Great Lakes Reinsurance (UK) SE v. Herzig

673 F.Supp.3d 432

GREAT LAKES REINSURANCE (UK) SE, Plaintiff, v. Peter HERZIG, Defendant.

16 Civ. 9848 (PGG)

United States District Court, S.D. New York

Signed May 18, 2023

Steven Eric Goldman, The Goldman Maritime Law Group, Fort Lauderdale, FL, for Plaintiff.

Paul N. Silverstein, Hunton Andrews Kurth LLP, New York, NY, Keara A. Bergin, Dewey, Pegno & Kramarsky, LLP, New York, NY, Joseph Anthony Patella, Womble Bond Dickinson (US) LLP, New York, NY, for Defendant.

MEMORANDUM OPINION & ORDER

PAUL G. GARDEPHE, United States District Judge:

This action concerns a marine insurance dispute between Plaintiff Great Lakes Reinsurance ("Great Lakes") and Defendant Peter Herzig, the owner of a yacht insured by Great Lakes. Plaintiff brings this action under this Court's admiralty jurisdiction pursuant to Fed. R. Civ. P. 9(h). (Second Amended Complaint ("SAC") (Dkt. No. 48) ¶ 3) The dispute involves Defendant's October 2016 claim for coverage under a July 2016 policy issued by Plaintiff (the "Policy"). (Id. ¶¶ 13-14, 16-17)

Plaintiff Great Lakes has moved for summary judgment on its Second, Third, and Fourth Causes of Action. (Dkt. No. 91)¹ The Second Cause of Action seeks a declaration that a December 29, 2016 release Herzig signed - in exchange for $175,000 (the "Release") - is valid and binding. (SAC (Dkt. No. 48) ¶¶ 29-34) The Third Cause of Action seeks a declaration that the Policy was void ab initio because of material misrepresentations in Herzig's insurance application. (Id. ¶¶ 35-45) The Fourth Cause of Action seeks a declaration that - due to material misrepresentations in Herzig's insurance application - Great Lakes is entitled to restitution of the $175,000 it paid to Herzig pursuant to the Release. (Id. ¶¶ 46-62)

For the reasons stated below, Plaintiff's motion for summary judgment will be granted in part and denied in part, and Plaintiff's motion to strike will be granted.

BACKGROUND

I. FACTS²

Plaintiff Great Lakes is a marine insurance company based in the United Kingdom. (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 15; Usher Decl. (Dkt. No. 94) ¶ 7) Defendant Peter Herzig resides in Manhattan. (Herzig Dep. Part 1 (Dkt. No. 99) at 8)³ In 1998, Herzig purchased the "Crescendo," a 62-foot yacht, for approximately $1.4 million. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 77)

A. The 2015 Damage to the Crescendo and the Subsequent Settlement Between Herzig and AIG

In October 2015, another vessel struck and caused damage to the Crescendo. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 78; Pltf. R. 56.1 Stmt., Ex. D (Dkt. No. 109-4) at 4) At that time, the Crescendo was insured by AIG pursuant to a policy that provided $600,000 in coverage. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 79) Herzig hired Sunseeker Yacht Services LLC ("SYS") to repair the Crescendo and submitted a claim to AIG for coverage of the necessary repairs. (Id. ¶¶ 79-80)

Herzig did not agree with AIG's evaluation of the damage suffered by the Crescendo, and hired his own surveyor, Roy Shorter. (Id. ¶ 81) Defendant also retained a lawyer, Adam Heffner. (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 59) In March 2016, Shorter inspected the Crescendo along with an AIG surveyor and SYS's owner, Mark Hatchard. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 81) After the inspection, Shorter concluded that the Crescendo had suffered damage on both sides and recommended that more samples be obtained from the vessel's core. On March 28, 2016, Hatchard issued an estimate concluding that it would cost $257,277 to repair the damage, with the possibility of an increase in cost if more damage was discovered. (Id. ¶¶ 82-83) In a May 3, 2016 letter to Herzig, Hatchard states that his March 28, 2016 estimate was based on "the minimum amount of hours and materials required" and that, "[b]ased on experience, [there was] every reason to expect that the total cost of repairs [would] exceed the $270,000 estimate plus applicable taxes, insurance charges, and fees." (Id. ¶ 84)⁴

Herzig later settled his claim with AIG for $600,000, the full face value of the policy. (Id. ¶ 85) The full cost of repairs to the Crescendo, however, turned out to be less than Hatchard's $270,000 estimate. (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 28)

B. Herzig's Purchase of a Great Lakes Policy

In May 2016, after settling with AIG, Herzig retained Crystal & Company, a "retail insurance broker," to assist him in obtaining new coverage for the Crescendo. Herzig's primary contact at Crystal was John Poplawsky. (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶¶ 10-13)

Crystal, in turn, contacted Quaker Special Risks Ltd. for help in securing a quote. Quaker is a "wholesale" or "surplus lines" broker, meaning that it assists retail brokers but does not deal directly with insureds. (Id. ¶ 14; Def. R. 56.1 (Dkt. No. 108) Stmt. ¶ 86) Moreover, according to Daniel Walsh, a director at Quaker, Quaker is not authorized to act on behalf of retail brokers such as Crystal. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 88; Def. R. 56.1 Stmt., Ex. 24 (Walsh Dep.) (Dkt. No. 108-25) at 12)

In a May 18, 2016 email to Christopher Reid at Quaker, Crystal's Poplawsky asked: "Do you have a market for a $600,000, 62ft yacht that had a loss last October and is being non-renewed by AIG? The boat is currently undergoing $270,000 of repairs and the plan is to have the boat in the water by 6/20 once certified." Reid replied that he did "have markets for this" and would send Crystal an application to complete. (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶¶ 19-20; Pltf. R. 56.1 Stmt., Ex. C (Dkt. No. 109-3) at 2)

Later that day, Reid sent an application to Poplawsky, stating that "details of loss, etc., will help get terms." (Pltf. R. 56.1 Stmt., Ex. E (Dkt. No. 105) at 2) The application Reid provided was from Concept Special Risks Ltd. ("Concept"), a U.K.-based company that acts as an underwriter and claims agent for Great Lakes. (Id. ¶ 16; Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 89) On May 19, 2016, Poplawsky partially completed the application and returned it to Reid. (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 23; Pltf. R. 56.1 Stmt., Ex. C (Dkt. No. 109-3) at 4) On May 20, 2016, Reid forwarded the application to Concept, and wrote, "Please let me know if you can offer terms on the attached. Details of loss below. Please let me know if you require more info to quote." (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 24)

The application Poplawsky submitted sought $600,000 in coverage. The application indicates that the Crescendo had been constructed in 1998 and was purchased by Herzig at that time for $600,000.⁵ (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 90; Pltf. R. 56.1 Stmt., Ex. D (Dkt. No. 109-4) at 2) In a May 23, 2016 email to Reid, Neil Burton - an underwriter at Concept - requests more information concerning the prior loss: "Could you obtain a bit more info on this loss please? Exactly what happened? Was this vessel made a constructive total loss? If AIG paid out $600,000 for damages, why is the repair only costing $270,000? Did the applicant buy the hull back from AIG? If so, for what amount?" (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 25)

Later that day, Poplawsky requests additional information from Herzig concerning the prior loss:

Can you provide a few words on exactly what happened to cause the loss and provide further information on the specific damages to the vessel? You mentioned that there was $270,000 of repairs to the vessel, $100,000 of which is for the paint. Is the $270,000 what remains or is that the repair cost in full? Was the vessel made a total loss and is that why AIG paid out the full $600,000? If not, please advise why AIG paid the $600,000 if the repairs are $270,000 in full.

(Id. ¶ 26) Herzig responded to Poplawsky's questions by telephone. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 27)

In a May 24, 2016 email to Concept, Reid provides the following additional information concerning the settlement with AIG and the costs of repair:

The AIG adjuster handled the claim very poorly from the beginning which led the client to hire his own surveyor who confirmed additional damage that was originally undocumented. As such, the client hired a lawyer in FL as this was a bad faith claim handling. Client advised that once the head of global watercraft claims at AIG was involved, and reviewed the claims handling, looked to settle with the client. He advised he likely could have received more thru a suit (loss of resale, etc.) but "settled" with AIG for the policy max of $600k.

The $270k is the rough final number of total costs the client will have paid to repair the boat. $100k for painting and $15,000 for a licensed surveyor to monitor the repairs (client has two reports already) are two components of the $270 total repair cost.

It should be noted that last spring the client paid $250k for 1,000-hour engine service which was also completed by Sunseeker.

(Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 29; Pltf. R. 56.1 Stmt., Ex. H. (Dkt. No. 109-8) at 2)

While Herzig did not pay $250,000 for a 1,000-hour engine service in 2015 (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 31),⁶ he did spend more than $250,000 on "repairs, service and upgrades to Crescendo, including but not limited to the vessel's engines," in 2015. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 36)

On May 25, 2016, Concept supplied Crystal with a quote for a $600,000 policy (Pltf. R. 56.1 Stmt. (Dkt. No. 109) ¶ 33), and on May 27, 2016, Concept issued a "temporary binder" in which it agreed to insure the Crescendo for $600,000 on the condition that Herzig obtain a "condition and valuation survey" and a "Letter of Survey Recommendations Compliance," absent which the binder would become null and void. (Def. R. 56.1 Stmt. (Dkt. No. 108) ¶ 92)

Herzig subsequently retained marine surveyor R.T. Scanlan to conduct a condition and valuation survey (the "Scanlan Survey"). (Id. ¶ 93)

Meanwhile, Concept prepared the Policy, which provides coverage of $600,000 for the Crescendo. The Policy - which lists Great Lakes as the "Insurance Provider" - is dated July 8, 2016. (Pltf. R. 56.1 Stmt. ...