Opinion
60451502
Decided April 12, 2005.
This decision concerns the claim that a "skimpy" complaint did not give the adversary and the court notice of a transactions to be proved, CPLR 3013. Therefore, it did not toll the statute of limitations as to claims asserted in a later amended complaint, causing those claims to be dismissed as time barred.
Defendant William M. Mercer, Inc. and various other Mercer entities (collectively, Mercer) move for summary judgment dismissing the amended complaint on the ground that all the causes of action are barred by a three-year statute of limitations, CPLR 3212. Mercer argues that it sold the plaintiffs' extended warranty consulting work to Risk Consultants Actuaries, Ltd. (RCA) on July 1, 1997, and thereafter provided no further services to the plaintiffs. Even taking into account a tolling agreement the parties entered into, Mercer argues that the claims were barred by the statute of limitations shortly before the plaintiffs filed the amended complaint on April 29, 2003.
FACTUAL ALLEGATIONS
The plaintiffs are underwriters at Lloyd's, London, Union America Insurance Company, Ltd., and Zurich Re (UK) Ltd. (collectively, the Underwriters). The Underwriters insured or reinsured certain extended warranty programs for automobiles, computers, and other goods, in the United States and Canada. They commenced this action against Mercer, RCA, and RCA's principal, Haytham ElZayn, to recover damages allegedly caused by errors and misconduct with respect to actuarial, consulting and other services the defendants provided to the Underwriters in connection with those programs. The RCA defendants were dismissed from this action for lack of personal jurisdiction by decision and order dated September 22, 2004.
The Factual Background:
Extended warranty contracts are marketed to consumers when they purchase a product such as an automobile. The contracts are usually generated and administered by a third party administrator, but marketed by the retailers of consumer goods. The administrators typically purchase insurance to cover extended warranty claims and losses, thus insuring performance of their claim obligations, which may extend anywhere up to seven to ten years into the future.
The insurers may, in turn, purchase reinsurance. The risks (insurance) are usually placed by a licensed Lloyd's, London broker. The broker will either obtain several underwriters willing to underwrite 100% of the risk or will attempt to organize a "facility" that will allow the broker to place the risk with a single underwriter, (the lead underwriter), with the understanding that other participants, (the following market), will also accept the risk on the same terms. In general, the insurance or reinsurance of these programs by underwriters would be agreed to in blocks of time, typically one year, which would be referred to as a "year of account" or "treaty year" in the programs insured.
The Lloyd's broker engaged by the applicants in connection with the extended warranty programs at issue herein was Byas Mosley Co., Ltd. The various extended warranty programs were insured or reinsured by the Underwriters under a master facility organized by Byas Mosley from February 1994 through December 1997. They are referred to as Acceleration, MBPI, Aegis, HonorGuard, GE Canada, GE USA, NHIC, Aon Computers, BCS, Private Label, HonorGuard (Canada), Honda, Meridian and Orion 2000.
The amended complaint alleges that the success and profitability of extended warranty programs is dependent, in large part, upon establishing rates that are sufficient to cover the costs and losses over the term of the underlying contract (which may be as long as ten years) plus a reasonable profit. The principal term used to estimate the performance of these programs is ULR, which stands for Ultimate Loss Ratio. It is the ratio of the "ultimate losses" (claims payments plus loss adjustment expenses over the life of a program) to premium income. A ULR of 100% means losses are equal to premiums, although "breakeven" in such a program typically occurs at a ULR somewhat above 100% since much of the premium income is invested, sometimes for as long as seven years. Thus, a ULR of up to 105% would be profitable, whereas a ULR of 120% or 130% would be unprofitable.
Mercer — ElZayn Work on the Programs:
Having known and worked with defendant Haytham ElZayn since 1991, Byas Mosley contacted him at Mercer and engaged him in December 1994 to assess a prior actuary's work on three years of the Aegis program. ElZayn was a principal of Mercer, and the head of its Performance Assurance Consulting (PAC) division located in Columbus, Ohio. ElZayn prepared a report for the Underwriters in early 1995, showing that the prior actuary's ULR projections of approximately 80-85% were overly optimistic, and were approximately 40% too low.
As a result of ElZayn's work, Mercer was appointed "Book Actuarial Consultant" in April 1995. The engagement letter, authored by ElZayn, is dated April 10, 1995. It provides that Mercer would "do [its] best to protect the integrity of the book by providing the underwriters with the best possible advice (emphasis in original)." Cleary 11/19/04 Aff., Exh. 1. More specifically, the engagement letter sets forth that Mercer's assignment would be three-fold: (I) assist the Underwriters in the day-to-day review of plans, rates, state filings, loss ratio estimates and various other aspects as deemed necessary by the Underwriters; (ii) prepare quarterly reviews for each account, including ULR estimates for the life of each account year (seven years for each account year); and (iii) produce an annual review for the run-off business of all prior books where Mercer was not the named consultant. The engagement letter concludes by recognizing that the Underwriters were desirous of "an independent Actuarial Consultant to protect the market's interests," and assured Byas Mosley that Mercer would "do [its] best to represent the interest of the market and to accurately report on the status of each of the books of business underwritten by the market." Id. The letter proposes that Mercer's fees would be $2 per contract during the year of account, 50% of the fees per account year (excluding the run-off books), and that Mercer would perform an annual review on the run-off books at a discounted rate to preserve the integrity of the analysis. The letter was "scratched," i.e., it was accepted by initialing, by Colin Baker, the Lead Underwriter, the next day.
Thereafter, the work that Mercer's PAC division performed for the Underwriters was expanded. For the 1996 account year, Mercer was appointed as the Underwriters' consultant on additional accounts. By letter dated July 2, 1996, ElZayn, on behalf of Mercer, offered to provide significant additional services, asserting that, by doing so, Mercer would provide the Underwriters with accurate and reliable advice as they made decisions as to whether to enter into additional extended warranty programs or to renew existing ones. Specifically, Mercer agreed to provide the following services without any additional fees:
Verifying the timeliness and implementation of new rates.
Verifying the implementation of new procedures requested by the Underwriters.
Ensuring the adherence of various administrators to the underwriting guidelines set by the Underwriters.
Ensuring the quality of the data produced by the administrators.
Verifying the accuracy of the various reports that are sent to Underwriters on a regular basis.
Visiting the various administrators on a regular basis to verify implementation of various underwriters recommendations and to review the status of the administrator.
Verifying the accuracy of the premium remitted to London and the balances available in the reserve funds.
Verifying the accuracy of the lock box deposits and the accuracy of the distributions of the funds to the various parties involved.
Calculating the investment income due to Underwriters on the reserve funds.
Cleary 11/19/04 Aff., Exh. 2. ElZayn stated that although this list may not be complete, he saw Mercer's role as being beyond just generating actuarial reports.
ElZayn's Leaving Mercer, and Taking Over the Underwriters' Account:
At some point in March 1996, ElZayn proposed that he leave Mercer and set up his own actuarial organization, taking the Byas Mosley business with him. According to the minutes of a meeting held on March 21, 1996, the Underwriters were reluctant to approve this as they preferred the comfort of Mercer's name on all work carried out. Nevertheless, ElZayn did leave Mercer in 1997. He formed RCA on April 29, 1997. RCA purchased Mercer's PAC division business pursuant to a written Asset Sale Agreement dated as of July 1, 1997.
Mercer contends that none of the actuarial services it is alleged to have provided the Underwriters occurred after July 1, 1997, but instead were provided by ElZayn's company, RCA. Thus, the statute of limitations as to the claims against Mercer commenced to run on July 2, 1997.
In opposition to Mercer's summary judgment motion, Underwriters submit an affidavit from Jeremy Walker, who served as Assistant Underwriter and later Deputy Underwriter for the programs in question from 1994 to 1999. He contends that he first learned that ElZayn would be leaving Mercer and moving the Underwriters' work to a new company at or around the time of a Warranty Committee meeting on March 27, 1997, at which time there was discussion of having Mercer for the foreseeable future undertake peer review of ElZayn's work after he left. Later, in a Warranty Committee meeting on April 29, 1997, he was informed by Edward Rossdale of Byas Mosley that a senior Mercer executive, Henry Essert, had come to London to advise that Mercer would not be continuing with the extended warranty programs, but that there would a smooth transition of the business and staff to a new company to be started by ElZayn. As indicated in the minutes of that meeting, Walker was advised that a prominent Mercer actuary, Stan Khury, would be Chairman of the new company and his wife, Irene K. Bass, who was a qualified actuary, would be a director. The Underwriters made no objection to proceeding in this fashion.
ElZayn and RCA Take Over the Underwriters' Account:
About two months later, in early July 1997, the Underwriters received their first correspondence from ElZayn on the letterhead of RCA, indicating that that would be his new business address effective July 1, 1997, and that he and Mercer had worked out an arrangement whereby London fee payments would be split for a period of time to facilitate cash flow for RCA. Walker avers that he has since learned that a period of several months elapsed before Mercer, RCA and ElZayn actually reached agreement as to the terms by which Underwriters' work would be transferred from Mercer to RCA. He further claims that if the Underwriters had been made aware of this fact, they would have been concerned about the reliability of assurances Mercer had given of a smooth transition from Mercer to RCA and would have taken appropriate steps to protect their interests.
The Claimed Defects in Mercer's Work:
The Underwriters claim that, by late 1998, it started to become clear that the actuarial analyses and estimates provided by Mercer were dramatically incorrect on a program-wide basis. For example, the actual results of the Aegis Book V for the Underwriters reflect a ULR of 136%, not the 92.8% previously projected by Mercer, with total underwriting losses of $13 million. Another program, BCS I, has a nearly final ULR of 130%, not 87.6% or 85% as previously projected by Mercer, and underwriting losses of over $4 million.
The Underwriters allege that one reason why the actual program results and the initial actuarial projections are so far apart is that the work ElZayn assumed responsibility for far outstripped the skills and capabilities of the personnel devoted to them. They allege that although Mercer had identified itself as skilled in the provision of actuarial services, all of the work performed for the Underwriters was done by the PAC division headed up by ElZayn. When Mercer was appointed Book Actuarial Consultant in 1995, there were no qualified actuaries in the PAC group. Nine exams are required for associate status, and eleven for fellow status, in the Casualty and Actuarial Society (CAS). The Underwriters contend that ElZayn was not an actuary since he failed the fourth CAS examination twice and stopped pursuing accreditation in 1990. Kevin Habash, another employee, had a PhD in Economics, but no apparent actuarial accreditation, and Anita Wilson was also not an actuary. Stephen Marateas was the only actuary who worked for the PAC division from 1993 to 1997, and he was not hired by Mercer until August 1996, more than 15 months after Mercer was retained. ElZayn supervisor, Stan Khury, who was a qualified actuary, allegedly discovered this problem in August 1995, and suggested, in the words of the Underwriters, various "reforms" for the PAC division in a memorandum to file dated September 12, 1996. His changes included peer review "in the full sense of the word," and additional staffing, with some discussion of moving Chad Wischmeyer from Atlanta to PAC in Columbus. The Underwriters allege that Khury's reforms were never fully implemented, and that none of these developments were ever disclosed to the Underwriters, nor were they ever advised that the work product that they had received before this point had been generated without peer review by a qualified actuary.
The Underwriters allege that a conflict of interest existed because the defendants were compensated on a volume basis. Mercer had a consistent bias in favor of more programs, easy renewals and higher volumes of premium income and newly-sold extended warranty contracts. Although the Underwriters were aware that volume-based compensation could provide an incentive to the defendants to make actuarial and other professional judgments by "voting with their pocket book" (Amended Complaint ¶ 86), they claim that they were assured that this would never happen and that the clients' interests were always paramount.
The Underwriters allege that serious acts and omissions were committed by Mercer with respect to the BCS program. In late 1995, the Underwriters were presented with a proposed extended warranty program insured by BCS Insurance Company (BCS), and administered by Insurance Specialists Inc. (ISI). BCS and ISI sought to reinsure this business in the London market. Mercer was retained to evaluate the program and to provide a report to the Underwriters. Its final report dated December 26, 1995, which was allegedly improperly influenced by Byas Mosley and the U.S. broker for BCS, recommended a "positive consideration" by the Underwriters subject to a full rating review by March 31, 1996.
The changes in Mercer's report and the role played by these others were allegedly concealed from the Underwriters until 2000. Also concealed was the role that ElZayn allegedly played in concealing and minimizing a far more negative assessment of the program by a bona fide actuary at Mercer, Chad Wischmeyer.
In reliance on Mercer's enthusiastic report, and without any awareness of the far more negative Wischmeyer report, the Underwriters covered the program on December 28, 1995. They also contend that, in 1996, Mercer was informed that certain critical rate implementation information, relied upon in Mercer's report of December 26, 1995, was incorrect but failed to inform the Underwriters. Instead, Mercer secretly negotiated rate and program changes with ISI and BCS without the input, approval or knowledge of the Underwriters.
The Underwriters' claims are based on: (1) negligence; (2) professional negligence; (3) breach of contract; (4) fraud; (5) negligent misrepresentation; and (6) breach of fiduciary duty. The amended complaint seeks only money damages.
DISCUSSION
The Tolling Agreements:
On February 28, 2000, the Underwriters and Mercer entered into a 90-day tolling agreement regarding the Underwriters' potential claims against Mercer related to the extended warranty programs. The tolling agreement was extended many times at the request of the Underwriters, but ultimately expired on December 16, 2002, for a total period of two years, nine months, and 16 days, or 1,022 days.
There were 29 days in February of 2000.
The Underwriters commenced this lawsuit on December 16, 2002 by filing a summons and complaint. The original six-paragraph complaint sought unspecified monetary damages from Mercer for:
breach of contract, promissory estoppel, fraud, misrepresentation, professional negligence and breach of fiduciary duty arising out of the business dealings among and between [the parties] for, among other things, the factual and legal reasons already supplied to counsel for William M. Mercer by letter dated December 6, 2002, such letter being incorporated by reference herein.
Complaint ¶ 6. The December 6, 2002 letter is not attached as an exhibit to the original complaint.
Mercer moved to dismiss the complaint for failure to state a claim, CPLR 3211 (a) (7), or for a more definite statement, CPLR 3024 (a). The Underwriters elected not to oppose the motion, but rather filed an amended complaint on April 29, 2003 pursuant to CPLR 3025 (a).
The Statute of Limitations:
Mercer argues that the statute of limitations was not tolled until April 29, 2003, when the Underwriters filed the amended complaint, because the original six-paragraph complaint filed on December 16, 2002 failed to give notice of the transactions and occurrences constituting the claims against Mercer. It argues that by filing the amended complaint on April 29, 2003 in lieu of responding to the motion to dismiss, Underwriters effectively conceded that the original complaint was deficient under CPLR 3013, and therefore the amended complaint does not relate back to the original complaint for statute of limitations purposes.
Underwriters contend that the original complaint tolls the statute of limitations, and that the amended complaint merely amplified each of Underwriters' causes of action. They argue further that the detailed allegations in their counsel's eight-page December 6, 2002 demand letter, which was incorporated by reference into the complaint, should be considered part of that pleading for determining whether the original complaint provides sufficient notice of the transactions and occurrences upon which the amended complaint is based.
In this court, a claim is usually interposed when the action is commenced. CPLR 203 (c). Commencement occurs upon the filing of the summons and complaint or the summons with notice. CPLR 304.
The relation back doctrine, embodied in CPLR 203 (f), provides:
A claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading. (Underlining added)
The December 6, 2002 Demand Letter:
The first issue is whether the December 6th letter can be deemed part of the original pleading for purposes of the statute. If it is, its contents can be considered in determining whether the original complaint gave sufficient notice to satisfy CPLR 203 (f); if it is not, it will, of course, be disregarded for this purpose.
New York law is clear that no document will be considered part of a pleading unless it is attached to the pleading or fully quoted in the pleading. CPLR 3014 states, in pertinent part, that "[a] copy of any writing which is attached to a pleading is a part thereof for all purposes." "[A] contract or writing referred to in a pleading but not set forth in full or attached to the pleading is no part of the pleading and may not be considered in passing upon the sufficiency thereof." Anderson v. NY Central Railroad Co., 284 App Div 64, 66 (4th Dept 1954), citing DuPont Automobile Distributors, Inc. v. DuPont, Motors Inc., 213 App Div 313, 315 (1st Dept 1925), and Boiardi v. Manrden, Orth Hastings Corp., 194 App Div 307, 310 (1st Dept 1920), appeal dismissed 230 NY 607 (1921); see also Bell Television, Inc. v. Cal-New Yorker, Inc., 26 Misc2d 622 (Sup Ct, NY County), affd 12 AD2d 591 (1st Dept 1960). Moreover, since CPLR 3013 requires that a pleading must give notice of the claims to both the parties and the court, a document admittedly in the parties' possession, but not attached to or quoted in full in the complaint, would not give proper notice to the defendant or to the court. The Underwriters' reliance on federal cases construing FRCP 10(c) is misplaced. Thus, the December 6, 2002 letter can not be considered part of the complaint, since it was not annexed to, or quoted in, the complaint.
New York law is equally clear that the original pleading itself must give the notice required by CPLR 203(f), and that notice from other sources is insufficient. In Shapiro v. Schoninger ( 122 AD2d 38 [2nd Dept 1986]), the plaintiffs had actual notice of the gravamen of counterclaims in an amended answer from other legal proceedings and actions brought against them by the defendant. The Second Department held that the counterclaims were untimely and did not relate back to the original answer, ruling that "the pleadings themselves must give the requisite notice" Id. at 39-40; see also Coleman, Grasso and Zasada Appraisals, Inc. v. Coleman, 246 AD2d 893, 894 (3rd Dept), lv dismissed 91 NY2d 1002 (1998); Maxon v. Franklin Traffic Service, Inc., 261 AD2d 830, 830-31 (4th Dept 1999).
The Requirements of CPLR 3013 :
Thus, the issue is whether the original complaint itself gives adequate notice of the transactions and occurrences forming the basis of the six causes of action alleged in the amended complaint. While it is true that the original complaint does list these causes of action in a conclusory manner, there can be no doubt that this pleading is legally deficient under CPLR 3013. That statute requires that a pleading be "sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transaction or occurrences, intended to be proved and the material elements of each cause of action or defense." While CPLR 3013 was intended to be less exacting than its earlier counterpart, it is still necessary "that the pleading enable the defendant to determine the nature of the plaintiff's grievances and the relief he seeks in consequence of the alleged wrongs." Shapolsky v. Shapolsky, 22 AD2d 91 (1st Dept 1964); see also Willis v. Kepner, 109 AD2d 950 (3rd Dept 1985) (complaint which alleges no facts, merely a list of legal theories, violated CPLR 3013). Merely pleading that a contract was breached, without setting forth the nature of the contractual obligation alleged to have been violated or the nature of the claimed breach violated CPLR 3013. Sebro Packaging Corp. v. S.T.S. Industries, Inc., 93 AD2d 785 (1st Dept 1983).
In this case, the original complaint merely alleges that Mercer is being sued for breach of contract and the usual laundry list of business torts committed during 1994 through 1997 as a result of their "business dealings" in connection with "certain extended warranty and service contract programs." It fails to identify which extended warranty programs are at issue, what errors or omissions Mercer is accused of making, or how or why Mercer's breach of any contractual or legal duties damaged Underwriters. In essence, it merely announces to Mercer that it is being sued for unspecified conduct causing unspecified damages.
Underwriters argue that where an amended pleading is merely expanding or amplifying a cause of action already asserted, although defectively pleaded, the amendment can relate back. Two of the three cases they cite ( Ruggiero v. New York City Transit Authority, 20 Misc2d 535 [Sup Ct, Kings County 1959], and Kaplan v. K. Ginsburg, Inc., 14 Misc2d 356 [Sup Ct, NY County 1968], modified 8 AD2d 726 [2nd Dept 1959]), rely on Harriss v. Tams ( 258 NY 229). CPLR 203 (f) was intended to overrule Harriss and related cases. Jolly v. Russell, 203 AD2d 527, 530-31 (2nd Dept 1994) (Mangano, P.J., dissenting), citing Second Preliminary Report of Advisory Committee on Practice and Procedure, Article 5, at 51 (1958). The third case ( Scott v. Allen, 41 NYS2d 241 [Sup Ct, Kings County], affd 267 App Div 766 [2nd Dept 1943], lv denied 267 AD2d 827 [2nd Dept 1944]), pre-dates CPLR 203 (f). In any event, it does not appear that the relation back doctrine has ever been applied where the defect in the original pleading is a total failure to plead any facts supporting the causes of action.
Accordingly, the amended complaint does not relate back to the original complaint, and the statute of limitations continued to run between December 16, 2002 and April 29, 2003.
Applying the Statute of Limitations:
The amended complaint asserts separate claims against Mercer for both negligence and professional negligence. The first cause of action alleges that Mercer "failed to exercise due care and skill in providing actuarial and consulting services to Underwriters." Amended Complaint ¶ 99. The second cause of action alleges that Mercer "violated their professional obligations [as actuaries] and failed to discharge their professional obligations with the degree of skill and competence expected and required of actuaries." Id. ¶ 108.
Pursuant to CPLR 214 (4), an "action to recover damages for an injury to property" is governed by a three-year statute of limitations. CPLR 214(6) provides that an action for professional malpractice, other than medical malpractice, must be commenced within three years, regardless of whether the underlying claim is based on contract or tort. However, actuaries are not professionals within the meaning of CPLR 214 (6). Castle Oil Corp. v. Thompson Pension Employee Plans, Inc., 299 AD2d 513, 514 (2nd Dept 2002); see also New York District Council of Carpenters Pension Fund v. Savasta, 2005 WL 22872 *3 (SD NY 2005). Accordingly, claims arising from the negligence of non-medical professionals who do not fall within the ambit of CPLR 214 (6) are governed by the limitation periods applicable to negligence actions, i.e., CPLR 214 (4). Chase Scientific Research, Inc. v. NIA Group, Inc., 96 NY2d 20, 30-31 (2001); Castle Oil, 299 AD2d at 515, supra.
Mercer argues that the last possible date for any negligent acts committed by it was July 1, 1997, when the London business was sold to RCA. Between that date and the date Mercer entered into the tolling agreement, February 28, 2000, two years and nearly eight months had passed. Adding the additional period of time between the filing of the original complaint and the amended complaint, four months and 13 days, a total of 3 years and 12 days ran before the statute of limitations was tolled. If the court were to consider the date of the last allegation of misconduct by Mercer actually pleaded in the amended complaint, or which the Underwriters have disclosed in their interrogatory responses, the July 3, 1996 allegation of negligence with regard to the BCS program, more than four years elapsed before the Underwriters filed the amended complaint.
In opposition, the Underwriters' contend that July 1, 1997 refers only to an "effective date" of the sale agreed to by Mercer and RCA, and that the actual sale took place months later. As support for this statement, they rely on a letter dated December 29, 1997 from counsel to ElZayn to counsel for Mercer's parent, which indicates that the parties were still negotiating changes to the Asset Purchase Agreement as of that date. Cleary Aff., Exh. 12. A fully executed agreement was not transmitted to ElZayn until February of 1998. Id., Exh. 13. In addition, Jeremy Walker claims that, after receiving the July 2, 1997 letter from ElZayn, no immediate steps were taken to update the multiple placement slips and related programs that were in place in mid-1997, each of which named Mercer as the Underwriters' consultant. In some instances, an amendment to the slip was generated, but in most instances the change-over was documented at renewal with a new treaty year slip showing RCA in lieu of Mercer. This change-over of the slips generally took place as annual renewals were processed in the twelve months following July 1, 1997.
This evidence fails to raise a triable issue of fact as to whether Mercer actually provided any services to the Underwriters after July 1, 1997. The Asset Purchase Agreement may have been formally executed in late December 1997 or early 1998, but it clearly provides that its effective date is July 1, 1997. The Underwriters' own amended complaint, which details the services Mercer allegedly provided to Underwriters, at no point cites any services provided after July 1, 1997. To the contrary, on the GE USA program, the amended complaint alleges that RCA was named as the consultant on July 1, 1997. Amended Complaint ¶ 55(f). The Underwriters' interrogatory responses also fail to identify any actuarial services provided by Mercer after July 1, 1997.
In a prior affidavit dated September 1, 2003, Jeremy Walker, the Underwriters' main representative in this litigation, acknowledges receiving correspondence from ElZayn on the letterhead of RCA in early July 1997. The correspondence in question is a letter dated July 2, 1997 from ElZayn to Byas Mosley on RCA letterhead. The letter explains the cash flow facilitation agreement entered into by Mercer and RCA in connection with the sale of Mercer's PAC division to RCA, and clearly states that RCA would be the recipient of fees for work starting on July 1, 1997. Notably, Byas Mosley responded the next day with a letter addressed to ElZayn at RCA, not Mercer. See Bauer 12/3/04 Affirm., Exh. A. Mercer has presented other correspondence between RCA and the Underwriters or their representatives after July 1, 1997 ( see Bauer 12/3/04 Affirm., Exh. B); correspondence after July 1, 1997 between the Underwriters and third parties identifying RCA as their consultant ( id., Exh. C); and the invoices from RCA to the Underwriters for their work beginning in July 1997 ( id., Exh. E). Underwriters present no evidence whatsoever of services provided by Mercer to them after July 1, 1997.
Underwriters also claim that since they were not a party to the Asset Sale Agreement, Mercer maintained full responsibility under its contractual agreements with them to perform the promised actuarial and consulting services. Thus, Mercer remained vicariously liable for the acts and omissions of ElZayn and other PAC division employees. This argument fails for two reasons. First, the undisputed documentary and testimonial evidence is that, although the Underwriters did not consent to the sale in writing, as was originally contemplated by Mercer and RCA ( see Cleary 11/19/04 Aff., Exh. 11), Underwriters acquiesced to RCA taking over Mercer's responsibilities. This acquiescence occurred without any questioning as to whether Stan Khury or his wife were part of the new company's management team, as the Underwriters now claim they were led to believe. Second, even if Underwriters had objected to the sale to RCA, that would merely expose Mercer to liability for breach of contract, and does not impose vicarious liability on Mercer for allegedly negligent work performed by a separate legal entity.
Underwriters also seek to avail themselves of the doctrine of equitable estoppel, arguing that the relevant limitations periods were tolled by Mercer's non-disclosures and fraudulent concealment. They contend that Mercer failed to disclose that its actuarial work and reports were not prepared by actuaries or peer reviewed, failed to disclose that Stan Khury discovered that to be the case, and failed to disclose the negative conclusions reached by Chad Wischmeyer of Mercer when ElZayn redrafted reports to only present a positive evaluation of the BCS program. As a result of these allegedly fraudulent concealments, Underwriters contend that Mercer should be equitably estopped from pleading the statute of limitations where its own fraudulent conduct dating back to 1995 prevented Underwriters from learning of Mercer's actions.
To establish an entitlement to equitable estoppel, a plaintiff must make a showing that it was induced by fraud, misrepresentation, or deception to refrain from commencing a timely action. Simcuski v. Saeli, 44 NY2d 442, 450 (1978); Kaufman v. Cohen, 307 AD2d 113, 122 (1st Dept 2003); East Midtown Plaza Housing Co., Inc. v. City of New York, 218 AD2d 628 (1st Dept 1995). New York law is clear that the fraud that predicates application of equitable estoppel to bar a statute of limitations defense to an untimely action must be a separate, later fraud distinct from the acts underlying the action itself. Rizk v. Cohen, 73 NY2d 98, 105-06 (1989); Kaufman v. Cohen, 307 AD2d at 122, supra.
Here, the doctrine does not apply because Underwriters point to the same fraudulent conduct to establish both equitable estoppel and their substantive causes of action. These acts further do not appear to have lulled Underwriters into waiting until December 16, 2002 to commence this action, and until April 29, 2003, to file the amended complaint. Indeed, the amended complaint itself alleges that, by late 1998, it had started to become clear that the actuarial analyses and estimates provided by Mercer were dramatically incorrect. See Amended Complaint ¶ 60.
Accordingly, the first and second causes of action are dismissed as time-barred, since they could have accrued no later than July 1, 1997, and the claims were not interposed until April 29, 2003. Subtracting the period of time the parties' tolling agreement was in effect, the claims were filed at least 12 days late.
The Breach of Contract Claim:
The third cause of action alleges that Mercer entered into a contractual relationship with Underwriters to provide accurate, reliable and high quality actuarial and consulting services, and that it breached its contracts by failing to provide such services. See Amended Complaint ¶¶ 112-117. Mercer argues that Underwriters' breach of contract claim merely restates their malpractice claim, and should be dismissed as redundant, relying on LaSalle National Bank v. Ernst Young LLP ( 285 AD2d 101 [1st Dept 2001]), and IMO Industries Inc. v. Anderson Kill Olick, P.C., 267 AD2d 10 [1st Dept 1999]), cases in which the First Department ruled that a cause of action for breach of contract against a professional firm, which did not rest upon a promise of a particular result and only claimed a breach of general professional standards, was a redundant pleading of the plaintiff's malpractice claim.
The cases in which the redundant pleading rule has been applied in New York have concerned "professional" malpractice. Here, as stated above, Underwriters' separate claim for professional negligence, i.e., malpractice ( Chase Scientific, supra at 24), fails because actuaries are not deemed to be professionals. In 1996, the CPLR was specifically amended to provide that non-medical malpractice cases are governed by a three-year statute of limitations, "irrespective of whether the underlying theory is based in contract or tort." CPLR 214(6). This amendment was intended to specifically overrule prior case law allowing the maintenance of malpractice actions under a breach of contract theory within the six-year statute of limitations ( see, e.g., Santulli v. Englert, Reilly McHugh, P.C., 78 NY2d 700, 708; Sears, Roebuck Co. v. Enco Assoc., Inc., 43 NY2d 389, 394-95), and to reduce potential liability of insurers and corresponding malpractice premiums. Matter of R.M. Kliment Frances Halsband, 3 NY3d 538, 541-42 (2004); Chase Scientific, 96 NY2d at 27. No such special legislation has been enacted to protect non-professionals such as actuaries or insurance brokers from the longer statute of limitations applicable to contract claims. Thus, a litigant may plead contract and tort causes of action against an actuary premised upon the same culpable conduct, even though different time bars may apply. Chase Scientific, 96 NY2d at 25; New York District Council of Carpenters Pension Fund v. Savasta, 2005 WL 22872 *4, supra.
Furthermore, the third cause of action does not merely allege a breach of general professional standards for actuaries, but alleges breaches of express contractual promises by Mercer in the April 10, 1995 engagement letter. Underwriters further contend that Mercer failed to perform many of the services listed in the July 3, 1996 Account Management Services letter, such as, verifying the timeliness of the implementation of rates, insuring the quality of data, verifying the accuracy of reports to be sent to the Underwriters, visiting administrators on a regular basis and verifying the accuracy of premiums remitted to London. Mercer contends that this second letter was never "scratched" by Underwriters, signifying the acceptance of ElZayn's proposal, and that Underwriters themselves view the letter as an attempt by ElZayn to provide "get-well services." See Amended Complaint ¶ 77. However, the question of whether Mercer was contractually bound to provide the services outlined in the July 3, 1996 letter can not be resolved as a matter of law on these papers.
Accordingly, the six-year statute of limitations applicable to contract actions (CPLR 213), governs the third cause of action. Breach of contract claims accrue at the time of breach ( Ely-Cruikshank Co., Inc. v. Bank of Montreal, 81 NY2d 399, 402; R.V.R. Realty LLC v. Tenants Alliance, 305 AD2d 289, 290 (1st Dept 2003). The parties agree that Mercer was initially retained to provide actuarial and consulting services on April 10, 1995. Even assuming that breaches occurred immediately, since the breach of contract claim was interposed on April 29, 2003, which is eight years and 19 days after April 10, 1995, the claim is timely when the 2-year, 9-month and 16-day tolling period is subtracted.
The Fourth and Fifth Causes of Action:
The fourth and fifth causes of action allege that Mercer intentionally and/or negligently misrepresented and failed to disclose information to Underwriters that would have materially impacted their decisions to incept, renew, continue or alter coverage of the extended warranty programs, and that the Underwriters reasonably relied on these misrepresentations and non-disclosures to their detriment. Amended Complaint ¶¶ 119-120. Mercer contends that these claims are governed by the three-year statute of limitations applicable to the negligence claim, because these fraud and constructive fraud claims are incidental to that claim.
Causes of action for fraud must be brought within the longer of six years of the commission of the claimed fraud, or two years of discovery of the facts supporting a cause of action (CPLR 203[g], 213; Klein v. Arbor National Mortgage, Inc., 248 AD2d 240 [1st Dept], lv denied 92 NY2d 805; Rostuca Holdings, Ltd. v. Polo, 231 AD2d 402, 403 [1st Dept 1996]). A cause of action for negligent misrepresentation or constructive fraud is also governed by a six-year statute of limitations, although the two-year discovery rule does not apply. Avalon LLC v. Coronet Properties, 306 AD2d 62, 62-63 (1st Dept 2003); Schoen v. Martin, 187 AD2d 253, 254 (1st Dept 1992).
However, "'courts will not apply the fraud Statute of Limitations if the fraud allegation is only incidental to the claim asserted; otherwise, fraud would be used as a means to litigate stale claims.'" Kaufman v. Cohen, 307 AD2d at 119, quoting Powers Mercantile Corp. v. Maurice Feinberg, 109 AD2d 117, 120 (1st Dept 1985). In other words, where the alleged fraud is merely "the means of accomplishing the breach" of some other duty, whether imposed by contract or law, and adds nothing to the causes of action, the statute of limitations applicable to fraud claims will not control. Powers Mercantile, supra at 120; Iandoli v. Asiatic Petroleum Corp., 57 AD2d 815, 816 (1st Dept), lv dismissed 42 NY2d 1011 (1977).
The misrepresentations claims are based on allegations that Mercer's PAC division did not initially include any CAS fellows or associates, that Mercer failed to disclose the existence of this fact to Underwriters even after it was discovered; that Mercer made selective and misleading uses of a report prepared by a Mercer actuary Chad Wischmeyer on the BCS program; that another Wischmeyer report critical of the Honorguard program was withheld from Underwriters; that ElZayn used incorrect data in December 1995 and then attempted to cover up his mistakes by concealing the conduct of program participants, some of which Mercer was also seeking to do business with, directly contrary to its representation to act as an independent actuarial consultant.
Underwriters have failed to raise a triable issue of fact regarding their claim that Mercer concealed the December 1995 Wischmeyer report from them. The undisputed evidence shows that ElZayn faxed the report to Edward Rossdale of Byas Mosley on December 21, 1995 with a handwritten note stating that he did not agree with all the conclusions of the report. See Bauer 12/3/04 Aff., Exh. K; id., Exh. M: April 16, 2002 CE Test. of Colin Baker at pp. 304-305. Further, the testimony elicited from Underwriters' representative, Colin Baker, is that ElZayn was instructed to communicate with Byas Mosley. Id., Exh. M: April 16, 2002 C.E. Test. of Colin Baker at 305.
Underwriters' fraud claims do nothing more than add conclusory allegations of scienter to the same allegations underlying the negligence and breach of contract theories. In addition, Underwriters do not present any evidence to show that they have suffered any injury resulting from Mercer's alleged actual or constructive fraud that is different from the injury resulting from its claimed negligence or breach of contract.
Accordingly, the fourth and fifth causes of action based on fraud and constructive are governed by a three-year statute of limitations, and are time-barred.
The Breach of Fiduciary Claim:
The statute of limitations for a breach of fiduciary duty is either three or six years, depending on the substantive remedy sought ( Kaufman v. Cohen, 307 AD2d 113, 118 [1st Dept 2003]; Yatter v. William Morris Agency, Inc., 256 AD2d 260, 261 [1st Dept 1998]). Where suits alleging a breach of fiduciary duty seek only money damages, courts have viewed such actions as alleging "injury to property," to which a three-year statute of limitations applies. CPLR 214(4); Kaufman, 307 AD2d at 118; Yatter, 256 AD2d at 261. Breach of fiduciary duty claims, like breach of contract claims, generally accrue upon the alleged breach. Kaufman, 307 AD2d at 121, n. 3. Since the only relief sought by Underwriters is money damages, a three-year statute of limitations bars this claim.
CONCLUSION AND ORDER
For the foregoing reasons, it is
ORDERED that Mercer's motion for summary judgment is granted to extent of dismissing the first, second, fourth, fifth, and sixth causes of action as time-barred, and is denied with respect to the third cause of action based on breach of contract.