Mercantile & General Reinsurance Co. v. Colonial Assurance Co.

Majority

p. 248

[624 NE2d 629, 604 NYS2d 492]

Mercantile & General Reinsurance Co., plc, Appellant, v Colonial Assurance Company et al., Defendants, and Spanno Corporation, Respondent.

Argued October 7, 1993;

decided November 18, 1993

p. 249

POINTS OF COUNSEL

Mound, Cotton & Wollan, New York City (Stuart Cotton, Andrew Maneval, Guy P. Dauerty, Diane P. Simon and Marilu Cain of counsel), for appellant.

I. The trial court’s granting of rescission was proper in all respects and fully within its province; the judgment entered in the Supreme Court on the basis of such ruling should not have been disturbed. (Tober v Schenectady Sav. Bank, 54 AD2d 1049 ; Pomirchy v Levitin, 144 AD2d 655 , 73 NY2d 708 , 493 US 824 ; Phoenix Mut. Life Ins. Co. v Conway, 11 NY2d 367 ; Jamaica Sav. Bank v M. S. Investing Co., 274 NY 215 ; Motor Vehicle Mfrs. Assn. v State of New York, 75 NY2d 175 ; Tull v United States, 481 US 412 ; Mackellar v Rogers, 109 NY 468 ; Manhattan Life Ins. Co. v Hammerstein Opera Co., 184 App Div 440 ; Lynch v Metropolitan El. Ry. Co., 129 NY 274 ; Jackson v North Atl. Life Ins. Co., 163 AD2d 275 .) II. Spanno had no valid direct claim against Mercantile & General Reinsurance Co. (Turner v National Sur. Co., 176 App Div 219 ; Squibb-Mathieson Intl. Corp. v St. Paul Mercury Ins. Co., 44 Misc 2d 835 ; National

p. 250

Ins. & Guar. Corp. v Vander Veer, 66 Misc 2d 862 ; Greenman v General Reins. Corp., 237 App Div 648 , 262 NY 701 ; Stainless, Inc. v Employers’ Ins. Co., 69 AD2d 27 , 49 NY2d 924 ; Dwight v Germania Life Ins. Co., 103 NY 341 ; Skandia Am. Reins. Corp. v Schenck, 441 F Supp 715 ; Hartford Acc. & Indem. Co. v Wesolowski, 33 NY2d 169 ; State of New York v Home Indem. Co., 66 NY2d 669 ; People ex rel. Sea Ins. Co. v Graves, 274 NY 312 .) III. Spanno would not be entitled to recover consequential damages from Mercantile & General Reinsurance Co., even if it had a valid cause of action. (Samovar of Russia Jewelry Antique Corp. v Generali, Gen. Ins. Co., 102 AD2d 279 ; Pope v New York Prop. Ins. Underwriting Assn., 112 AD2d 984 , 66 NY2d 857 ; Halpin v Prudential Ins. Co., 48 NY2d 906 ; Marvex Processing & Finishing Corp. v Allendale Mut. Ins. Co., 91 Misc 2d 683 , 60 AD2d 800 .)

Stein, Garr & Rosenfeld, New York City (Ira E. Garr and Steven E. Rosenfeld of counsel), Hall, O’Brien & Sack (Andrew C. Hall of counsel, of the Florida Bar, admitted pro hac vice) and Cooper & Wolfe (Marc Cooper and Maureen E. Lefebvre of counsel, of the Florida Bar, admitted pro hac vice), for respondent.

I. The Court below properly ordered judgment to be entered for Spanno on the jury verdict which found that Spanno made no material misrepresentations to Mercantile & General Reinsurance Co. (Gupta v University of Rochester, 57 AD2d 731 ; Bauman Assocs. v H & M Intl. Transp., 171 AD2d 479 ; Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183 ; United Euram Corp. v Occidental Petroleum Corp., 123 Misc 2d 574 ; Azoulay v Cassin, 103 AD2d 836 ; Burnstine v Geist, 257 App Div 792 ; Dairy Queen v Wood, 369 US 469 ; Beacon Theatres v Westover, 359 US 500 ; Parklane Hosiery Co. v Shore, 439 US 322 ; Skinner v Total Petroleum, 859 F2d 1439 .) II. The Court below properly reinstated the jury verdict which found that Spanno was an intended third-party beneficiary of Mercantile & General’s reinsurance contracts. (China Union Lines v American Mar. Underwriters, 755 F2d 26 ; Bruckner-Mitchell, Inc. v Sun Indem. Co., 82 F2d 434 ; Greenman v General Reins. Corp., 237 App Div 648 ; Squibb-Mathieson Intl. Corp. v St. Paul Mercury Ins. Co., 44 Misc 2d 835 ; Government Empls. Ins. Co. v Kligler, 42 NY2d 863 ; Malican v Blue Shield, 52 AD2d 190 ; Hellert v Travelers Ins. Co., 52 AD2d 751 ; National Ins. & Guar. Corp. v Vander Veer, 66 Misc 2d 862 ; State of New York v Home Indem. Co., 66 NY2d 669 .) III. The jury verdict on Spanno’s tortious interference claim

p. 251

was supported by the evidence. (Cohen v Hallmark Cards, 45 NY2d 493 ; Nicastro v Park, 113 AD2d 129 ; Salazar v Fisher, 147 AD2d 470 ; United Euram Corp. v Occidental Petroleum Corp., 123 Misc 2d 574 ; Mahoney v Temporary Commn. of Investigation, 165 AD2d 233 ; Guard-Life Corp. v Parker Hardware Mfg. Corp., 50 NY2d 183 ; Sharma v Skaarup Ship Mgt. Corp., 699 F Supp 440 ; Robbins v Ogden Corp., 490 F Supp 801 .) IV. Spanno is entitled to the damages awarded by the jury. (Brown v Lockwood, 76 AD2d 721 ; Banker’s Trust Co. v Steenburn, 95 Misc 2d 967 .)

OPINION OF THE COURT

This appeal presents a question on the role of the jury, and the conclusiveness of its findings, in actions in which both legal and equitable claims are advanced by the parties.

The defendant Spanno Corporation was in the business of guaranteeing prospective purchasers of capital equipment that the equipment would have a stated residual value at a given future date. Since Spanno had to assure its customers that it would be able to make good on its guarantees, it obtained insurance for that purpose from the defendants Colonial Assurance Company and Union International Insurance Company. They, in turn, reinsured the risks with plaintiff.

Plaintiff instituted this action seeking to rescind the contracts of reinsurance with the insurers, claiming that Spanno had made material misrepresentations which had induced it to enter into the contracts. Rescission claims, of course, are equitable in nature and, thus, are to be tried by the court (Motor Vehicle Mfrs. Assn. v State of New York, 75 NY2d 175 , 182-183). Spanno, named as a defendant, asserted a legal counterclaim alleging that it was a third-party beneficiary to the reinsurance contracts with Colonial and Union, which were then in liquidation. It claimed that it had been injured because of nonpayments to its customers and its inability to obtain new customers and demanded damages for plaintiff’s breach of the reinsurance contracts and its tortious interference with the insurance contracts with Colonial and Union.

At trial Supreme Court treated plaintiff’s claim of material misrepresentation as an equitable defense and counterclaim to Spanno’s contract action and ruled that the jury’s verdict on equitable issues would be advisory (see, CPLR 4101, 4212; see also, Phoenix Mut. Life Ins. Co. v Conway, 11 NY2d 367 ). It

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asked the jury to answer six interrogatories which addressed both the legal and equitable causes of action. In response, the jury concluded that Spanno was entitled to recover on the contract and that it made no material misrepresentations warranting rescission by plaintiff. It awarded damages of $14,708,779 on the breach of contract and tortious interference claims. Supreme Court set aside the verdict on Spanno’s legal counterclaims. It treated the verdict on rescission as advisory and, contrary to the jury’s determination, held that Spanno had made material misrepresentations entitling plaintiff to rescission of the reinsurance contract. On appeal, the Appellate Division reversed, holding that the Judge erred in setting aside the jury’s verdict because there was a reasonable view of the evidence that could support it (see, Cohen v Hallmark Cards, 45 NY2d 493 ). It expressly held that the jury’s finding of misrepresentation should have been treated as dispositive, not advisory ( 184 AD2d 177 , 181).

The principal question presented is the legal effect of the jury’s misrepresentation finding on the trial court’s power to make a contrary factual finding. Defendant Spanno asserts that the jury’s determination that there had been no material misrepresentations was a necessary part of its determination on the breach of contract action and not merely an advisory verdict on plaintiff’s action for rescission. It concludes, therefore, that the jury’s misrepresentation finding operated as a "type of collateral estoppel” and precluded the Judge from adjudicating the issue anew as part of plaintiff’s action for rescission.

Spanno’s argument fails because its original premise — that a determination on misrepresentation was necessary to resolve the breach of contract claim — is erroneous.

As the case was presented, plaintiff’s action for rescission constituted an equitable defense and counterclaim to Spanno’s breach of contract claim (see, Tober v Schenectady Sav. Bank, 54 AD2d 1049 , 1050). Under the plain terms of CPLR 4101, when a legal claim is met with an equitable defense or counterclaim, "the issues of fact shall be tried by a jury * * * except that equitable defenses and equitable counterclaims shall be tried by the court” (see also, NY Const, art I, § 2). Following that direction, the jury could and did fully decide the disputed issues of fact necessary to the claim of contractual breach: the existence of a facially valid contract, breach and damages. At that point, the sole unresolved issue was

p. 253

whether the contract should be declared void from its inception because of material misrepresentation. All issues pertaining to that equitable defense and counterclaim, whether matters of fact or of law, were to be determined by the court under CPLR 4101 (see, Grant v Guidotti, 67 AD2d 736 , 737). To find material misrepresentation, the court did not need to contradict any of the factual findings the jury made in deciding the factual issues pertinent to the legal claim for breach of contract because a finding of material misrepresentation is not inconsistent with a finding that the parties entered into a contract. To the contrary, the very essence of a rescission action is to set aside a contract that is otherwise valid and binding. The factual issues in the legal and equitable claims intersected only to the extent that the jury’s finding of a facially valid contract necessitated that the court proceed to the rescission issue. That, however, is not the same as having a factual issue in common and, under CPLR 4101, the trial court was free to decide the rescission claim de nova (cf., Skinner v Total Petroleum, 859 F2d 1439 , 1444; see also, 4 Weinstein-Korn-Miller, NY Civ Prac j[ 4101.34, at 41-52; Siegel, NY Prac § 209, at 304 [2d ed]; Beacon Theatres v Westover, 359 US 500 , 516 [Stewart, J., dissenting]).

Because the jury verdict on misrepresentation was merely advisory, the trial court was not bound by it. It could disregard the advisory verdict, even if there was evidence to support it (see, McClave v Gibb, 157 NY 413 ; Ruder v Lincoln Rochester Trust Co., 18 AD2d 763 ). The Judge’s finding was the dispositive determination on that issue and, absent a contrary factual finding by the Appellate Division, is binding on this Court if there is evidence in the record to support it. The evidence here satisfies that standard and therefore the trial court’s decision granting rescission of the contract should be sustained.

In view of this conclusion, the remaining issues raised on appeal need not be addressed.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the judgment of Supreme Court reinstated.

Chief Judge Kaye and Judges Titone, Hancock, Jr., Bellacosa, Smith and Levine concur.

Order reversed, etc.

Cases cited

Pomirchy v. Levitin 144 AD2d 655 N.Y. App. Div. 1988-11-28 p. 249
Phoenix Mutual Life Insurance v. Conway 11 NY2d 367 N.Y. 1962-06-12 p. 249, p. 251
Jamaica Savings Bank v. M. S. Investing Co. 274 NY 215 N.Y. 1937-04-30 p. 249
Motor Vehicle Manufacturers Ass'n of the United States, Inc. v. State 75 NY2d 175 N.Y. 1990-01-18 at 182-183 p. 249, p. 251
Tull v. United States 481 US 412 SCOTUS 1987-04-28 p. 249
Mackellar v. Rogers 109 NY 468 N.Y. 1888-06-05 p. 249
Lynch v. Metropolitan Elevated Railway Co. 129 NY 274 N.Y. 1891-12-15 p. 249
Squibb-Mathieson International Corp. v. St. Paul Mercury Insurance 44 Misc 2d 835 N.Y. Sup. Ct. 1964-11-20 p. 249, p. 250
National Insurance & Guarantee Corp. v. Vander Veer 66 Misc 2d 862 N.Y. Sup. Ct. 1971-06-21 p. 250
Greenman v. General Reinsurance Corp. 262 NY 701 N.Y. 1933-10-27 p. 250
Stainless, Inc. v. Employers Fire Insurance 69 AD2d 27 N.Y. App. Div. 1979-07-10 p. 250
Stainless, Inc. v. Employers' Fire Insurance 49 NY2d 924 N.Y. 1980-04-22 p. 250
Dwight v. Germania Life Insurance 103 NY 341 N.Y. 1886-10-12 p. 250
Hartford Accident & Indemnity Co. v. Wesolowski 33 NY2d 169 N.Y. 1973-11-21 p. 250
State v. Home Indemnity Co. 66 NY2d 669 N.Y. 1985-10-10 p. 250
People ex rel. Sea Insurance v. Graves 274 NY 312 N.Y. 1937-05-25 p. 250
Samovar of Russia Jewelry Antique Corp. v. Generali 102 AD2d 279 N.Y. App. Div. 1984-06-21 p. 250
Pope v. New York Property Insurance Underwriting Ass'n 112 AD2d 984 N.Y. App. Div. 1985-08-12 p. 250
Pope v. New York Property Insurance Underwriting Ass'n 66 NY2d 857 N.Y. 1985-11-19 p. 250
Marvex Processing & Finishing Corp. v. Allendale Mutual Insurance 91 Misc 2d 683 N.Y. Sup. Ct. 1977-05-05 p. 250
Bauman Associates, Inc. v. H & M International Transport, Inc. 171 AD2d 479 N.Y. App. Div. 1991-03-14 p. 250
Guard-Life Corp. v. S. Parker Hardware Manufacturing Corp. 50 NY2d 183 N.Y. 1980-05-01 p. 250, p. 251
United Euram Corp. v. Occidental Petroleum Corp. 123 Misc 2d 574 N.Y. Sup. Ct. 1984-01-11 p. 250, p. 251
Azoulay v. Cassin 103 AD2d 836 N.Y. App. Div. 1984-07-30 p. 250
Dairy Queen, Inc. v. Wood 369 US 469 SCOTUS 1962-04-30 p. 250
Beacon Theatres, Inc. v. Westover 359 US 500 SCOTUS 1959-05-25 at 516 p. 250, p. 253
Parklane Hosiery Co. v. Shore 439 US 322 SCOTUS 1979-01-09 p. 250
Government Employees Insurance v. Kligler 42 NY2d 863 N.Y. 1977-06-09 p. 250
Malican v. Blue Shield of Western New York, Inc. 52 AD2d 190 N.Y. App. Div. 1976-05-14 p. 250
Cohen v. Hallmark Cards, Inc. 45 NY2d 493 N.Y. 1978-10-31 p. 251, p. 252
Nicastro v. Park 113 AD2d 129 N.Y. App. Div. 1985-11-12 p. 251
Salazar v. Fisher 147 AD2d 470 N.Y. App. Div. 1989-02-06 p. 251
Mahoney v. Temporary Commission of Investigation 165 AD2d 233 N.Y. App. Div. 1991-02-14 p. 251
Brown v. Lockwood 76 AD2d 721 N.Y. App. Div. 1980-09-22 p. 251
Banker's Trust Co. v. Steenburn 95 Misc 2d 967 N.Y. Sup. Ct. 1978-05-19 p. 251
Mercantile & General Reinsurance Co. v. Colonial Assurance Co. 184 AD2d 177 N.Y. App. Div. 1992-12-29 at 181 p. 252
McClave v. Gibb 157 NY 413 N.Y. 1898-12-16 p. 253
Ruder v. Lincoln Rochester Trust Co. 18 AD2d 763 N.Y. App. Div. 1962-12-06 p. 253