Eunhasu Corporation v. Norguard Insurance Company

Background

Eunhasu owned property at 146-148 West 28th Street that Norguard insured under a policy effective from February 6, 2017, through February 6, 2018. Construction at an adjacent building allegedly damaged Eunhasu’s property on September 12, 2017. Eunhasu claimed the damage was covered by the policy and sought nearly $6.9 million for property damage, more than $1.3 million for lost business income and other expenses, and interest.

Eunhasu filed this diversity action alleging breach of contract. It later amended its complaint to add a claim for breach of the implied covenant of good faith and fair dealing. Norguard’s amended answer asserted ten affirmative defenses. Eunhasu moved under Rule 12(f) of the Federal Rules of Civil Procedure to strike the first, second, third, fourth, fifth, seventh, and eighth defenses. It also sought sanctions under Rule 11 based on Norguard’s failure to withdraw the challenged defenses after Eunhasu’s April 24 letter.

Motion to Strike the Affirmative Defenses

Rule 12(f) permits a court to strike an insufficient, redundant, immaterial, impertinent, or scandalous defense. The court explained that such motions are generally disfavored. Under the test applied in the circuit, the defense should be stricken only when no factual or legal issue could allow it to succeed and the plaintiff would be prejudiced by leaving it in the pleadings.

The first defense stated that Eunhasu failed to state a claim because Norguard had not denied the insurance claim, making the lawsuit premature. The court held that a failure-to-state-a-claim defense may be included in an answer and can function like a general denial. It therefore did not need to decide at that stage whether Eunhasu had actually stated a claim. The court also found no prejudice because the defense was unlikely to impose any burden beyond Eunhasu’s ordinary burden of proving its case. The motion to strike the first defense was denied.

The second, third, fourth, fifth, and seventh defenses asserted that the insurance policy could limit Norguard’s liability or the amount of recoverable damages. The court rejected Eunhasu’s argument that affirmative defenses must be based only on specific factual allegations. Defenses may be factual, legal, or equitable, and these defenses identified relevant contractual limitations clearly enough to give fair notice. Discovery could reveal facts that made the limitations applicable.

The court also rejected Eunhasu’s argument that Norguard’s counsel had conceded the defenses by stating at a pretrial conference that there was no applicable exclusion and that the loss would be covered. The court explained that even if Eunhasu could recover, recovery would still be limited to losses covered by the policy. It found no prejudice from allowing the defenses to remain. The motion to strike the second, third, fourth, fifth, and seventh defenses was denied.

The eighth defense concerned the date from which interest should be calculated under New York Civil Practice Law and Rules § 5001. Norguard argued that interest, if awarded, should run from the date of a proven contractual breach rather than from the date of the property loss. The court found that this position was supported by legal precedent and did not improperly expand discovery. The motion to strike the eighth defense was denied.

Motion for Rule 11 Sanctions

Rule 11 generally requires a party seeking sanctions to serve a separate sanctions motion on the opposing party and allow 21 days for withdrawal or correction before filing the motion with the court. The court found that Eunhasu did not comply with these requirements. Eunhasu combined its sanctions request with its motion to strike, did not serve the sanctions motion itself on Norguard, and relied instead on its earlier warning letter.

The court held that the earlier letter did not satisfy Rule 11’s safe-harbor requirement. It therefore denied the sanctions request for failure to follow the required procedure. The court also addressed the merits and ruled that sanctions would fail even if the procedure had been proper. The challenged defenses presented non-frivolous issues that could affect the litigation, and the court found no willful or negligent conduct by Norguard.

Disposition

Judge Edgardo Ramos denied Eunhasu’s motion to strike the first, second, third, fourth, fifth, seventh, and eighth affirmative defenses and impose sanctions against Norguard. The Clerk was directed to terminate the motion.