author: Levine, J. Titone, J.

text:
    [662 NE2d 752, 639 NYS2d 272]
    In the Matter of Abraham D. Beame, Individually and as Mayor of the City of New York, et al., Appellants, v Dennis DeLeon, as Commissioner of Human Rights of the City of New York, et al., Respondents.
    Argued October 17, 1995;
    decided December 21, 1995

      POINTS OF COUNSEL

      Paul A. Crotty, Corporation Counsel of New York City (Janet L. Zaleon, Barry P. Schwartz, David L. Lock and Patricia B. Miller of counsel), for appellants.
    I. The retroactive appointments and promotions in this case, which were given as remedies for "continuing” discrimination, are just as speculative and violative of Civil Service Law § 61 (1) as the retroactive relief that this Court had correctly prohibited in prior cases. (Matter of Andriola v Ortiz, 82 NY2d 320; City of Schenectady v State Div. of Human Rights, 37 NY2d 421; Matter of Berger v Walsh, 291 NY 220; Matter of Cassidy v Municipal Civ. Serv. Commn., 37 NY2d 526; City of New York v Feinberg, 67 AD2d 653, 48 NY2d 1017; Matter of County of Westchester v New York State Div. of Human Rights, 199 AD2d 390; Matter of New York City Tr. Auth. v State Div. of Human Rights, 78 NY2d 207; Acha v Beame, 531 F2d 648; Patrowich v Chemical Bank, 98 AD2d 318, 62 NY2d 801, 63 NY2d 541; Brooklyn Union Gas Co. v New York State Human Rights Appeal Bd., 41 NY2d 84.) II. Even if retroactive relief is not barred by Matter of Andriola v Ortiz and City of Schenectady v State Div. of Human Rights, the Court below wrongly upheld the Commission’s awards of retroactive appointments as remedies for hiring discrimination that occurred before the Human Rights Law prohibited sex discrimination. (Matter of Board of Educ. v New York State Div. of Human Rights, 56 NY2d 257; Matter of Trans World Airlines v State Human Rights Appeal Bd., 113 AD2d 889; Matter of New York State Dept. of Mental Hygiene v State Div. of Human Rights, 66 NY2d 752; Matter of Westinghouse Elec. Corp. v State Div. of Human Rights, 49 NY2d 234; People v New York City Tr. Auth., 59 NY2d 343.) III. The Court below also erred in upholding the Commission’s orders adjusting pension eligibility and benefits, because the police pension fund has not been joined as a party to the proceedings. (Royal Zenith Corp. v Continental Ins. Co., 63 NY2d 975; Caruso v New York City Police Dept. Pension Funds, 72 NY2d 568; New York Pub. Interest Research Group v City of New York, 89 Misc 2d 262, 63 AD2d 926, 48 NY2d 917; Acha v Beame, 570 F2d 57; Matter of Endreson v New York City Employees’ Retirement Sys., 83 NY2d 888.)

      Robert H. Hammel, New York City, and Mark Wilson for Dennis DeLeon, respondent.
    I. The award of retroactive seniority was an appropriate remedy for complainants’ injuries. (Acha v Beame, 570 F2d 57; Berry v Board of Supervisors, 715 F2d 971; McKenzie v Sawyer, 684 F2d 62.) II. Civil Service Law § 61 (1) does not deprive complainants of a remedy for gender discrimination by the police department. (Matter of Andriola v Ortiz, 82 NY2d 320; City of Schenectady v State Div. of Human Rights, 37 NY2d 421; Franks v Bowman Transp. Co., 424 US 747; Matter of State Div. of Human Rights [Cottongim] v County of Onondaga Sheriff’s Dept., 71 NY2d 623; Matter of Berger v Walsh, 291 NY 220.) III. To remedy a present wrong, revised dates of appointment that antedate the statutory prohibition of gender discrimination were properly awarded. (Matter of Board of Educ. v New York State Div. of Human Rights, 56 NY2d 257.) IV. The police pension fund is not a necessary party to this proceeding. (Matter of Castaways Motel v Schuyler, 24 NY2d 120.)

      Gordon & Gordon, P. C, New York City (Kenneth E. Gordon and Teri L. Shulman of counsel), for Anne Powers and others, respondents.
    I. The Commission did not abuse its discretion in awarding retroactive seniority for purposes of appointment and promotion. (Matter of State Div. of Human Rights [Cottongim] v County of Onondaga Sheriff’s Dept., 71 NY2d 623; Matter of New York City Tr. Auth. v State Div. of Human Rights, 78 NY2d 207; Zipes v Trans World Airlines, 455 US 385; Matter of Board of Educ. v New York State Div. of Human Rights, 56 NY2d 257; Franks v Bowman Transp. Co., 424 US 747.) II. The Commission was authorized to award retroactive seniority predating December 1965. III. The "pension” award was proper.
   OPINION OF THE COURT

Levine, J.

Petitioners, the Mayor, Police Commissioner and Police Department of the City of New York (hereinafter NYPD), appeal from an order of the Appellate Division confirming the determinations of the New York City Human Rights Commission granting retroactive relief to various present or past female police officers against the NYPD for what the Commission had found was a pattern of discrimination against female officers. Between 1976 and 1981, 124 women then currently or formerly employed as police officers by the NYPD filed complaints with the Commission. Pursuant to stipulation, the proceedings on those complaints were bifurcated. Stage I of the proceedings was to be devoted to the submission of proof on the allegations of a pattern of discrimination and on whether any discriminatory acts occurred within the one year period of limitations (see, Administrative Code of City of NY § 8-109 [e]). If Stage I resulted in a finding of gender-based discrimination within the applicable time limitation period, Stage II would concern the timeliness of the individual complainants’ claims and the remedies to be awarded them for their injuries.

At the conclusion of Stage I, the Administrative Law Judge (ALJ) found that, at least until 1977, the NYPD had practiced a pattern of discrimination against women in the terms, conditions and privileges of employment. The ALJ identified a wide variety of discriminatory practices, including: restrictive hiring practices by setting quotas on the number of female officers appointed; delaying appointment of women who were qualified by successful examination performance; lay-off and reinstatement practices during the 1975 New York City fiscal crisis having a disproportionate impact on female officers; and assigning female officers to restricted duties and to a limited number of precincts.

The ALJ also found gender-based discrimination in the NYPD practice of frequent involuntary assignments of female officers to "matron duty” (i.e., the searching and detention of female prisoners), whereas male officers were only assigned to comparable duties regarding male prisoners on a voluntary basis. Those excessive assignments to matron duty were found to have had an adverse impact on the career advancement of female officers, limiting their experience in regular and more challenging police duties, which in turn diminished their promotional opportunities.

The ALJ rejected the NYPD’s claim that any differentiation in the employment conditions between male and female officers within the period of limitations was nothing more than the present effects of earlier discriminatory practices. The ALJ determined that the more recent discriminatory practices were part of a continuing, systematic pattern of discrimination. Also found unpersuasive by the ALJ was the NYPD’s defense that the lay-offs and reinstatements during the 1975 fiscal crisis disproportionately affecting female officers were attributable to a bona fide seniority system. He found that the seniority system was not bona fide, but was used to disadvantage female officers. The ALJ therefore held that an individual complainant’s claim would be deemed timely if she could prove during Stage II the occurrence of a particular wrong within the limitations period.

The Commission ultimately adopted the ALJ findings and ordered the commencement of Stage II. Petitioners then brought a CPLR article 78 proceeding to annul the Commission’s determination. Supreme Court dismissed their petition. The Appellate Division affirmed (199 AD2d 201) and this Court denied petitioners’ application for leave to appeal (84 NY2d 805).

When the Stage II proceedings commenced, 100 out of 124 complainants moved for summary judgment on the issue of liability, contending that they had established proof of timely claims as a matter of law and that they were entitled to retroactive seniority dates in order to make them whole. The ALJ found that, in the case of 45 of the complainants, there was no triable issue of fact as to whether they had been subjected to discriminatory treatment within the period of one year before the filing of their respective complaints, namely, involuntary assignments to matron duties and segregated assignments to precincts. The ALJ also found that retroactive seniority adjustments were necessary to remedy the effect of the continuing pattern of past discrimination. She, therefore, directed the NYPD to revise the dates of appointment of those complainants, based upon the median appointment dates of male officers who passed patrolmen examinations on the same date the complainants passed (usually identical) patrolwomen tests. The Commission adopted the ALJ’s recommended decision and order. Petitioners then brought one of the CPLR article 78 proceedings which are the subject of this appeal. Supreme Court granted the petition as to four complainants, upon the concession that they were not entitled to administrative summary judgment, and dismissed the petition regarding the remaining 41 complainants.

Meanwhile, the ALJ held hearings on the individual complaints in which summary judgment was not granted. Hearings concerning respondents Helene Rinaldi and Regina McKay were among the earliest concluded. The ALJ found that as to Rinaldi and McKay, discriminatory assignments to matron duty were made within the limitations period. Revised appointment dates granting them additional seniority were directed for both Rinaldi and McKay. In Rinaldi’s case, the ALJ found that there had been discriminatory impediments to this officer’s outstanding career accomplishments (she was a Lieutenant and Commander of a detective squad at the time of the hearing) and ruled that, for her to be made "whole”, retroactive promotion dates were necessary. Consequently, the dates of her past promotions were advanced. In addition, the ALJ directed her promotion to the rank of Captain, although her score on the examination she took for that position had not yet been reported. The ALJ also awarded Rinaldi $35,000 in damages for mental anguish.

In McKay’s case, the ALJ directed that her appointment date as police officer be revised retroactively. The ALJ, however, rejected McKay’s request for retroactive promotion on factual grounds, concluding that her actual performance as a police officer did not warrant the inference that, except for the NYPD’s discriminatory practices, she would have sought and achieved higher rank. The ALJ awarded McKay $3,500 in damages for mental anguish she suffered during involuntary assignments to matron duty.

The Commission adopted the ALJ’s recommended decision and order in the Rinaldi and McKay proceedings. Supreme Court dismissed the CPLR article 78 proceedings petitioners brought to challenge the Rinaldi and McKay determinations. The Appellate Division affirmed Supreme Court’s judgments in these proceedings and that of the 41 recipients of summary judgment (209 AD2d 252).

I

Petitioners’ primary argument for reversal in the appeals before us is that the retroactive appointments for seniority purposes of all of the complainants in these cases, and the retroactive promotions of Rinaldi, violate the discretionary appointive authority of the Police Commissioner under the "one-in-three rule” embodied in Civil Service Law § 61 and, more particularly, conflict with our holdings applying that rule in Matter of Andriola v Ortiz (82 NY2d 320) and City of Schenectady v State Div. of Human Rights (37 NY2d 421).

We disagree. In Andriola, New York City firefighters successfully challenged the grading of a promotional examination which had resulted in their exclusion from the eligible list for promotion. We held in Andriola that the policy of governmental appointive discretion embodied in the one-in-three rule of Civil Service Law § 61 prevented, the challengers from acquiring a vested right to promotion by having passed a qualifying civil service examination, and barred Supreme Court from impinging on executive appointive discretion by merely finding that had the appointive or promotional process operated properly, the successful challengers would have achieved earlier promotion. We, therefore, concluded in Andriola that there was no basis for Supreme Court to order retroactive promotions on the theory that only by granting that relief could the successful parties be made "whole”.

In the instant case, while complainants may not have had a vested right to early appointment to the police force after passing policewomen examinations, they did have a powerful statutory right not to be discriminated against on the basis of gender in their conditions of employment (Administrative Code § 8-107 [1] [a]; see also, Executive Law § 291 [1]; § 296 [1] [a]). The governmental policy against discrimination enjoys the highest statutory priority, based upon legislative findings that discrimination "threaten[s] the rights and proper privileges of [the City’s] inhabitants and menace[s] the institutions and foundation of a free democratic state” (Administrative Code § 8-101; see also, Executive Law § 290 [3]).

The New York City Human Rights Commission (like its State counterpart, the State Division of Human Rights) is given broad remedial powers to take action against discrimination. Included within those statutory prerogatives, the Commission may order the "hiring, reinstatement or upgrading of employees” and the "award of back pay” (Administrative Code § 8-120 [a] [1], [2]; see also, Executive Law § 297 [4] [c]). Thus, the retroactive seniority ordered here is unquestionably a proper remedy for past discrimination in employment under the governing legislation, and there is no statutory exception to the Commission’s remedial powers in this regard when the discriminatory practices in conditions of employment have been committed by a public employer having discretionary appointive and promotional authority under Civil Service Law §61.

We have articulated as a single standard for judicial review of the remedies ordered by the State and City human rights agencies, applicable alike to discrimination by private and public employers, that "the relief imposed by the Commissioner need only be reasonably related to the discriminatory conduct” (Matter of New York City Tr. Auth. v State Div. of Human Rights, 78 NY2d 207, 217; see also, Matter of Consolidated Edi son Co. v New York State Div. of Human Rights, 77 NY2d 411, 420).

The Commission may fashion a remedy to make the victim whole for injuries suffered as a result of discriminatory employment practices. "Finally with respect to the remedy we note that the [C]ommissioner has broad powers to adopt measures which he [or she] reasonably deems necessary to redress the injury” (Matter of Imperial Diner v State Human Rights Appeal Bd., 52 NY2d 72, 79 [emphasis supplied]; see also, Matter of State Div. of Human Rights [Cottongim] v County of Onondaga Sheriff’s Dept., 71 NY2d 623, 634).

The Commissioner’s determination that an award of retroactive seniority was necessary in order fully to redress the adverse effects on the complainants of the NYPD’s discriminatory practices against female officers was completely reasonable. As the Supreme Court aptly stated in Franks v Bowman Transp. Co. (424 US 747, 767-768):

"Without an award of seniority dating from the time when he was discriminatorily refused employment, an individual who applies for and obtains employment * * * pursuant to the District Court’s order will never obtain his rightful place in the hierarchy of seniority according to which these various employment benefits are distributed. He will perpetually remain subordinate to persons who, but for the illegal discrimination, would have been in respect to entitlement to these benefits his inferiors.”

Affording full redress to the victims of discrimination here, including retroactive seniority, necessarily entails a factual inquiry as to when seniority rights would have been acquired absent the discrimination. The Commission’s determination in this regard was also reasonable and supported by evidence in the record (see, Teamsters v United States,431 US 324, 372 [retroactive seniority determinations "necessarily involve a degree of approximation and imprecision”]).

In our view, however, the Commission exceeded the limits of its remedial powers in directing the promotion of Rinaldi to Police Captain even before the announcement of the results of the promotional examination she took for that position. Unquestionably, such a promotion without establishment of her eligibility by passing a competitive examination violated the Merit and Fitness Clause of the State Constitution (NY Const, art V, § 6; see, Matter of Wood v Irving, 85 NY2d 238). The salutary purposes of New York City’s Human Rights Law to combat and remedy the results of gender-based discrimination in employment must, of course, give way to the higher law of the State Constitution. The order below must, therefore, be modified accordingly.

City of Schenectady v State Div. of Human Rights (37 NY2d 421, supra) does not prevent the awards of retroactive seniority to the complainants in this case, as petitioners urge. In City of Schenectady, the petitioner was one of three candidates on the eligible list for promotion to Police Sergeant. The Division of Human Rights found that she was the victim of gender discrimination in that she was denied consideration for the promotion because she was a woman. This Court reversed the remedial order of the State Division of Human Rights directing the City to offer the complainant the next available position for Police Sergeant. We held that directing, in effect, the complainant’s promotion to Sergeant was, in the circumstances of that case, beyond the power of the Division. Thus, retroactive seniority rights were not involved in City of Schenectady. Moreover, there was no finding by the State Division of Human Rights in that case that, had the complainant been considered for the promotion in good faith, she would have received the appointment over the other two candidates who scored higher on the promotional examination. Therefore, the relief granted by the State Division of Human Rights in City of Schenectady exceeded the redress to which the complainant was entitled by enhancing her promotional opportunity beyond that which would have existed absent discrimination.

As we explained in Matter of State Div. of Human Rights (Cottongim) v County of Onondaga Sheriff’s Dept. (supra):

"City of Schenectady (supra), and the case upon which it is based, Matter of Berger v Walsh (291 NY 220), place no additional limitations on the Commissioner’s power to fashion a remedy for discrimination. These cases hold that where a person has not been considered fairly for an appointment by a public employer, the remedy that generally will make the individual whole, in addition to whatever money damages are warranted, is that the individual be fairly considered for the appointment. These cases recognize that it may be improper to go further and require that the person be appointed to the position because this could award more than a complainant was entitled to before the discrimination took place. On this point, therefore, the authorities cited are nothing more than a restatement that the remedy imposed by the Commissioner must be rationally related to the injury sought to be redressed” (71 NY2d, at 634 [emphasis supplied]).

Here, in contrast, the Commission found that the complainants were the victims of long-standing, systematic discriminatory practices which in fact thwarted their opportunities in police service, beginning with the discriminatory delays in being appointed to the force. Seniority revisions were, under these circumstances, not an excessive remedy, but rather the minimal redress for the injuries complainants suffered to their professional law enforcement careers because of the NYPD’s discriminatory practices. Hence, City of Schenectady v State Div. of Human Rights is not controlling.

Contrary to the views of our dissenting colleagues, we have neither distorted nor unduly restricted this Court’s holding in City of Schenectady, but merely applied our interpretation of City of Schenectady in Matter of State Div. of Human Rights (Cottongim) v County of Onondaga Sheriff’s Dept. (supra) that "it place[d] no additional limitations on the Commissioner’s power to fashion a remedy for discrimination”.

Nor have we accorded "an administrative agency * * * power beyond that of the courts to override a legislative enactment” (dissenting opn, at 303). As we have shown, it was the Legislature, not this Court, that conferred broad remedial powers on the City and State human rights agencies to fully counteract the effects of past discrimination in employment, including specifically the retroactive award of seniority. Exercising its powers expressly delegated by the Legislature, the Commission here has determined that retroactive seniority status for the complainants is the only way to remedy the injuries they suffered as a result of the past pattern of continuous sex discrimination practiced by the NYPD, the appointive authority in this case. Thus, the dissenters cannot ignore that the total discretion of the appointive authority they would preserve in this case cannot be achieved except at the expense of the full relief to which the complainants are entitled for the discriminatory practices of the appointive authority. Under these circumstances, we have no doubt that a resolution which may somewhat subordinate the discretion of the appointive authority to the complainants’ rights to remediation for the discriminatory practices of that authority is more consistent with legislative intent.

II

Alternatively, petitioners argue that even if retroactive seniority was an appropriate remedy generally in these cases, the Commission was without legal authority to backdate appointments earlier than the December 13, 1965 effective date of the amendment of the City’s Human Rights Law that first prohibited gender-based discrimination. Petitioners’ contention ignores the findings in Stage I of these proceedings, which were left undisturbed after exhaustion of judicial review and are, thus, final and binding and not subject to further challenge here. The Commission found in Stage I that, as part of the systematic, continuing pattern of discrimination against women by the NYPD, initial appointments of women to the force were limited by a hiring quota, and discriminatory delays in the appointment of eligible women candidates resulted in comparatively less seniority for women officers than for the male officers who passed the same entrance examinations at the same time. Then, during the City’s 1975 fiscal crisis, the NYPD opted to use a combined male and female seniority list for lay-offs and reinstatement of officers, the effect of which, according to the Commission, was that more than 50% of all policewomen were laid off and not reinstated, while less than 10% of male officers received extended lay-offs during that fiscal crisis. The Commission also found that the resultant decrease in the number of female officers (from 2.3% of the uniformed force to 1.1%), in combination with petitioner’s policy of requiring that matron duty be performed exclusively by police personnel, necessitated the discriminatory involuntary assignments of policewomen to matron duty. Thus, although gender-based seniority discrimination may have occurred prior to the 1965 enactment of the City’s statutory ban of sex discrimination, the Commission found that the discriminatory seniority system was then applied well after 1965 to reduce the number of female officers and thereby bring about the invidious effects of the involuntary assignments of these complainants to matron duty.

The foregoing findings by the Commission bring this case squarely under our holding in Matter of Board of Educ. of Farmingdale Union Free School Dist. v New York State Div. of Human Rights (56 NY2d 257). There, the initial gender-based discriminatory act — the enforcement against the complainant of the school district’s policy requiring pregnant teachers to resign — was committed in 1959, before the State law banning sex discrimination was enacted. Subsequent to that legislation, however, the school district adopted and applied in the complainant’s case a seniority system which disallowed credit for service preceding a teacher’s resignation. This Court held in Farmingdale that, although the 1959 forced resignation of the complainant was not then actionable, when the seniority system was later applied to penalize the complainant for that earlier resignation through forfeiture of service credit, "[t]he Board’s system effectively revived the [discriminatory pregnancy policy] and constituted a separate discriminatory act— loss of seniority” (id., at 262).

So too here, a sex-based discriminatory seniority system in the NYPD having roots preceding the statutory prohibition against sex discrimination was later applied in a way that had a prejudicial impact on women officers well after sex discrimination was outlawed. The Commission’s eradication of all gender-based seniority inequality by directing retroactive adjustments of the complainants’ appointment dates even earlier than 1965 was, thus, rationally related to the redress and prevention of recurrence of the injuries suffered by complainants’ after antisex discrimination legislation was enacted (id.; see also, People v New York City Tr. Auth., 59 NY2d 343).

We are equally unpersuaded by petitioners’ claim that the Police Pension Fund, against which no discriminatory practices were charged, was a necessary party to proceedings before the Commission.

Accordingly, the order of the Appellate Division insofar as appealed from should be modified, by reversing so much thereof as directed the promotion to Captain of respondent Helene Rinaldi, and, as so modified, affirmed, with costs to respondents.

Titone, J.

(dissenting in part). The majority’s effort to distinguish this case from our precedents is unsuccessful. Despite the majority’s efforts to carve out a human rights exception to the principles that have long been held to govern civil service appointments, it remains clear that the relief awarded to these complainants cannot logically be sustained in light of Matter of Andriola v Ortiz (82 NY2d 320) and City of Schenectady v State Div. of Human Rights (37 NY2d 421). Accordingly, I dissent from so much of the majority’s holding as sustains the agency award.

The "one-in-three” rule currently set forth in Civil Service Law § 61 embodies the long-accepted principle that, within the constraints of the constitutional merit and fitness requirements (NY Const, art V, § 6), appointing authorities are to be accorded complete discretion in their choice of civil service appointees (see, Matter of Andriola v Ortiz, supra, at 324; Matter of Berger v Walsh, 291 NY 220, 223; People ex rel. Balcom v Mosher, 163 NY 32). Under the rule, the appointing authority is permitted to designate any one of the three individuals whose names are highest on the list of qualified eligibles (see, Matter of Cassidy v Municipal Civ. Serv. Commn., 37 NY2d 526; see also, People ex rel. Qua v Gaffney, 142 App Div 122, affd 201 NY 535). As the Court stated in Matter of Andriola v Ortiz (supra, at 324), "[o]ur decisions repeatedly have acknowledged the importance of the discretionary governmental appointive power embodied in Civil Service Law § 61, and have rejected attempts to invoke the aid of the courts to limit the reasonable exercise of that discretion.” Thus, our Court has previously held that the appointment or promotion of a particular individual cannot be mandated even to remedy past discrimination or legal error in the establishment or implementation of an eligible list (City of Schenectady v State Div. of Human Rights, supra, at 430; Matter of Berger v Walsh, supra).

In Matter of Andriola v Ortiz (supra), the Court answered a previously unresolved question about the scope of the principle and, in doing so, significantly expanded the principle’s effect. In Andriola, the Court held that an award of retroactive seniority benefits and back pay to remedy a grading error was inappropriate because such an award was tantamount to "mandating [the petitioners’] retroactive promotion” and was thus "fundamentally inconsistent with the letter and spirit of Civil Service Law § 61” (82 NY2d, at 325).

Although this case too involves an award of retroactive seniority, the majority holds that Andriola is not controlling. The critical distinguishing feature that the majority perceives is that, unlike the remedial order in Andriola, the directive here came from the New York City Human Rights Commission, which has been given "broad remedial powers” to alleviate and correct discrimination. In the majority’s view, the existence of such powers and the absence of a "statutory exception” for cases involving the civil service lead to the conclusion that the City Human Rights Commission, unlike the courts of this State, may issue orders that would otherwise be "fundamentally inconsistent with the letter and spirit of Civil Service Law § 61.”

The majority’s central premise — that an administrative agency has power beyond that of the courts to override a legislative enactment — is itself curious enough to raise a few eyebrows. With a somewhat closer analysis, the logical flaws in the proposition are fully exposed. First, the majority’s assertion that the City Human Rights Commission has the power to order remediation that is inconsistent with the command of Civil Service Law § 61 is directly refuted by our holding in City of Schenectady v State Div. of Human Rights (supra). Although in that case we upheld the Human Rights Division’s determination that unlawful gender-based discrimination had occurred, we concluded that the agency’s Commissioner "did not have the power to direct the city and its police department to offer complainant the next available position * * * since such a direction would in effect deprive the appointing authority of the power of selection” (id., at 430 [emphasis supplied]). This holding represents as clear and unequivocal a statement as language permits that despite their broad remedial powers (see, Matter of Imperial Diner v State Human Rights Appeals Bd., 52 NY2d 72, 79; see also, Matter of State Div. of Human Rights [Cottongim] v County of Onondaga Sheriff's Dept, 71 NY2d 623, 634), the State’s human rights agencies do not have the power to nullify an appointing authority’s Civil Service Law § 61 prerogatives.

The majority attempts to distinguish away the Schenectady holding on the ground that that case, unlike this one, did not involve retroactive seniority rights. However, the majority’s logic on this point is irreconcilable with the Court’s clear holding in Andriola that an award of retroactive seniority is the equivalent of a retroactive direction to promote and, as such, violates both the Civil Service Law and the case law applying it (82 NY2d, at 325).

Similarly unpersuasive is the majority’s effort to distinguish this case from Schenectady on the basis of the agency’s finding here that complainants would have been appointed to the positions they sought if the appointing authority had considered their candidacies in good faith. We rejected an analogous argument in Andriola, where the petitioners were actually given the appointments they sought after the grading error they challenged was corrected. A fortiori, by recognizing and giving effect to the agency’s "finding” that "good faith” on the part of the appointing authority would have produced an appointment, the majority has violated the "letter and spirit” of section 61, since it has, in effect, permitted the agency to substitute its findings for the appointment authority’s discretionary prerogatives. At least in Andriola the decision to promote the petitioner was eventually made by the appointing authority itself. Here, in contrast, it is the human rights agency’s conclusion about what the appointing authority should have done that the majority has deemed controlling.

Finally, in its effort to distinguish and narrow the holding in Schenectady, the majority has misread the analysis in Matter of State Div. of Human Rights (Cottongim) v County of Onondaga Sheriff’s Dept. (supra), in which Schenectady was discussed. Cottongim involved the discriminatory discharge of a Sheriff’s Department employee who served "at will.” We upheld a human rights agency’s decision to direct her reinstatement and, in so ruling, concluded that Schenectady was not an obstacle to awarding that form of relief. However, our ruling in Cottongim was not, as the majority suggests, a blanket authorization for all human rights agencies to impose any remedy they deem to be " 'rationally related to the injury sought to be redressed’ ” (see, majority opn, at 299). Although the quoted language was used in Cottongim, it is apparent from the context that it was intended to be read in conjunction with the well-established principle that a remedy is "rationally related to the injury” when it is no greater than that which is required to make the aggrieved complainant whole (see, 71 NY2d, at 634).

In the civil service context, making the complainant whole "generally” means placing him or her in a position to "be fairly considered for the appointment” (id.). In Cottongim, the additional step of directing the employee’s reinstatement was appropriate because it "only return[ed] to the employee something that * * * she at all times possessed, but was deprived of by discrimination” (id.). However, as the Cottongim Court recognized, it would be "improper” in a case involving appointment or promotion to direct more than that the candidate be given fair consideration, since "this could award more than a complainant was entitled to before the discrimination took place” (id.). Significantly, a person who attains a position on a list of eligibles "does not acquire any 'legally protect-able interest’ in” appointment (Matter of Andriola v Ortiz, supra, at 324, citing Matter of Cassidy v Municipal Civ. Serv. Commn., supra, at 529; Hurley v Board of Educ., 270 NY 275, 279). Accordingly, far from limiting Schenectady to a bland "'restatement that the remedy [for a human rights violation] must he rationally related to the injury sought to he redressed’ ” (majority opn, at 299, quoting Matter of State Div. of Human Rights [Cottongim] v County of Onondaga Sheriff’s Dept., supra, at 634), Cottongim actually reiterates and reaffirms Schenectady’s holding that, in the civil service context, the "rational relation” standard cannot be satisfied by an order that directs an appointment, a promotion or their equivalents.

In the final analysis, the majority’s rationale is fundamentally flawed by its ex cathedra assertion that the governmental policy against prohibited discrimination "enjoys the highest statutory” priority (majority opn, at 296). While discrimination on the basis of race, gender, marital status and disability are grave societal evils that the Legislature has quite properly acted to remedy, there is nothing in the mission statements that the majority cites (Administrative Code of City of NY § 8-101; Executive Law § 290 [3])— or anywhere else in the local and State human rights lawsto indicate that the human rights Commissioners were intended to have the power to override other statutory mandates such as Civil Service Law § 61.

Contrary to the majority’s assertion, there was no need for the Legislature to specify a discrete "statutory exception” to the agency’s broad remedial powers for cases involving government employers. Such an "exception” follows naturally from Civil Service Law § 61, which should be presumed to govern in those cases, at least in the absence of an overriding legislative prescription.

Indeed, the majority’s suggestion that a "statutory exception” is required in order to make the human rights laws’ remedies compatible with the Civil Service Law is unprecedented. It is a usurpation for a court to first posit a hierarchy of laws based on its own value judgments and then demand evidence of a legislative intent to create "exceptions” to modify that hierarchy. Our role in the judiciary is not to create a hierarchy of legislative enactments. Rather, it is our duty in construing and applying the State’s statutes to attempt to harmonize them so that all are given an equal effect wherever possible and none are unnecessarily relegated to inferior status.

Here, the task of harmonizing the New York City human rights provisions and the Civil Service Law is a simple one, particularly in light of the absence of any real inconsistency and the existence of long-standing case law, notably Sche nectady and Cottongim, in which the task has already been accomplished. The human rights laws were enacted to ameliorate and redress discrimination in the private and public sectors, and the State and local agencies charged with their enforcement were given a broad range of remedial powers to be used in appropriate circumstances. The statutory power to order " 'hiring, reinstatement or upgrading of employees’ ” (see, majority opn, at 296) may be invoked where appropriate, i.e. where not prohibited by other preexisting statutory commands. It is thus available in a wide variety of cases not involving governmental employment. In the other, presumably smaller class of cases involving discrimination in public employment (to which Civil Service Law § 61 is applicable), other remedial measures are to be used.

Under this harmonizing approach, it is unnecessary to look for any "statutory exceptions” to the Commissioners’ broad remedial powers. The human rights laws and Civil Service Law § 61 are coexisting, coequal legislative enactments. There is no more need to find an express "exception” for government employment in the human rights laws than there is to find an express "exception” for human rights remedies in the Civil Service Law. The two statutes may simply be viewed as operating in their own respective spheres. Contrary to the majority’s suggestion, this approach does not reduce the broad scope of the Commissioners’ remedial authority. It merely recognizes, as we recognized in Cottongim (supra) that the Commissioners’ authority does not extend to giving candidates for government positions more than they would have had had the discrimination not occurred (see, Matter of State Div. of Human Rights [Cottongim] v County of Onondaga Sheriff’s Dept., supra) and that, in a case involving an initial appointment or promotion, the candidate’s rights are conditioned by the discretion afforded the appointing authority under Civil Service Law § 61 (see, City of Schenectady v State Div. of Human Rights, supra).

As established in Schenectady, the broad remedial authority granted to the human rights Commissioners to remedy discrimination must be viewed against the template of the one-in-three rule embodied in Civil Service Law § 61 whenever the claimed discrimination has occurred in the context of civil service appointments and promotions. Since this Court has recently concluded that the constraints of that statute are violated as much when a complainant is granted retroactive seniority as when a complainant is directly granted the sought-after appointment or promotion (Matter of Andriola v Ortiz, supra), I would hold that the lower courts erred when they upheld the award of retroactive seniority in this case. Had they not been treated in a discriminatory manner, these complainants could have expected no more than fair consideration of their candidacies for promotion (cf., Dalton v Educational Testing Serv., 87 NY2d 384). It follows that the agency directive affording them seniority benefits as if they had been appointed from the outset is not "rationally related to the injury sought to be redressed” under Cottongim and Schenectady, and the determination ought to have been annulled.

Chief Judge Kaye and Judges Smith and Ciparick concur with Judge Levine; Judge Titone dissents in part in a separate opinion in which Judges Simons and Bellacosa concur.

Order, insofar as appealed from, modified in accordance with the opinion herein, with costs to respondents, and, as so modified, affirmed.

      . Although I dissented on that point in Andriola, I recognize that the holding is binding precedent which constrains our analysis in this and other cases involving the same issue.

      . The majority’s reliance on a perceived "single standard for judicial review” (majority opn, at 296) thus begs the question. The "single standard” to which the majority refers merely ensures that all decisions of the human rights agencies will be measured against the same "arbitrary and capricious” standard. In all contexts, that standard requires that the administrative decision in question be lawful. What constitutes lawfulness will vary depending on the particular setting and the existence of any applicable statutory prohibitions.

      . I would also conclude, along with the majority, that the City Human Rights Commission acted improperly when it directed the promotion of complainant Helene Rinaldi.


source: Caselaw Access Project

author: Simons, J.

license: Public Domain

text:
    [662 NE2d 763, 639 NYS2d 283]
    New York University, Respondent, v Continental Insurance Company et al., Appellants.
    Argued November 28, 1995;
    decided December 27, 1995

      POINTS OF COUNSEL

      Hart & Hume, New York City (Mark S. Gamell, Lewis Stock-man, Cecil Holland, Jr., and Steven H. Rittmaster of counsel), for appellants.
    I. Plaintiff’s complaint does not meet the test set forth in Rocanova v Equitable Life Assur. Socy. (83 NY2d 603) for punitive damages claims. (Sommer v Federal Signal Corp., 79 NY2d 540; Walker v Sheldon, 10 NY2d 401.) II. Plaintiff’s General Business Law § 349 cause of action should have been dismissed for failure to allege deceptive conduct, injury or consumer impact. (Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20; Varela v Investors Ins. Holding Corp., 81 NY2d 958; Myers, Smith & Granady v New York Prop. Ins. Underwriting Assn., 85 NY2d 832; Genesco Entertainment v Koch, 593 F Supp 743.) III. The second cause of action for "bad faith” breach of contract should have been dismissed. (IBM Credit Fin. Corp. v Mazda Motor Mfg. [USA] Corp., 152 AD2d 451; Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; King Prods. v Douglas, 742 F Supp 741; Apfel v Prudential-Bache Sec., 183 AD2d 439.) IV. The demand for attorneys’ fees in the breach of contract cause of action should have been stricken. (Doyle v Allstate Ins. Co., 1 NY2d 439; Grimsey v Lawyers Tit. Ins. Corp., 31 NY2d 953; Mighty Midgets v Centennial Ins. Co., 47 NY2d 12.) V. The dismissal of defendants’ affirmative defense based upon the exclusion from coverage for losses proved by inventory computations was improper. (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390; Mapes Casino v Maryland Cas. Co., 290 F Supp 186; Congregational Realty Corp. v Congregation Bnai Israel, 31 AD2d 519; Schiff Assocs. v Flack, 51 NY2d 692.)

      Robert P. Walton, New York City, S. Andrew Schaffer, Howard S. Sussman, Eugene R. Anderson, Robert M. Horkovich and Steven J. Dolmanisth for respondent.
    I. The applicable standards require affirmance. (Guggenheimer v Ginzburg, 43 NY2d 268; Leon v Martinez, 84 NY2d 83; Collision Plan Unlimited v Bankers Trust Co., 63 NY2d 827.) II. The courts below correctly found that the university has stated an actionable claim for punitive damages. (Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; CPC Intl. v McKesson Corp., 70 NY2d 268; Belco Pe

      troleum Corp. v AIG Oil Rig, 164 AD2d 583; Roldan v Allstate Ins. Co., 149 AD2d 20; Metromedia, Inc. v Mandel, 21 AD2d 219, 15 NY2d 616; Rich v New York Cent. & Hudson Riv. R. R. Co., 87 NY 382; Albemarle Theatre v Bayberry Realty Corp., 27 AD2d 172; International Min. Corp. v Aerovias Nacionales De Columbia, 57 AD2d 64, 42 NY2d 1072; Matter of Jenson v Fletcher, 277 App Div 454, 303 NY 639; Matter of Sheridan v Fletcher, 270 App Div 29.) III. The university has alleged a cause of action under section 349 of the General Business Law. (Oswego Laborers’ Local Pension Fund v Marine Midland Bank, 85 NY2d 20; Associates Capital Servs. Corp.v Fairway Private Cars, 590 F Supp 10; Genesco Entertainment v Koch, 593 F Supp 743; Riordan v Nationwide Mut. Fire Ins. Co., 977 F2d 47; Centaur Communications v A/ S/ M Communications, 652 F Supp 1105, 830 F2d 1217; Vitabiotics, Ltd. v Krupka, 606 F Supp 779.) IV. The decision of the courts below dismissing the second affirmative defense should be affirmed. (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390; Raine v Allied Artists Prods., 63 AD2d 914; Ross Bicycles v Citibank, 178 AD2d 388; Chemical Bank v Iselin & Co., 162 AD2d 160; Congregational Realty Corp. v Congregation Bnai Israel, 31 AD2d 519; Teviro Causals v American Home Assur. Co., 81 AD2d 814, 54 NY2d 915; Van Dutch Prods. Corp. v Zurich Ins. Co., 67 AD2d 844; Stephen-Leedom Carpet Co. v Arkwright-Boston Mfrs. Mut. Ins. Co., 59 AD2d 673, 43 NY2d 894; Kaplan Jewelers v Insurance Co., 86 Misc 2d 334; Schiff Assocs. v Flack, 51 NY2d 692.)

      Windels, Marx, Davies & Ives, New York City (Craig P. Murphy, Arthur E. Hoffmann, Jr., and Darrell M. Joseph of counsel), for American Council of Life Insurance and another, amici curiae.

    I. The decision of the Court below, if left standing, will injure the public and the insurance industry. (A & E Supply Co. v Nationwide Mut. Fire Ins. Co., 798 F2d 669, 479 US 1091; Pacific Mut. Life Ins. Co. v Haslip, 499 US 1.) II. The decision of the Court below undermines this Court’s decision in Rocanova v Equitable Life Assur. Socy. (83 NY2d 603) and its safeguards against unwarranted punitive damages claims. (Garrity v Lyle Stuart, Inc., 40 NY2d 354; Walker v Sheldon, 10 NY2d 401; IBM Credit Fin. Corp. v Mazda Motor Mfg. [USA] Corp., 152 AD2d 451; Sommer v Federal Signal Corp., 79 NY2d 540; Clark-Fitzpatrick, Inc. v Long Is. R. R. Co., 70 NY2d 382.) III. The decision of the Court below undermines the holding in Rocanova that no private cause of action exists under section 2601 of the Insurance Law. (Varela v Investors Ins. Holding Corp., 81 NY2d 958; Oswego Laborers’ Local 214 Pension Fund

      v Marine Midland Bank, 85 NY2d 20; Riordan v Nationwide Mut. Fire Ins. Co., 977 F2d 47, 984 F2d 69; People v British & Am. Cas. Co., 133 Misc 2d 352; Sulner v General Acc. Fire & Life Assur. Corp., 122 Misc 2d 597.)

      Salans Hertzfeld & Heilbronn, New York City (Charles Platto of counsel), James Kimble, of the District of Columbia Bar, admitted pro hac vice, Richard Hefferan, of the Illinois Bar, admitted pro hac vice, and Rob Weldy, of the New Jersey Bar, admitted pro hac vice, for American Insurance Association and others, amici curiae.

    I. Simply labeling claims handling procedures that result in a denial of coverage as an egregious tort or as part of a fraudulent scheme is insufficient to sustain a claim for punitive damages. (Walker v Sheldon, 10 NY2d 401; Rocanova v Equitable Life Assur. Socy., 83 NY2d 603; Eastman Kodak Co. v Roopak Enters., 202 AD2d 220; Couri v Westchester Country Club, 186 AD2d 712; Belco v Petroleum Corp. v AIG Oil Rig, 164 AD2d 583.) II. Alleged unfair claims settlement practices, which are not subject to a private cause of action under Insurance Law § 2601, cannot be a basis for a claim of deceptive acts and practices under General Business Law § 349. (Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20; American Fin. Servs. v Federal Trade Commn., 767 F2d 957, 475 US 1011.)
   OPINION OF THE COURT

Simons, J.

This appeal addresses the sufficiency of the complaint and the affirmative defenses contained in the pleadings in an action by an insured against its insurer who disclaimed coverage under a commercial crime insurance policy. The two principal issues are (1) whether the complaint states a cause of action for punitive damages under the standards set forth in Rocanova v Equitable Life Assur. Socy. (83 NY2d 603) and (2) whether plaintiff has stated a cause of action under General Business Law § 349.

I

In April 1990, plaintiff New York University (NYU) discovered a substantial shortage of merchandise in the clothing department of one of the university book stores. Its internal investigation led it to determine that Dwight Johnson, the book store’s general merchandise buyer, had falsified order forms, invoices, and shipping and receiving documents for imprinted apparel purchased from MHK, Inc., a clothing vendor. Plaintiff concluded that Johnson and MHK had acted together in a scheme to bill NYU for merchandise never received and calculated that Johnson’s actions had cost the university more than $1.6 million.

In September of 1988, NYU had purchased a commercial crime liability insurance policy from defendant Continental Insurance which included an endorsement for losses resulting from "Employee Dishonesty.” The endorsement, which was in effect when NYU discovered Johnson’s defalcations, provided coverage of $10 million. Through its insurance agent, Johnson & Higgins, NYU submitted a claim to defendant Continental Guaranty & Credit Corp., the claims servicing agent for defendant Continental Insurance.

Defendants conducted an investigation of plaintiff’s claim, including review of the documentation submitted by plaintiff and interviews with NYU’s bookstore employees, Dwight Johnson, Michael Kaye (the principal of MHK), and, in addition, consulted with an FBI agent who was investigating possible criminal charges. Johnson and Kaye denied any wrongdoing. Kaye maintained that merchandise had been purchased under a "bill and hold” arrangement and that some $200,000 worth of merchandise was being stored for plaintiff in a Brooklyn warehouse. Defendants subsequently denied the claim advising plaintiff that Johnson and Kaye appeared truthful and that the claim was not supported by the documentation submitted.

Thereafter, Continental informed plaintiff that its open-ended policy would expire on its anniversary date, and would not be renewed for "underwriting reasons.” Continental offered a successor policy that, according to plaintiff, included onerous terms unacceptable to the university.

In April 1992, plaintiff commenced this action. In its amended complaint, it made comprehensive factual allegations about Johnson’s defalcation, defendants’ "sham” investigation and denial of plaintiff’s claim, the "vindictive” nonrenewal of the policy following plaintiff’s submission of the claim and referred to numerous instances of Continental Insurance Company’s bad-faith practices with respect to policyholders nationwide. Plaintiff alleged that defendants’ conduct violated their obligations to deal with plaintiff fairly and in good faith, and were contrary to New York statutory provisions proscribing deceptive business acts and unfair claim settlement practices by insurance companies.

The amended complaint set forth five causes of action. The first sounded in breach of contract and demanded indemnification for the amount of the claim minus the deductible. The second asserted that defendants breached their obligations to act in good faith toward and deal fairly with plaintiff and demanded the same relief. The third cause of action alleged deceptive business practices in violation of General Business Law § 349, and demanded treble damages to the statutory cap of $1,000. The fourth and fifth causes of action alleged unlawful and fraudulent conduct, respectively, in support of plaintiff’s demand for contract damages plus punitive damages in the amount of $10 million. The complaint also included a demand for attorneys’ fees and other costs on each of the causes of action.

In their answer, defendants’ first affirmative defense asserted that all causes of action except the first failed to state a cause of action. Their second affirmative defense invoked a policy exclusion for claims arising from "inventory computation.”

Conceding the viability of the first cause of action for breach of contract, defendants moved pursuant to CPLR 3211 (a) (7) to dismiss the remaining causes of action and the demand for attorneys’ fees. Plaintiff cross-moved to dismiss the affirmative defenses. Supreme Court denied defendants’ motion in its entirety, and granted plaintiff’s cross motion and dismissed the affirmative defenses. The Appellate Division affirmed, granted defendants leave to appeal to this Court, and certified the following question: "Was the order of the Supreme Court, as affirmed by this Court, properly made?” For the reasons that follow, we conclude that it was not.

II

We first consider whether plaintiff’s amended complaint supports its demand for punitive damages.

In Rocanova v Equitable Life Assur. Socy. (83 NY2d 603, supra), we reiterated the principle that damages arising from the breach of a contract will ordinarily be limited to the contract damages necessary to redress the private wrong, but that punitive damages may be recoverable if necessary to vindicate a public right (id., at 613; see also, Garrity v Lyle Stuart, Inc., 40 NY2d 354, 358). Punitive damages are available only in those limited circumstances where it is necessary to deter defendant and others like it from engaging in conduct that may be characterized as "gross” and "morally reprehensible,” and of " 'such wanton dishonesty as to imply a criminal indifference to civil obligations’ ” (Rocanova, 83 NY2d, at 614, supra, quoting, Walker v Sheldon, 10 NY2d 401). We set forth in the decision the pleading elements required to state a claim for punitive damages as an additional and exemplary remedy when the claim arises from a breach of contract. They are: (1) defendant’s conduct must be actionable as an independent tort; (2) the tortious conduct must be of the egregious nature set forth in Walker v Sheldon (10 NY2d 401, 404-405, supra); (3) the egregious conduct must be directed to plaintiff; and (4) it must be part of a pattern directed at the public generally (Rocanova, 83 NY2d, at 613, supra). Where a lawsuit has its genesis in the contractual relationship between the parties, the threshold task for a court considering defendant’s motion to dismiss a cause of action for punitive damages is to identify a tort independent of the contract.

A tort obligation is a duty imposed by law to avoid causing injury to others. It is "apart from and independent of promises made and therefore apart from the manifested intention of the parties” to a contract (Prosser and Keeton, Torts § 92, at 655 [5th edj). Thus, defendant may be liable in tort when it has breached a duty of reasonable care distinct from its contractual obligations, or when it has engaged in tortious conduct separate and apart from its failure to fulfill its contractual obligations. The very nature of a contractual obligation, and the public interest in seeing it performed with reasonable care, may give rise to a duty of reasonable care in performance of the contract obligations, and the breach of that independent duty will give rise to a tort claim (see, Sommer v Federal Signal Corp., 79 NY2d 540). Where a party has fraudulently induced the plaintiff to enter into a contract, it may be liable in tort (see, Channel Master Corp. v Aluminium Ltd. Sales, 4 NY2d 403, 406-407; see also, Deerfield Communications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954), or where a party engages in conduct outside the contract but intended to defeat the contract, its extraneous conduct may support an independent tort claim (see, North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171, 179; Rich v New York Cent. & Hudson Riv. R. R. Co., 87 NY 382). Conversely, where a party is merely seeking to enforce its bargain, a tort claim will not lie (see, Sommer v Federal Signal Corp., 79 NY2d, at 552, supra; Bellevue S. Assocs. v HRH Constr. Corp., 78 NY2d 282, 293-295).

Plaintiff contends that its amended complaint states a cause of action in tort because it alleges "that Continental fraudulently induced the University (and others) to purchase insurance, and to maintain such insurance, by falsely representing that it would evaluate claims in good faith and in compliance with applicable law and by concealing that it is and has long been engaged in a scheme and practice of refusing to indemnify its policyholders and then vindictively and improperly terminating their insurance coverage.” The amended complaint further alleges that defendants acted "recklessly.”

A

Plaintiffs fourth cause of action alleges "unlawful” conduct generally, relating it to defendants’ violations of Insurance Law § 2601 and contending that the conduct gives rise to an independent tort. It relies on Sommer v Federal Signal Corp. (79 NY2d 540, supra).

In Sommer, we held that a fire alarm company owed its customer a duty of reasonable care independent of its contractual obligations, and that notwithstanding a contractual provision exculpating the alarm company from damages flowing from its negligence, it could be held liable in tort for its gross failure to properly perform its contractual services. The alarm company’s duty, separate and apart from its contract obligations, arose from the very nature of its services — to protect people and property from physical harm (see, Prosser and Keeton, op. cit., § 92, at 656-657). Noting the catastrophic consequences that could flow from defendant’s failure to perform its contractual obligations with due care, we cited the municipality’s fire-safety regulations as reflecting the public interest in the careful performance of the fire alarm services contract. We did not, however, suggest that statutory provisions necessarily or generally impose tort duties independent of contractual obligations.

To be sure, the provisions of the Insurance Law reflect State policy that insurers must deal fairly with their insureds and the public at large. But governing the conduct of insurers and protecting the fiscal interests of insureds is simply not in the same league as the protection of the personal safety of citizens. As compared to the fire-safety regulations cited in Sommer, the provisions of the Insurance Law are properly viewed as measures regulating the insurer’s performance of its contractual obligations, as an adjunct to the contract, not as a legislative imposition of a separate duty of reasonable care (see, Insurance Law § 2601 [c]; § 109 [b]). We recognized this in Rocanova when we held that Insurance Law § 2601 does not give rise to a private cause of action (see, Rocanova v Equitable Life, 83 NY2d, at 614, supra). If the statute does not permit a private right of action in favor of an insured, a fortiori, it cannot be construed to impose a tort duty of care flowing to the insured separate and apart from the insurance contract.

B

In plaintiff’s fifth cause of action, sounding in fraud, it alleges that defendants induced plaintiff to purchase and maintain the insurance policy notwithstanding their intent ab initia to refuse plaintiff’s claims for indemnification and then terminate the policy. Construing the amended complaint in the generous light to which it is entitled on a motion to dismiss (see, Leon v Martinez, 84 NY2d 83, 87-88), we nevertheless conclude that the cause of action is not stated.

The essential elements of a cause of action for fraud are "representation of a material existing fact, falsity, scienter, deception and injury” (Channel Master Corp. v Aluminium Ltd. Sales Corp., 4 NY2d, at 407, supra). At the very threshold, then, plaintiff must allege a misrepresentation or material omission by defendant, on which it relied, that induced plaintiff to purchase the policy of insurance. General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the claim (see, Rocanova, 83 NY2d, at 614, supra; cf., Sabo v Delman, 3 NY2d 155; Adams v Gillig, 199 NY 314).

Plaintiff contends that defendants implicitly misrepresented the integrity of their company through advertising and by conducting business in New York pursuant to the provisions of the Insurance Law which require insurers to deal with insureds fairly and in good faith. But implicit in every contract is a covenant of good faith and fair dealing (see, Dalton v Educational Testing Servs., 87 NY2d 384; Van Valkenburgh, Nooger & Neville v Hayden Publ. Co., 30 NY2d 34, 45, cert denied 409 US 875), which encompasses any promises that a reasonable promisee would understand to be included (Dalton, supra, citing Rowe v Great Atl. & Pac. Tea Co., 46 NY2d 62, 69). Certainly, a reasonable insured would understand that the insurer promises to investigate in good faith and pay covered claims. Where, as here, the complaint does not state the specific promises or omissions of material facts allegedly made by the insurer, it alleges nothing more than a breach of the contract and any covenants implied; it does not allege a cause of action for fraud in the inducement.

Nor is a fraud claim supported by plaintiffs conclusory allegations that defendants were engaged in a scheme to receive premium payments without giving any benefit in return (see, e.g., CPC Intl. v McKesson Corp., 70 NY2d 268, 285-286; P.S. Auctions v Exchange Mut. Ins. Co., 105 AD2d 473, 475). Moreover, inasmuch as plaintiff has failed to adequately plead a fraud perpetrated against it, "no inference of fraudulent intent can be drawn in this case from the mere compilation” of the experiences of other dissatisfied policyholders (see, Rocanova, 83 NY2d, at 614, supra).

To the extent that plaintiff alleges that defendants engaged in a "sham” investigation to perpetuate their allegedly fraudulent scheme, those allegations merely evidence plaintiffs dissatisfaction with defendants’ performance of the contract obligations. Indeed, plaintiff concedes that defendants conducted an investigation, but argues that it provided an inadequate basis for defendants to deny plaintiffs claim. That allegation does not state a tort claim, it merely raises a question for the fact finder determining the breach of contract claim.

Nor can any inference of fraud be drawn from Continental Insurance Company’s nonrenewal of the policy. The parties apparently bargained for an open-ended term for the policy, and defendant gave plaintiff several months’ notice that it would expire on its anniversary date. Defendant informed plaintiff that the policy was not being renewed for "underwriting reasons,” and subsequently offered plaintiff a successor policy, although on terms plaintiff deemed unacceptable. Plaintiff argues that defendant’s actions were "vindictive,” but it points to no contractual or statutory obligations violated by defendant. Although plaintiff may have hoped, or even expected, that defendant would perpetuate or renew its policy without adjustment for plaintiffs experience, defendant was under no obligation to do so.

C

Plaintiff alleges in its second cause of action that defendants’ actions in failing to adequately investigate, in denying payment of the claim, and in failing to renew the policy after assertion of the claim were "careless, negligent, reckless and vindictive” and violated the laws of this State. Plaintiff’s claim amounts to nothing more than a claim based on the alleged breach of the implied covenant of good faith and fair dealing, and the use of familiar tort language in the pleading does not change the cause of action to a tort claim in the absence of an underlying tort duty sufficient to support a claim for punitive damages (see, Rocanova, 83 NY2d, at 614, supra; Clark-Fitzpatrick, Inc. v Long Is. R. R. Co., 70 NY2d 382, 389-390).

The cause of action is duplicative of the first cause of action for breach of contract and should have been dismissed (see, Apfel v Prudential-Bache Sec., 183 AD2d 439).

D

In sum, the amended complaint fails to satisfy the first prong of the Rocanova pleading requirements because it fails to state a tort independent of the contract. Plaintiffs second, fourth and fifth causes of action should have been dismissed upon defendants’ motion. In view of this disposition, we have no occasion to address the sufficiency of the complaint’s claim for punitive damages under the remaining prongs of the Rocanova test.

Ill

Plaintiffs third cause of action seeks to state a claim based on a violation of General Business Law § 349. The statute makes unlawful deceptive acts or practices in conducting a business or furnishing a service. Any person who has been injured by reason of a violation of the section may bring an action to recover actual damages or $50, whichever is greater and the court may, if it finds defendant acted willfully or knowingly violated the section, triple the damages to a maximum of $1,000 and award attorney’s fees to a successful plaintiff (General Business Law § 349 [h]).

In Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank (85 NY2d 20), we stated that parties claiming the benefit of the section must, at the threshold, charge conduct that is consumer oriented. The conduct need not be repetitive or recurring but defendant’s acts or practices must have a broad impact on consumers at large; "[plrivate contract disputes unique to the parties * * * would not fall within the ambit of the statute” (id., at 25; see also, Teller v Bill Hayes, Ltd., 213 AD2d 141; Quail Ridge Assocs. v Chemical Bank, 162 AD2d 917, lv dismissed 76 NY2d 936). If a plaintiff meets this threshold, its prima facie case may then be established by proving that defendant is engaging in an act or practice that is deceptive in a material way and that plaintiff has been injured by it (id.; Varela v Investors Ins. Holding Corp., 81 NY2d 958).

Plaintiff has not met the threshold requirement because defendants’ acts in selling this policy and handling the claim under it do not constitute consumer-oriented conduct. The parties were a major university acting through its director of insurance, and a large national insurance company. The policy was not a standard policy, although it contained standard provisions, but was tailored to meet the purchaser’s wishes and requirements. The premiums were in excess of $55,000 and the policy provided coverage for losses up to $10 million against various acts of employee dishonesty. The sale was handled by one of the largest brokerages in the Nation, Johnson & Higgins, which managed, through negotiation, to obtain several enhancements to the policy for plaintiff’s benefit and assisted it in presenting its loss claim to Continental.

Manifestly, this transaction is wholly unlike that in Oswego, which involved a bank customer receiving the standard forms and advice supplied to the consuming public at large, and in which the parties occupied disparate bargaining positions. The case before us involves complex insurance coverage and proof of loss in which each side was knowledgeable and received expert representation and advice. Although relief under the statute is not necessarily foreclosed by the fact that the transaction involved an insurance policy (see, Riordan v Nationwide Mut. Fire Ins. Co., 977 F2d 47, 51-52), this was not the "modest” type of transaction the statute was primarily intended to reach (see, Teller v Bill Hayes, Ltd., supra, at 146-147). It is essentially a "private” contract dispute over policy coverage and the processing of a claim which is unique to these parties, not conduct which affects the consuming public at large (see, Oswego, supra; Teller, supra; Quail Ridge Assocs., supra). Accordingly, the third cause of action should be stricken.

IV

Defendants contend that Supreme Court erred in dismissing its second affirmative defense, based on an "inventory shortage” exclusion in the policy. In the endorsement for "Employee Dishonesty Coverage,” defendants undertook to cover losses caused by employee dishonesty, which is defined in a policy endorsement to mean "dishonest acts committed by an 'employee,’ whether identified or not, acting alone or in collusion with other persons * * * with the manifest intent to (1) Cause [the insured] to sustain loss; and also (2) Obtain financial benefit [other than salary and other benefits to which the employee is entitled] for (a) the 'employee’ or (b) any person or organizatian intended by the 'employee’ to receive that benefit.” The endorsement excludes "Inventory shortages,” which it defines as "loss, or that part of any loss, the proof of which as to its existence or amount is dependent upon (1) An inventory computation; or (2) A profit and loss computation” (emphasis added).

Supreme Court dismissed this affirmative defense because it concluded that "[ljosses resulting from employee dishonesty are not within inventory loss exclusions”. The Appellate Division affirmed. Defendants contend that those courts misapplied our holding in Ace Wire & Cable Co. v Aetna Cas. & Sur. Co. (60 NY2d 390), and that the affirmative defense should have survived plaintiffs cross motion to dismiss.

In Ace Wire, our attention was focused on the phrase "inventory computation” as it refers to the computation of the "amount” of loss arising from inventory shortages. In that case, it was adequately established that an employee had stolen 116 rolls of the insured’s inventory of cable. The defendant surety argued that the inventory shortage exclusion applied because the amount of the loss could be proven only by a computation of inventory. We rejected that broad application of the exclusion, and distinguished losses that were valued by comparison of pre- and posttheft counts of physical inventory, as recorded in inventory records, and losses that could be established only through generalized estimates arrived at by calculation of the dollar value of inventory before or after the theft.

Our decision in Ace Wire was driven by two competing considerations. On the one hand, construing the exclusion to apply to all proof of loss based on any form of inventory records would lead to the absurd result that an insured’s recovery would be limited to those losses that were substantiated only by a witness who had actually viewed the employee stealing the insured’s inventory (see, Ace Wire, 60 NY2d, at 398, supra). On the other hand, insurers include the inventory shortage exclusion in the employee dishonesty endorsements to protect themselves against "claims based on erroneous or falsified inventory or profit and loss computations * * * [and because] [ijnventory records and other business records are less reliable than other evidence in proving that a loss of goods has been sustained or that a loss is attributable to employee dishonesty” (Dunlop Tire & Rubber Corp. v Fidelity & Deposit Co., 479 F2d 1243, 1246). Accordingly, we held that to the extent an insured suffered losses that could be proven only by estimation of the loss by calculating the pre- and posttheft dollar value of the inventory, such losses would fall within the exclusion. Nothing in Ace Wire, however, prevents insureds from relying on inventory records which document the actual inventory on hand.

The practical effect of that decision is that insureds are obligated to perform and record actual physical inventories on a regular basis so that inventory shortages will be discovered within a reasonable period of time and may be accurately valued. In that way, the insured will be indemnified for the actual losses timely discovered, while the insurer will be protected from indemnifying the insured for losses that may accumulate to excessive amounts over a period of years, and which can be proven only by estimation.

Here, plaintiff alleged that its losses occurred by Johnson’s falsification of documents, which it had presented to defendants. Thus, plaintiff’s averments would establish the existence of the loss by proof other than by estimation of an inventory shortage. On the other hand, plaintiff did not establish as a matter of law that it could prove the amount of its loss by other than dollar estimates. In an affidavit in support of its cross motion, an employee of plaintiff averred that the loss was revealed and measured by comparison of a 1990 physical inventory to accounting records. Depending on the nature of those accounting records, plaintiff may or may not be able to prove some or all of its losses by a method allowed by the holding of Ace Wire. Accordingly, it was error to dismiss the affirmative defense at this early pleading stage of the litigation, because plaintiff had yet to establish that the affirmative defense was meritless as a matter of law (see, CPLR 3211 [b]).

Alternatively, Supreme Court stated that even if it were incorrect in its conclusion that the exclusion did not apply to plaintiff’s claim, defendants "may well have waived the defense based on the policy exclusion by failing to include it in either of the disclaimer letters sent to plaintiff.” However, coverage is the net total of policy inclusions minus exclusions, and the failure to disclaim based on an exclusion will not give rise to coverage that does not exist (see, Schiff Assocs. v Flack, 51 NY2d 692, 697-698). While the insurer may waive the right to disclaim based on the insured’s noncompliance with a condition precedent, its right to disclaim coverage based on a policy exclusion can be defeated only by estoppel (see, id., at 699). Here, the insurer did nothing which should have led plaintiff to believe it was providing coverage for the claimed loss.

V

Finally, defendants contend that Supreme Court erred in denying their motion to, dismiss the demand for attorneys’ fees, costs and disbursements upon the first cause of action for breach of contract. It is well established that an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy (Mighty Midgets v Centennial Ins. Co., 47 NY2d 12, 21; Grimsey v Lawyers Tit. Ins. Corp., 31 NY2d 953; Doyle v Allstate Ins. Co., 1 NY2d 439). Accordingly, defendants’ motion to strike should have been granted.

In sum, defendants’ motion to dismiss the second through fifth causes of action and the claim for attorneys’ fees, costs and disbursements should have been granted in its entirety and plaintiffs cross motion to dismiss defendants’ first and second affirmative defenses should have been denied.

Accordingly, the order of the Appellate Division should be reversed, with costs, in accordance with this opinion and the certified question answered in the negative.

Chief Judge Kaye and Judges Titone, Bellacosa, Smith, Levine and Ciparick concur.

Order reversed, with costs, defendants’ motion to dismiss the second through fifth causes of action in the amended complaint and the demand for attorneys’ fees granted, plaintiffs cross motion to dismiss the first and second affirmative defenses of the amended answer denied, and certified question answered in the negative.