
- Murphy v. Kuhn, 682 N.E.2d 972 (N.Y. 1997) (insurance broker "special relationship" exceptions and duties)
- Voss v. Neth. Ins. Co., 8 N.E.3d 823 (N.Y. 2014) (special relationship may impose extra-contractual advisory duties on brokers)
- Aetna Cas. & Sur. Co. v. Aniero Concrete Co., 404 F.3d 566 (2d Cir. 2005) (discussed in context of applying Rule 9(b) to negligent-misrepresentation allegations)
- AMEX Assurance Co. v. Caripides, 316 F.3d 154 (2d Cir. 2003) (reformation/mutual mistake: drafter’s knowledge defeats mutual-mistake claim)
- Travelers Indem. Co. of Ill. v. CDL Hotels USA, Inc., 322 F. Supp. 2d 482 (S.D.N.Y. 2004) (reformation requires strong proof; contract language presumed to reflect parties’ intent)