George Cohen Agency, Inc. v. Donald S. Perlman Agency, Inc.

The George Cohen Agency, Inc. (Cohen) (plaintiff) was an insurance agency. Cohen sold a specified portfolio of insurance policies issued by the Continental Casualty Company (Continental) to the Donald S. Perlman Agency, Inc. and Donald S. Perlman (defendants) (collectively, Perlman). However, Perlman did not pay the notes it provided to Cohen for the policies when the notes became due, arguing that the Continental policies were valueless because they violated New York’s insurance regulations. Cohen then sued Perlman seeking payment of approximately $50,000 due on the notes. In its answer, Perlman asserted a counterclaim against Cohen, alleging that Cohen, either on his own or in cahoots with Continental and I. Edward Pagoda (an insurance broker) tried to defraud Perlman by knowingly inducing Perlman into buying the valueless Continental policies. Perlman’s counterclaim sought, among other things, $545,000 in compensatory damages and $2.5 million in punitive damages. Perlman also filed a third-party claim pursuant to Civil Practice Law and Rules (CPLR) § 1007 against Continental and Pagoda in which Perlman asserted the same damages and sought indemnity and contribution. Continental moved to dismiss Perlman’s third-party complaint on the grounds that (1) § 1007 does not permit claims for damages in excess of the amount sought against the third-party plaintiff in the main suit, (2) Perlman could not obtain relief against it under § 1007 because Perlman alleged facts in response to Cohen’s claims that would negate Perlman’s liability to Cohen (and thus Continental’s liability to Perlman), and (3) bringing Continental into the case would prevent Continental from removing any claim against it to federal court. The supreme court denied Continental’s motion. The appellate division affirmed. Continental appealed.