Article

Note: Harvey Gerstman Associates, Inc. (Employer/Applicant) entered into a series of insurance contracts with Liberty Mutual Insurance (Insurer/Beneficiary). In connection with a workman's compensation policy, Employer/Applicant provided Insurer/Beneficiary with a standby LC. According to a Guarantee Agreement entered into by the parties, Insurer/Beneficiary was entitled to draw on the LC in the event that Employer/Applicant failed to pay premiums. After Insurer/Beneficiary conducted an audit and amended Employer/Applicant's policies, it alleged that Employer/Applicant owed additional amounts. Employer/Applicant contested the additional premiums and refused to pay. Insurer/Beneficiary then drew on the LC.

Insurer/Beneficiary sued Employer/Applicant for amounts due, and Employer/Applicant countersued for fraud and negligent misrepresentation and moved to add a claim for unjust enrichment arising from Insurer/Beneficiary's alleged wrongful drawing on the LC. The United States District Court for the Eastern District of New York, Boyle, Mag. J., recommended that the motion to amend to state a claim of unjust enrichment be dismissed.

Employer alleged that "though the letter gave [Insurer/Beneficiary] the right to draw down on the line of credit in the event that a balance remained unpaid, [Insurer/Beneficiary] had no right to do so in relation to the instant matter, as the amount allegedly owed is in dispute." The Magistrate Judge disagreed, concluding that "an unjust enrichment claim can only exist 'in the absence of any agreement,' any claim by [Employer/Applicant] for unjust enrichment involving the Guarantee Agreement would be futile."

The United States District Court for the Easter District of New York, Feuerstein, J., subsequently adopted Magistrate Judge Boyle's recommendation in its entirety and granted Insurer/Beneficiary's motion to dismiss the counterclaims against it (See Liberty Mut. Ins. Co. v. Harvey Gerstman Assocs., 2012 U.S. Dist. LEXIS 152917 (E.D.N.Y. 2012)).

Text: Guarantee Agreement:

"5. Reimbursement and Payment: Disputed Amounts. (a) Reimbursement by Policyholder of Obligations paid or advanced by Liberty Mutual, as well as the payment of other Obligations of Policyholder to Liberty Mutual shall be made by the due date of any written request (hereafter, 'invoice') by Liberty Mutual for reimbursement or payment of said amounts. For all relevant purposes, the 'due date' for all invoices shall be the later of the 'due date' indicated on any invoice, or twenty-five days following the date an invoice is mailed to the Policyholder. Should any Obligation not be reimbursed or paid by the applicable due date then, in addition to all other rights and remedies available to Liberty Mutual hereunder, under the Insurance Policies, pursuant to the most recent Rapid Resolve Agreement between the parties (which is incorporated herein by reference), or at law or in equity, Liberty Mutual shall be entitled to receive a late payment charge computed at a rate of 1 and 1/2 percent per month on the overdue amount, for the actual days elapsed from the date due until the overdue amount is paid. Nothing herein shall modify or abrogate any rights or obligations with respect to billing disputes as set forth in the most recent Rapid Resolve Agreement executed between Policyholder and Liberty Mutual. (b) Should a dispute arise as to the amount of an invoice then said dispute shall in all respects be governed by the most recent Rapid Resolve Agreement executed between Policyholder and Liberty Mutual.

9. Claims Upon the Security. Liberty Mutual agrees to submit claims upon any Surety Bond, or draw upon any Letter of Credit, only if Policyholder is in 'Default.' Default shall include the following:

(a) Policyholder fails to pay or reimburse Liberty Mutual any or all Obligations in a timely fashion. In the event of a default under ¶9(a) only, Liberty Mutual's claim upon any Surety Bond, or draw upon any Letter of credit, shall not exceed the amount of the overdue Obligations. In the event that the overdue Obligations are less than the total amount of any Letters of Credit or Surety Bonds, the decision to satisfy that default against the Surety Bond, if any, and/or Letters of Credit, if any, shall be at the sole discretion of Liberty Mutual, and without prejudice to satisfying any current remaining default or future default against any Surety Bonds or Letters of Credit."

[JEB/vg/rs]

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