SDNY Dismisses Challenge to First-Party Property Policy’s Anti-Public Adjuster Endorsement

In a recent decision, Barbato v. Interstate Fire & Casualty Co., the U.S. District Court for the Southern District of New York dismissed, with prejudice, a suit brought by a public adjusting company challenging the insurers’ use of a policy endorsement restricting the use of public adjusters.

The plaintiff, North Jersey Public Adjusters Inc. (NJPA), alleged that several insurers issued a property policy containing an endorsement that the insured would not “hire, engage, retain, contract with, or otherwise utilize the services of a public adjuster.” After a fire loss occurred at the insured property, the insured retained NJPA to assist with the claim. According to the complaint, the insurers invoked the endorsement, demanded that the insured terminate its relationship with NJPA, and the insured allegedly complied.

NJPA asserted multiple causes of action, including tortious interference with contractual relations, tortious interference with prospective economic advantage, restraint of trade in violation of New York General Business Law section 340, as well as putative class claims for tortious interference with prospective economic advantage and restraint of trade. NJPA also asserted a claim for prima facie tort, along with individual and class claims for declaratory relief.

The insurers moved to dismiss the amended complaint in its entirety for failure to state a claim, which the court granted. The court explained that the amended pleading largely repeated deficiencies identified in a prior dismissal order and failed to plausibly state viable claims under New York law. 

With respect to the tortious interference with contractual relations claim, the court found that NJPA failed to allege conduct amounting to “wrongful means,” such as physical violence, fraud, or economic pressure used to interfere with the contract. Rather, the court found the insurers were exercising rights available under the endorsement, which did not amount to tortious interference.

The court also rejected NJPA’s claim for tortious interference with prospective economic advantage. In doing so, the court found that NJPA failed to cure the deficiencies identified in the original complaint. Specifically, the court explained that NJPA failed to plausibly allege that the endorsement existed solely to injure NJPA or that the insurers employed dishonest, unfair, or improper means in enforcing the endorsement. Moreover, the court found that NJPA failed to identify any specific prospective business relationships, instead relying generally on relationships with potential customers, which was insufficient under New York law.

The court also dismissed the claim under section 340. NJPA had argued that the relevant product market was the furnishing of public adjusting services to insureds by state-licensed public adjusters. However, the court found NJPA failed to plausibly allege a relevant market because the amended complaint did not contain allegations concerning substitute products or why New York constituted the appropriate geographic market. The court therefore dismissed that claim as well. The court also dismissed NJPA’s prima facie tort claim, finding the complaint failed to plausibly allege “disinterested malevolence,” as required to state a claim under New York law. In reaching that conclusion, the court again pointed to the insurers’ exercise of their contractual rights under the policy endorsement.

Finally, the court rejected NJPA’s request for declaratory relief, finding that the amended complaint did not contain independent factual allegations supporting the declaratory judgment claims, but instead sought relief based on the substantive tort and restraint of trade claims. Similarly, the court dismissed the putative class claims, as NJPA failed to adequately plead the underlying claims for restraint of trade and tortious interference with prospective economic advantage.