| Waterscape Resort LLC v McGovern |
| 2013 NY Slip Op 04709 [107 AD3d 571] |
| June 20, 2013 |
| Appellate Division, First Department |
| Waterscape Resort LLC, Appellant, v EricMcGovern et al., Respondents. |
—[*1] John E, Osborn P.C., New York (Daniel H. Crow of counsel), forrespondents.
Order, Supreme Court, New York County (Richard F. Braun, J.), entered April 26,2012, which granted defendants' motion for summary judgment dismissing thecomplaint, unanimously affirmed, without costs.
Plaintiff project owner alleges that defendants fraudulently misrepresented that theirconstruction management company (PMG) had obtained full subguard insurancecoverage to protect plaintiff against default by the largest subcontractor on the project,which was responsible for constructing the project's superstructure. According toplaintiff, it reasonably relied on defendants' alleged misrepresentation and incurreddamages when the subcontractor later defaulted and there was no subguard insurance forthis default.
There is no dispute that the named insured on the subguard policy is PMG, and thatplaintiff is not an insured under the policy. Accordingly, based on the policy's plainlanguage (see Citizens Ins. Co.of Am. v Illinois Union Ins. Co., 105 AD3d 679 [1st Dept 2013]), plaintiffcannot claim damages under the policy, as it is not an insured.
Although plaintiff maintains that it incurred substantial damages due to PMG'sfailure to procure insurance on behalf of the defaulting subcontractor, plaintiff's fraudclaim fails, because "merely alleging that the breach of a contract duty arose from a lackof due care will not transform a simple breach of contract into a tort" (Sommer vFederal Signal Corp., 79 NY2d 540, 551 [1992]). Plaintiff's "subjective claims ofreliance on defendants' expertise" do not give rise to a "confidential relationship" whose"requisite high degree of dominance and reliance" existed prior to the alleged fraud(Societe Nationale D'Exploitation Industrielle Des Tabacs Et Allumettes v SalomonBros. Intl., 251 AD2d 137, 138 [1st Dept 1998], lv denied 95 NY2d 762[2000]). Defendants had no advisory capacity as to plaintiff, and a special relationship oftrust and confidence does not arise merely from an arm's-length business transaction (EBC I, Inc. v Goldman, Sachs &Co., 5 NY3d 11, 19 [2005]).
In any event, to maintain a claim for fraud, plaintiff must show that its reliance on analleged misrepresentation was justifiable or reasonable (see Stuart Silver Assoc. vBaco Dev. Corp., 245 AD2d 96, 98-99 [1st Dept 1997]). Here, plaintiff neitherinquired of the subcontractor nor of the subguard provider if the subcontractor wascovered, despite the fact that the agreement between plaintiff and PMG specificallycontemplated the possibility of a trade [*2]contractor notbeing qualified for subguard coverage.
Moreover, "[a]n actionable fraud claim requires proof that defendant made amisrepresentation of fact which was false and known to be false" (New York City Tr.Auth. v Morris J. Eisen, P.C., 276 AD2d 78, 85 [1st Dept 2000]). According toplaintiff, defendants represented to it that PMG had obtained subguard insurance againstdefault by the subject subcontractor hired by PMG for the project. However, defendants'affidavit states that the trade contract with the subcontractor had not yet been finalized orexecuted at the time the requisition for subguard premiums was submitted to plaintiff,and that after the requisition was paid, PMG determined that plaintiff should not becharged subguard insurance premiums for that subcontractor because the subcontractorturned out to be unqualified for such coverage. Plaintiff fails to address thesecontentions.
A defendant's knowledge of an allegedly false representation is another element of afraud claim that must be established (see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d553, 559 [2009]), and plaintiff's affidavit stating that "it is inconceivable that[defendants] were unaware that PMG had not obtained Subguard Insurance for [thesubcontractor's] work" was insufficient to establish scienter in this case.Concur—Mazzarelli, J.P., Renwick, Manzanet-Daniels, Gische and Clark, JJ.