American Empire Surplus Lines Insurance Company v. Rock E Small Plumbing & Heating Inc.

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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REPORT AND
RECOMMENDATION
No. 24-CV-08291-CBA-JRC
AMERICAN EMPIRE SURPLUS LINES
INSURANCE COMPANY,
Plaintiff,
-against-
ROCK E SMALL PLUMBING & HEATING
INC.,
Defendant.
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JAMES R. CHO, United States Magistrate Judge:
Plaintiff American Empire Surplus Lines Insurance Company (“plaintiff” or “American
Empire”) commenced this action against defendant Rock E Small Plumbing & Heating Inc.
(“defendant”) for defendant’s failure to pay an additional premium required by American
Empire’s Commercial General Liability Policy (the “American Empire Policy” or “Policy”). See
Compl. ¶¶ 14-16, Dkt. 1. Plaintiff seeks judgment in the amount of $101,102 for the unpaid
premium due and owing under the insurance policy. See Compl. ¶¶ 17-21 (First Cause of
Action).1
Currently before this Court, on referral from the Honorable Carol Bagley Amon, is
plaintiff’s motion for default judgment against defendant. See Mot. for Default J., Dkt. 12. For
the reasons set forth below, this Court respectfully recommends granting plaintiff’s motion.
1 Plaintiff also alleges that plaintiff has no obligation to defend and indemnify defendant under
the insurance policy for any occurrence, claim or suit that may have been reported to plaintiff
due to defendant’s failure to pay the additional premium and defendant’s breach of its duty of
good faith and fair dealing owed to plaintiff. See Compl. ¶¶ 22-27 (Second and Third Causes of
Action).
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BACKGROUND
The following facts are drawn from the Complaint, which are accepted as true for the
purposes of this motion. See Compl.
Plaintiff is an insurance company organized and existing under the laws of the State of
Ohio, with its principal place of business in Ohio. See Compl. ¶ 1. Defendant is a corporation
organized and existing under the laws of the State of New York, with its principal place of
business in Queens County, New York. Id. ¶ 2.
A. 	The American Empire Policy
Plaintiff issued the American Empire Policy to defendant Rock E Small Plumbing &
Heating Inc., bearing Policy No. PLE813034-01, for the period January 8, 2023 to January 8,
2024. Id. ¶ 6. Plaintiff determined defendant’s insurance premium based on a percentage of
defendant’s gross receipts during the policy period. Id. ¶ 7. Plaintiff assigned an “Advance
Premium” based on an estimate of defendant’s gross receipts. Id. ¶ 8. Under the Policy, the
“Advance Premium” was subject to adjustment if an audit by plaintiff revealed that the gross
receipts exceeded the initial estimate. Id.
The American Empire Policy states, in relevant part:
SECTION IV – COMMERCIAL GENERAL LIABILITY CONDITIONS
* * *
5. 	Premium Audit
a. 	We will compute all premiums for this Coverage Part in
accordance with our rules and rates.
b. 	Premium shown in this Coverage Part as advance premium is a
deposit premium only. At the close of each audit period we will
compute the earned premium for that period and send notice to the
first Named Insured. The due date for audit and retrospective
premiums is the date shown as the due date on the bill. If the sum
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of the advance and audit premiums paid for the policy period is
greater than the earned premium, we will return the excess to the
first Named Insured.
c. 	The first Named Insured must keep records of the information we
need for premium computation, and send us copies at such times as
we may request.
American Empire Policy, Dkt. 12-3 at ECF page 2 24; see also Compl. ¶ 9.
The American Empire Policy also contains an endorsement (“Explanatory Policy
Premium Endorsement”), Dkt. 12-3 at ECF page 35, that provides, in relevant part:
THIS ENDORSEMENT CHANGES THE POLICY
* * *
This endorsement modifies insurance provided under the following: COMMERCIAL
GENERAL LIABILITY COVERAGE FORM
A. 	The following is added to COMMERCIAL GENERAL LIABILITY
COVERAGE FORM, SECTION IV -- COMMERCIAL GENERAL
LIABILITY CONDITIONS, 5. Premium Audit:
d. 	1. 	This [American Empire] policy is subject to a minimum
policy premium as stated in the Declarations. If the policy
remains in force until the expiration date of the policy, this
minimum policy premium shall apply unless the audit
condition of this policy develops a greater premium. In no
event will the premium be less than the minimum policy
premium should the policy remain in effective [sic] the
complete policy term.
Dkt. 12-3 at ECF page 35; see also Compl. ¶ 10.
By way of the Common Policy Conditions, defendant “[i]s responsible for the payment of
all premiums . . . .” Dkt. 12-3 at ECF page 31; see also Comp. ¶ 11.
2 References to the page numbers generated by the Court’s electronic case filing system appear
as “ECF page.”
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B. 	The Audit
On behalf of American Empire, Matson Driscoll & Damico LLP performed an audit of
defendant’s financial records to determine its actual gross receipts during the policy period.
Compl. ¶ 13. Based on the audit, defendant owed an additional premium under the American
Empire Policy in the amount of $101,102. Id. ¶ 14.
On October 23, 2024, American Empire demanded payment from defendant, in the
amount of $101,102. See Compl. ¶ 19; Dkt. 12-6 at ECF pages 2-3. To date, American Empire
has not received payment from defendant for the amount owed. Id. ¶ 20.
On December 2, 2024, plaintiff filed its Complaint against defendant. See Compl., Dkt.
1. Defendant was served on December 6, 2024, and its response to the Complaint was due
December 27, 2024. See Dkt. 7. To date, defendant has failed to respond to the Complaint and
has otherwise failed to appear in this action. On January 10, 2025, the Clerk of Court entered
defendant’s default. See Dkt. 10. On March 12, 2025, plaintiff moved for default judgment. See
Dkt. 12.
LEGAL S TANDARD
Under Rule 55 of the Federal Rules of Civil Procedure, entering a default judgment
against a defendant is a two-step process. See City of New York v. Mickalis Pawn Shop, LLC,
645 F.3d 114, 128 (2d Cir. 2011) (“Rule 55 provides a ‘two-step process’ for the entry of
judgment against a party who fails to defend: first, the entry of a default, and second, the entry
of a default judgment.” (citation omitted)). First, the Clerk of the Court enters the default
pursuant to Rule 55(a) by notation of the party’s default on the Clerk’s record of the case. See
Fed R. Civ. P. 55(a) (“When a party against whom a judgment for affirmative relief is sought has
failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk
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must enter the party’s default.”). This first step is nondiscretionary. See United States v.
Conolly, 694 F. App’x 10, 12 (2d Cir. 2017). Second, after the Clerk of the Court enters a
defendant’s default, if that party fails to appear or otherwise move to set aside the default
pursuant to Rule 55(c), the plaintiff may apply to the court for a default judgment. See Fed R.
Civ. P. 55(b)(2). Whether or not a default judgment is then issued is within the discretion of the
court. See Grp. One Ltd. v. GTE GmbH, 625 F. Supp. 3d 28, 54 (E.D.N.Y. 2022) (“The decision
to grant a motion for default judgment is left to the sound discretion of the district court.”).
When evaluating a plaintiff’s application for a default judgment, “a court is required to
accept all . . . factual allegations as true and draw all reasonable inferences in [plaintiff’s] favor.”
Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009). “Nevertheless, it remains for the court to
consider whether the unchallenged facts constitute a legitimate cause of action, since a party in
default does not admit conclusions of law.” Labarbera v. ASTC Lab’ys Inc., 752 F. Supp. 2d
263, 270 (E.D.N.Y. 2010) (internal quotation marks and citation omitted); see also TAGC Mgmt.,
LLC v. Lehman, Lee & Xu Ltd., 536 F. App’x 45, 46 (2d Cir. 2013) (“[P]rior to entering default
judgment, a district court is required to determine whether the plaintiff’s allegations establish the
defendant’s liability as a matter of law.” (internal quotation marks and citation omitted)).
“Default judgments ‘are generally disfavored and are reserved for rare occasions.’” State
St. Bank & Tr. Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 168 (2d Cir. 2004) (quoting
Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993)). Providing guidance as to when a
default judgment is appropriate, the Second Circuit has cautioned that since a default judgment is
an extreme remedy, it should only be entered as a last resort. See Meehan v. Snow, 652 F.2d
274, 277 (2d Cir. 1981). While the Second Circuit has recognized the “push on a trial court to
dispose of cases that, in disregard of the rules, are not processed expeditiously [and] . . . delay
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and clog its calendar,” it has held that the district court must balance that interest with its
responsibility to “afford[] litigants a reasonable chance to be heard.” Enron Oil, 10 F.3d at 96.
Thus, in light of the “oft-stated preference for resolving disputes on the merits,” doubts should be
resolved in favor of the defaulting party. See id. at 95. Accordingly, “plaintiff is not entitled to a
default judgment as a matter of right” simply because defendants are in default. GuideOne
Specialty Mut. Ins. Co. v. Rock Cmty. Church, Inc., 696 F. Supp. 2d 203, 208 (E.D.N.Y. 2010).
A default serves as the defendant’s admission that the complaint’s well-pleaded factual
allegations are true. See Mickalis Pawn Shop, 645 F.3d at 137; Finkel, 577 F.3d at 84 (after
default the “court is required to accept all of the [plaintiff’s] [well-pleaded] allegations as true
and draw all reasonable inferences in its favor”). A fact is not considered “well-pleaded,”
however, “if it is inconsistent with [the] other allegations of the complaint or with facts of which
the court can take judicial notice . . . or is contrary to uncontroverted material in the file of the
case.” Hop Hing Produces Inc. v. Lin Zhang Trading Co., Inc., No. 11-CV-3259, 2013 WL
3990761, at *3 (E.D.N.Y. Aug. 5, 2013) (internal quotation marks and citations omitted).
Ultimately, whether to grant a motion for default judgment is “left to the [court’s] sound
discretion.” Shah v. New York State Dep’t of Civ. Serv., 168 F.3d 610, 615 (2d Cir. 1999); Div.
1181 Amalgamated Transit Union-New York Emps. Pension Fund v. D & A Bus Co., Inc., 270 F.
Supp. 3d 593, 606 (E.D.N.Y. 2017).
DISCUSSION
I. 	Defendant’s Default
The Clerk of the Court noted defendant’s default on January 10, 2025, after defendant
failed to respond to the Complaint. See Dkt. 10. Since then, defendant has not appeared or
moved to vacate the entry of default.
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Where the defendant has defaulted, the plaintiff must establish adequate service in order
to obtain a default judgment. See Chen v. Best Miyako Sushi Corp., No. 16-CV-2012, 2021 WL
707273, at *8 (S.D.N.Y. Feb. 1, 2021), report and recommendation adopted, 2021 WL 706412
(S.D.N.Y. Feb. 19, 2021); Miranda v. Astoria Provisions, LLC, No. 19-CV-2923, 2020 WL
6370058, at *3 (E.D.N.Y. July 24, 2020), report and recommendation adopted, 2020 WL
5810160 (E.D.N.Y. Sept. 30, 2020); see also Mickalis Pawn Shop, 645 F.3d at 133 (“[B]efore a
court grants a motion for default judgment, it may first assure itself that it has personal
jurisdiction over the defendant.” (internal quotation marks, brackets, and citation omitted)).
“Default judgments are disfavored, so before a district court will enter one, it must ensure that
the defaulting defendants received notice of the claims against them and were provided an
opportunity to answer those allegations.” Johannes Baumgartner Wirtschafts-Und
Vermögensberatung GmbH v. Salzman, 969 F. Supp. 2d 278, 287 n.6 (E.D.N.Y. 2013) (citing
State St. Bank & Trust Co., 374 F.3d at 168). Plaintiff bears the burden of proving that service
was adequate. See Rahman v. Red Chili Indian Café, Inc., No. 17-CV-5156, 2021 WL 2003111,
at *2 (S.D.N.Y. May 19, 2021).
Rule 4 of the Federal Rules of Civil Procedure permits service on a corporation in a
manner authorized by the law of the forum state. See Fed. R. Civ. P. 4(e)(1), 4(h)(1)(A). New
York law provides for service of process on a corporation by personally delivering process to
New York’s Secretary of State. See N.Y. Bus. Corp. Law § 306(b)(1).
Here, plaintiff served defendant by delivery to the Secretary of State. See Summons
Returned Executed, Dkt. 7. According to online records of New York’s Department of State,
Division of Corporation, as of the filing of this Report and Recommendation, the corporation is
still listed as active and has not been dissolved. Accordingly, plaintiff properly served defendant
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pursuant to New York Business Corporation Law § 306(b)(1).
II. 	Liability
Plaintiff moves for default judgment against defendant for defendant’s failure to pay the
additional insurance premium. See Mem. of Law in Support of American Empire’s Mot. for
Default J. (“Pl.’s Mem.”), Dkt. 12-10, at 6.3 Plaintiff alleges that defendant breached the terms
and conditions of the contract (i.e., American Empire Policy) entered into between plaintiff and
defendant. Under the American Empire Policy, defendant was required to pay a premium based
on the percentage of defendant’s gross receipts for each period. Plaintiff alleges that defendant
failed to make the required payment under the Policy.4
3 In the Complaint, plaintiff seeks both monetary damages (First Cause of Action) and a
declaration that it has no obligation to defend and indemnify defendant with respect to claims
brought under the American Empire Policy (Second and Third Causes of Action). In plaintiff’s
motion for default judgment, however, plaintiff only requests monetary damages. See Pl.’s
Mem. at 6; Proposed J., Dkt. 12-9. Plaintiff did not advance any argument in support of its
request to be relieved from its duty to defend and indemnify defendant. The Court finds that
plaintiff has abandoned its claims relating to the duty to defend and indemnify (Second and
Third Causes of Action) and respectfully recommends dismissal of those two causes of action
without prejudice. See Arch Specialty Ins. Co. v. Canbert Inc., No. 19-CV-5920, 2021 WL
1200329, at *3 n.3 (E.D.N.Y. Mar. 9, 2021) (recommending that claim asserted in complaint but
“not discussed in the Motion” for default judgment be deemed abandoned), report and
recommendation adopted, 2021 WL 1193004 (E.D.N.Y. Mar. 30, 2021); Bd. of Trs. of Pointers,
Cleaners & Caulkers Annuity Fund, Pension Fund & Welfare Fund v. Harbor Island
Contracting, Inc., No. 13-CV-6075, 2015 WL 1245963, at *2 n.1 (E.D.N.Y. Mar. 16, 2015)
(“[Plaintiffs] do not pursue this relief in their motion for default judgment, and thus the Court
deems this request abandoned.”).
4 As an initial matter, the Court applies New York law to plaintiff’s breach of contract claim.
See Arch Specialty Ins. Co. v. Ding Sheng Corp., No. 24-CV-3583, 2025 WL 905660, at *4-5
(E.D.N.Y. Feb. 1, 2025) (“[F]ederal court sitting in diversity borrows the forum State’s choice-
of-law rule” and “where liability insurance contracts are concerned, the applicable law is
generally the local law of the state which the parties understood was to be the principal location
of the insured risk”), report and recommendation adopted, Order dated Feb. 25, 2025 (Dkt. 25);
Arch Specialty Ins. Co. v. Apco Indus., Inc. No. 18-CV-4041, 2020 WL 6581000, at *3-4
(E.D.N.Y. Oct. 5, 2020), report and recommendation adopted, Order dated Nov. 9, 2020. Here,
the Court finds that New York law governs because plaintiff issued a commercial general
liability insurance policy to defendant, a New York corporation with its principal place of
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“[A]n insurance policy is a contract[.]” SCW West LLC v. Westport Ins. Corp., 856 F.
Supp. 2d 514, 524 (E.D.N.Y. 2012). “To state a claim for breach of contract under New York
law, ‘the complaint must allege: (i) the formation of a contract between the parties; (ii)
performance by the plaintiff; (iii) failure of defendant to perform; and (iv) damages.’” Orlander
v. Staples, Inc., 802 F.3d 289, 294 (2d Cir. 2015) (quoting Johnson v. Nextel Commc’ns, Inc.,
660 F.3d 131, 142 (2d Cir. 2011)).
Plaintiff has asserted a valid cause of action for breach of contract. The Complaint
alleges that plaintiff entered into a contract to provide defendant with a Commercial General
Liability insurance policy for the period of January 8, 2023 to January 8, 2024. Compl. ¶ 6.
Plaintiff issued such a policy to defendant for the duration of the policy term, but defendant
failed to perform its obligation under the Policy by failing to pay the additional premium. Id.
¶¶ 13-16. As a result, plaintiff suffered damages in the amount of the unpaid premium. Id. ¶ 21.
Accordingly, plaintiff’s allegations are sufficient to establish defendant’s liability for breach of
contract. See Apco Indus., Inc., 2020 WL 6581000, at *5 (“An insured’s failure to pay premiums
due under an insurance contract constitutes a breach.”).
III. 	Damages
Although the allegations of a complaint pertaining to liability are deemed admitted upon
entry of a default judgment, allegations relating to damages are not. See Greyhound
Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992) (citing Flaks v.
Koegel, 504 F.2d 702, 707 (2d Cir. 1974)). “Because the extent of the damages pleaded by a
plaintiff is not deemed to be established by the default, the Court must conduct ‘an inquiry in
business in Queens, New York, and the principal location of the insured risk is located in New
York. Compl. ¶¶ 2, 5, 6.
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order to ascertain the amount of damages with reasonable certainty.’” Trs. of Loc. 7 Tile Indus.
Welfare Fund v. All Flooring Sols., LLC, No. 19-CV-126, 2020 WL 9814088, at *3 (E.D.N.Y.
Feb. 12, 2020) (quoting Credit Lyonnais Secs. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d
Cir. 1999)). A court may make this determination based upon evidence presented at a hearing or
upon a review of detailed affidavits and documentary evidence. See Fed. R. Civ. P. 55(b)(2);
Action S.A. v. Marc Rich & Co., Inc., 951 F.2d 504, 508 (2d Cir. 1991).
A. 	Unpaid Additional Premium
The Court finds that plaintiff has sufficiently established the amount of damages sought
here. Under New York law, it is well settled that “[a] party injured by breach of contract is
entitled to be placed in the position it would have occupied had the contract been fulfilled
according to its terms.” Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 185
(2d Cir. 2007); see LG Capital Funding, LLC v. Wowio, Inc., No. 16-CV-6632, 2018 WL
3202077, at *10 (E.D.N.Y. Apr. 24, 2018), report and recommendation adopted, 2018 WL
2224991 (E.D.N.Y. May 15, 2018).
Plaintiff’s damages stem from defendant’s failure to pay the additional premium in
accordance with the terms of the Policy. See Compl. ¶¶ 18-21. An audit revealed that defendant
owed an additional $101,102 under the Policy. Id. ¶ 14. Plaintiff has submitted a copy of the
Policy, the audit report from Matson Driscoll & Damico LLP, and an “audit endorsement”
setting forth the amount of the additional premium based on the audit report. See Dkts. 12-3, 12-
4, 12-5. Although plaintiff has requested payment in this amount, defendant has failed to pay the
additional premium. Compl. ¶ 15. Therefore, the Court respectfully recommends awarding
plaintiff $101,102 in damages.
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B. 	Pre-judgment Interest
Plaintiff seeks pre-judgment interest at a rate of 9 percent, calculated from the date of
plaintiff’s demand for payment on October 23, 2024, until the date of judgment. See Proposed
J., Dkt. 12-9 at ECF page 2; Pl.’s Mem. at 4; Dkt. 12-6 at ECF page 2 (October 23, 2024
demand letter).
In diversity cases, New York law governs the award of pre-judgment interest. See
Terwilliger v. Terwilliger, 206 F.3d 240, 249 (2d Cir. 2000). In New York, plaintiffs seeking
monetary damages for breach of contract are entitled to pre-judgment interest as a matter of
right. See Matsumura v. Benihana Nat’l Corp., 465 F. App’x 23, 30 (2d Cir. 2012) (citing N.Y.
C.P.L.R. § 5001(a)). Pursuant to N.Y. C.P.L.R. § 5001, parties are entitled to recover interest
“upon a sum awarded because of a breach of performance of a contract.” N.Y. C.P.L.R.
§ 5001(a). The statutory rate for pre-judgment interest is 9 percent per annum calculated on a
simple interest basis. N.Y. C.P.L.R. § 5004. “Interest shall be computed from the earliest
ascertainable date the cause of action existed.” N.Y. C.P.L.R. § 5001(b); Marfia v. T.C. Ziraat
Bankasi, 147 F.3d 83, 90 (2d Cir. 1998) (damages incurred when the cause of action accrued
“shall be computed from the earliest ascertainable date the cause of action existed.”) (quoting
N.Y. C.P.L.R. 5001(b)).
Here, plaintiff seeks pre-judgment interest from the date of plaintiff’s demand letter to
defendant requesting payment of the additional premium on October 23, 2024. See Pl.’s Mem. at
3-4. The Court finds that October 23, 2024 is reasonable as the accrual date for the breach of
contract. See Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402 (1993). Thus, the
Court respectfully recommends awarding plaintiff interest of $24.93 per day (9 percent of
$101,102 divided by 365 days a year) beginning October 23, 2024, through the date of entry of
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judgment.
CONCLUSION
For the reasons set forth above, the Court respectfully recommends granting American
Empire’s motion for a default judgment and awarding plaintiff American Empire $101,102 on its
breach of contract claim. The Court further recommends awarding pre-judgment interest from
October 23, 2024 at the rate of $24.93 per day, through the date of entry of judgment.
Any objections to the recommendations made in this Report must be filed with the
Honorable Carol Bagley Amon within 14 days after the filing of this Report and
Recommendation and, in any event, on or before February 4, 2026. See 28 U.S.C. §
636(b)(1); Fed. R. Civ. P. 72(b)(2). Failure to file timely objections may waive the right to
appeal the District Court’s order. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(d), 72;
Small v. Sec’y of Health & Human Servs., 892 F.2d 15, 16 (2d Cir. 1989) (per curiam)
(discussing waiver under the former ten-day limit).
A copy of this Report and Recommendation is being electronically served on counsel.
Further, the Court directs plaintiff’s counsel to serve a copy of this Report and
Recommendation by overnight mail and first-class mail on defendant and to file proof of
service on ECF by January 26, 2026.
SO ORDERED
Dated: Brooklyn, New York
January 21, 2026
s/ James R. Cho
James R. Cho
United States Magistrate Judge
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