Opinion
Index No. 654238/2019 Motion Seq. No. 001
05-11-2022
244 MADISON REALTY CORP., MAXWELL-KATES, INC., and STRATHMORE INSURANCE COMPANY, Plaintiffs, v. UTICA FIRST INSURANCE COMPANY, Defendant.
Unpublished Opinion
Motion Date 08/28/2020
PRESENT: HON. LOUIS L. NOCK PART Justice
DECISION + ORDER ON MOTION
HON. LOUIS L. NOCK, JUSTICE
The following e-filed documents, listed by NYSCEF document number (Motion 001) 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, and 61 were read on this motion to/for JUDGMENT - SUMMARY.
Upon the foregoing documents, it is ordered that the plaintiffs' motion and defendant's cross-motion are determined as follows.
In this insurance coverage dispute, plaintiffs 244 Madison Realty Corp. ("244 Madison"), Maxwell-Kates, Inc. ("MK"), and Strathmore Insurance Company ("Strathmore") (collectively, "plaintiffs") move, pursuant to CPLR 3212, for summary judgment declaring that defendant Utica First Insurance Company ("Utica") (1) must provide additional insured coverage to plaintiffs in an underlying personal injury action, Jovita Sibrian v 244 Madison Realty Corp. and Maxwell-Kates, Inc., Index No. 708235/14 (Sup Ct Queens County) ("underlying action"); (2) is obligated to defend 244 Madison in the underlying action; and (3) reimburse plaintiffs for attorneys' fees and expenses incurred in the defense of the underlying action.
Utica cross-moves pursuant to CPLR 3212 and 3001 and Insurance Law § 3420 (d) (2) for summary judgment and a declaration that Utica is not obligated to defend or indemnify plaintiffs in the underlying action or to otherwise reimburse plaintiffs.
BACKGROUND
On August 13, 2002, 244 Madison, as owner of the building located at 244 Madison Avenue, New York, New York, entered into a lease agreement with non-party John Kapetanos (NYSCEF Doc No. 20, ¶¶ 13-14). Kapetanos, as Chief Executive Officer of Pirgos Food Corp., began occupying the premises and conducting business as the Moonstruck Diner ("Moonstruck") (id., ¶¶ 19-20).
The Rider to the Lease Agreement states in relevant part:
"46. Non-Liability, Indemnification and Insurance.
Supplementing Article 8 of the lease:
(b) Tenant and Tenant's subtenants shall carry and maintain in force from and after the date of this lease and through the term hereof, at the expense solely of Tenant and Tenant's subtenants, (i) workers' compensation and other required statutory forms of insurance, in statutory limits, (ii) comprehensive general public liability insurance, which shall be written on an occurrence basis, naming Tenant as the insured with Owner and Owner's individual partners, officers, shareholders, managing and other agents and, if requested by Owner, others having an interest in the Land and/or the Building, as additional insureds, in limits (subject to increase at Owner's reasonable request) of not less than Two Million and 00/00 ($2,000,000.00) Dollars for bodily and personal injury or death in any one occurrence...."(NYSCEF Doc No. 31 at 13.)
Utica First issued the Utica Primary Policy to "Moonstruck on Madison Pirgos Food Corp DBA" for the policy period beginning May 10, 2011, through May 10, 2012 (NYSCEF Doc No. 26). Utica First also issued commercial excess liability policy number ULC 1376364 ("excess policy") to Pirgos Food d/b/a Moonstruck for the same policy period (excess policy, NYSCEF Doc No. 46).
In the underlying personal injury action, Jovita Sibrian ("Sibrian), alleges that on May 9, 2012, she was injured when she slipped and fell due to a leaking pipe at the premises (NYSCEF Doc No. 3). Sibrian filed suit on November 5, 2014, against 244 Madison and MK as owner and managing agent of the premises, respectively. Strathmore, pursuant to a general liability insurance policy (policy no. 8131M16117) ("Strathmore policy") issued to 244 Madison, undertook the defense of 244 Madison and MK (NYSCEF Doc No. 32 ¶ 10).
In January 2017, Strathmore received a lien letter from the Worker's Compensation carrier for Sibrian's claim, which identified Sibrian's employer as Pirgos Food Corp. (NYSCEF Doc No. 59 ¶ 8). On May 4, 2017, Strathmore's claims examiner, Tiffany Romain, located a claim made in 2014 to Utica (id. ¶ 10). That same day, Strathmore tendered the defense and indemnity of 244 Madsion and MK to Utica (NYSCEF Doc No. 7). On June 8, 2017, Utica denied tender of the defense of 244 Madison and MK based in part on the employee injury exclusion and failure to provide timely notice as required by the policy (NYSCEF Doc No. 8). By separate letter dated June 8, 2017, Utica also denied the tender of the defense and indemnity of 244 Madison and MK under the Utica excess policy (NYSCEF Doc. No. 9). By letter dated October 3, 2018, Strathmore retendered the defense and indemnity of 244 Madison and MK to Utica (NYSCEF Doc No. 10). It stated that Utica's June 8, 2017, tender denial did not describe with particularity the factual basis for the denial of coverage and referred to Section 4 of the Lease Agreement, which required Moonstruck to maintain liability insurance naming 244 Madison and MK as additional insureds with limits of not less than $2,000,000.
In October 2018, 244 Madison and MK commenced a third-party action against Kapetanos, as CEO of Pirgos Food Corp. and Pirgos Food d/b/a Moonstruck Diner, in the underlying action, asserting causes of action for contribution, common law and contractual indemnity, breach of contract for failure to procure insurance, assignee liability, and alter ego/corporate veil liability (third-party complaint, NYSCEF Doc No. 11).
On December 18, 2018, Utica undertook the defense of Kapetanos and Moonstruck on Madison under the primary policy but declined to represent Kapetanos in his personal capacity. In its reservation of rights letter, Utica stated, inter alia,
"While Utica First continues to disclaim its indemnity obligations to Moonstruck and Kapetanos for claims of negligence, including the common law indemnification claims asserted against them in the Third-Party Action, based upon the Employee Exclusion and the Work Comp Exclusion, because of the claims of contractual liability based upon an alleged lease agreement, Utica First will defend Moonstruck and Kapetanos under the BOP Policy (primary policy) against all of the claims asserted against them in the Third Party Action...."(Utica coverage letter, NYSCEF Doc No. 12 at 4-5.)
Utica Insurance Policy
The Utica primary policy states in relevant part, as follows:
WHAT MUST BE DONE IN CASE OF LOSS 1. Notice-
a. In the case of an occurrence, or if an Insured becomes aware of anything that indicates that there might be a claim under the Commercial Liability Coverage, the insured must promptly give notice to us or our agent.
b. The notice to us must state:
1) the insured's name;
2) the policy number;
3) the time, the place and the circumstances of the occurrence; and
4) the names and addresses of all known potential claimants and witnesses.(NYSCEF Doc No. 26 at BP-200 Form, at 22.)
"Exclusions That Apply to All Coverages," contains the following applicable exclusion to coverage:
8. We do not pay for:
a. bodily injury to an employee of an insured if it occurs in the course of employment; or
b. consequential injuries to a spouse, child, parent, brother or sister of such injured employee.
Exclusion 8 applies where:
1) the insured is liable either as an employer or in any other capacity; or
2) there is an obligation to fully or partially reimburse a third person for damages arising out of paragraph 8.a. or 8.b. Above.
Exclusion 8 does not apply to liability assumed by an insured under an incidental contract.(Id. at 20, ¶ 8.)
Utica's policy defines an "incidental contract" as a written:
a. lease of premises;
b. easement agreement ...;
c. promise to indemnify a municipality if required by an ordinance ...;
d. sidewalk agreement; or
e. elevator maintenance agreement.(Id. at 15 ¶ 6.)
The "Additional Insured Lessor Endorsement" is identified as 244 Madison Realty Corp., with an address of 820 2nd Avenue, New York, New York, 10017 (id. at Form GL842 Ed. 2.0)
Arguments of the Parties
244 Madison seeks a declaration that it is an additional insured entitled to a defense from Utica under the primary policy pursuant to the Additional Insured Lessors Endorsement, which identifies 244 Madison as the "designated lessor" of the premises at 244 Madison Avenue, New York, New York. It also contends that Utica's denial of tender was untimely and lacked specificity. 244 Madison also argues that Utica cannot claim that it was prejudiced by 244 Madison's late notice pursuant to Insurance Law § 3420 (c) (2) (C) as it has been actively defending Kapetanos and Moonstruck in the underlying claim. Moreover, 244 Madison avers that the "Incidental Contract" exception to the employee exclusion applies, pursuant to the lease between Moonstruck and 244 Madison, and a defense under the Utica primary policy should be extended to 244 Madison.
Utica maintains that plaintiffs are not entitled to coverage due to the employee exclusion contained within the policy. Moreover, it argues that plaintiffs have misstated the law and that pursuant to Insurance Law § 3420 (c) (2) (C), it is plaintiffs' burden to demonstrate that Utica has not been prejudiced by plaintiffs' late notice of the underlying lawsuit.
STANDARD OF REVIEW
It is well-established that to obtain summary judgment under CPLR 3212 (b), the movant must put forth "proof in admissible form" to "establish [a] cause of action or defense 'sufficiently to warrant the court as a matter of law in directing judgment' in the [movant's] favor" (Friends of Animals v Associated Fur Mfrs., 46 N.Y.2d 1065, 1067 [1979] [citation omitted]). If the movant fails to meet this initial burden, summary judgment must be denied "'regardless of the sufficiency of the opposing papers'" (Vega v Restani Constr. Corp., 18 N.Y.3d 499, 503 [2012] [citation omitted]). Once the movant meets this initial burden, then the burden shifts to the opposition to rebut that prima facie showing, by producing evidence, in admissible form, sufficient to require a trial of material factual issues (De Lourdes Torres v Jones, 26 N.Y.3d 742, 763 [2016]; Zuckerman v City of New York, 49 N.Y.2d 557, 562 [1980]).
DISCUSSION
A. Whether Plaintiffs are Additional Insureds
It is well established that the party claiming coverage bears the burden of proving entitlement (National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 A.D.3d 570, 570 [1st Dept 2006]; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 A.D.3d 198, 200 [1st Dept 2004]). 244 Madison has established, pursuant to the Additional Insured Lessors Endorsement (Form GL842 Ed. 2.0), that 244 Madison is an additional insured on the Utica primary policy issued to Moonstruck and is entitled to additional insured status under the policy.
However, Utica is not obligated to provide defense or indemnification to MK under the policy (Sixty Sutton Corp. v Illinois Union Ins. Co., 34 A.D.3d 386, 388 [1st Dept 2006] ["The four corners of an insurance agreement govern who is covered and the extent of coverage"]). A copy of the policy issued to Moonstruck does not reflect MK as additional insured lessor.
B. Whether an Exclusion or Exception Applies
An insurer bears the burden of demonstrating that a policy exclusion defeats an insured's claim by establishing that the exclusion is "stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case" (Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 640, 652 [1993]; Bodlovic v Giannoutsos, 189 A.D.3d 1333, 1334 [2d Dept 2020]). Where, as here, the existence of coverage depends entirely on the applicability of an exception to an exclusion, the insured has the duty of demonstrating that the exception governs (Monteleone v Crow Constr. Co., 242 A.D.2d 135, 140 [1st Dept 1998]; State of New York v Schenectady Hardware & Elec. Co., 223 A.D.2d 783, 785 [3d Dept 1996]). Where the general coverage provision is followed by an exclusion that narrows the covered events and, in turn, an exception to that exclusion revives coverage, the exception to the exclusion should be interpreted broadly so as to find coverage (Nocella v Fort Dearborn Life Ins. Co. of N.Y., 99 A.D.3d 872, 876 [2d Dept 2012]).
The employee exclusion upon which Utica relies excludes coverage for bodily injury to, among others, an employee performing duties related to the conduct of the insured's business. As explained by the court in Bodlovic (189 A.D.3d at 1334), employee exclusions such as these are intended to avoid duplication of Workers' Compensation policies. However, like the employee exclusion in Bodlovic, the exclusion in the instant matter also contains an exception, which states, "Exclusion 8 does not apply to liability assumed by the insured under an incidental contract" (NYSCEF Doc No. 26 at BP-200 Form, at 20). Incidental contract is defined in the policy to include a "lease of premises" (id. at 15, ¶ 6). The subject lease required Moonstruck to procure general liability insurance in favor of 244 Madison and to defend and indemnify them for bodily injury claims. Accordingly, the lease is an incidental contract within the meaning of the policy and 244 Madison has clearly demonstrated an exception to the exclusion applies.
C. Whether Plaintiffs' Delay in Notifying Defendant was Reasonable
Here, the subject policy required that notice be promptly given to Utica in case of an occurrence. "It is well settled that where an insurance policy requires that notice of an occurrence be given promptly, notice must be given within a reasonable time under the facts and circumstances of each case" (Kim v Maher, 226 A.D.2d 350, 350 [2d Dept 1996]). "There is no inflexible test of what constitutes reasonable notice, but the burden is on the insured to demonstrate that any delay was reasonable under the circumstances" (United Nat. Ins. Co. v. 515 Ocean Ave., LLC, 477 Fed.Appx 840, 843 [2d Cir 2012]; (see Security Mut. Ins. Co. of N.Y. v Acker-Fitzsimons Corp., 31 N.Y.2d 436, 441 [1972]).
The underlying accident occurred on May 9, 2012, and suit was commenced on November 5, 2014. Strathmore admits that it was aware of the accident and underlying suit by January 8, 2015. Per Romain's affidavit, there was cause to investigate whether other insurance coverage was applicable in January 2017, but no further action was undertaken until three months later in April 2017. It was not until May 8, 2017, that Utica was first notified of the accident and the underlying lawsuit- five years after the date of the accident, and more than two years after commencement of suit.
Plaintiffs provide no explanation for the initial two-year delay in conducting its due diligence and notifying Utica. Nor do they provide a reason for the additional four-month delay beginning in January 2017, show that it was not reasonably possible to have given notice sooner, or demonstrate diligence in attempting to ascertain the insurer's identity. The delay in giving such notice is clearly unreasonable as a matter of law (see 25 Ave. C New Realty, LLC v Alea N. Am. Ins. Co., 96 A.D.3d 489, 491 [1st Dept 2012] [five-year delay in providing insurer notice of claim was unreasonable]; Tower Ins. Co. of N.Y. v Classon Hgts., LLC, 82 A.D.3d 632, 634 [1st Dept 2011] [five-month unexcused delay unreasonable as a matter of law]; Juvenex Ltd. v Burlington Ins. Co., 63 A.D.3d 554, 554 [1st Dept 2009] [two-month delay inexcusable]).
D. Whether Defendant's Disclaimer was Timely
Pursuant to Insurance Law § 3420 (d) (2), an insurer wishing to disclaim liability or deny coverage for death or bodily injury must "give written notice as soon as reasonably possible of such disclaimer or denial of coverage." Failure to give such prompt notice precludes an effective disclaimer or denial (Matter of Firemen's Fund Ins. Co. of Newark v Hopkins, 88 N.Y.2d 836, 837 [1996]). "Timeliness of an insurer's disclaimer is measured from the point in time when the insurer first learns of the grounds for disclaimer of liability or denial of coverage" (First Fin. Ins. Co. v Jetco Contr. Corp., 1 N.Y.3d 64, 68-69 [2003], quoting Matter of Allcity Ins. Co., [Jimenez], 78 N.Y.2d 1054, 1056 [1991]). Unexplained delays of even 30 days have been found to be unreasonable as a matter of law (e.g., West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 A.D.2d 278, 279 [1st Dept 2002] [30-day disclaimer unreasonable when the sole ground for disclaimer was obvious from the face of the notice of claim and defendant had no need to investigate before determining whether to disclaim]). "An insurer who delays in giving written notice of disclaimer bears the burden of justifying the delay" (First Fin. Ins. Co. 1 N.Y.3d at 69 ). However, "investigation into issues affecting an insurer's decision whether to disclaim coverage obviously may excuse delay in notifying the policyholder of a disclaimer" (id.).
Here, Strathmore's tender letter asserted that Sibrian was an employee of Moonstruck, but the complaint in the underlying action, which was attached to the tender letter, did not identify her as an employee injured while working. As the basis for denying coverage was not readily apparent, the 35-day delay in order to investigate whether to disclaim based upon the employee exclusion is reasonable as a matter of law (DeSantis Bros. v Allstate Ins., Co., 244 A.D.2d 183, 184 [1st Dept 1997] [31-day delay]; Silk v City of New York, 203 A.D.2d 103, 104 [1st Dept 1994] [one month delay]).
E. Whether Defendant was Prejudiced by Plaintiffs' Delay
Having determined that the notice of claim was unreasonably delayed, this court now considers whether the insurer was prejudiced by the delay. Insurance Law §§ 3420(a)(5) and 3420 (c)(2)(A) read together provide that untimely notice shall not invalidate a claim unless, in the case of notice provided within two years, an insurer proves prejudice, and, in the case of notice provided after two years, the insured fails to prove lack of prejudice. Because plaintiffs notified Utica more than two years after being served, plaintiffs bear the burden to demonstrate lack of prejudice. An insurer is prejudiced if "the failure to timely provide notice materially impairs the ability of the insurer to investigate or defend the claim" (Insurance Law § 3420[c][2][C]).
In United States Underwriters Ins. Co. v ITG Development Group, LLC (294 F.Supp.3d 18, 21 [EDNY 2018]), by the time the insurer was notified of the claim and began investigating, nearly three years had passed, and the insured no longer had any records of the incident and could not provide the insurer with any type of lease agreement, occurrence report, or other pertinent information regarding the incident. The court held that the delay in notice prejudiced the insurer.
Likewise, in Atlantic Cas. Ins. Co. v Value Waterproofing, Inc. (918 F.Supp.2d 243, 255 [SD NY], affd sub nom. Atlantic Cas. Ins. Co. v Greenwich Ins. Co., 548 F Appx 716 [2d Cir 2013]), the court held that a six-month delay in notice prevented the plaintiff from being able to independently investigate and ascertain potential causes of a roof collapse, information that was vital to a defense for such a claim.
Here, plaintiffs have failed to carry their burden to show that the late notice did not impair the ability of Utica to investigate or defend the underlying claim. Plaintiffs' argument that Utica's disclaimer makes no mention of "missing witnesses, faded memories or an inability to speak to Ms. Sibrian" misinterprets the statute. Moreover, plaintiffs contend that any prejudice claimed by Utica now is "nothing more than creative, ex post, arguments of counsel" (NYSCEF Doc No 58 at 5). The burden, however, is on plaintiffs, not Utica. As noted by the court in United States Underwriters Ins. Co. (294 F.Supp.3d at 31 n 14),
"There does not appear to be much case law indicating how an insured or injured party may demonstrate lack of prejudice. The Court notes the difficulty in proving a negative. See AJF Transportation Consultants, Inc. v. C.I.R., 213 F.3d 625 (2d Cir. 2000) (describing "difficulty of proving a negative" in finding Government did not have to establish that a taxpayer's claimed deductions did not exist). However, in this action, Plaintiff has offered specific evidence of prejudice in addition to the presumption of prejudice."
Likewise, here, not only is prejudice presumed, but Utica has stated that a potential witness to the accident is no longer employed by Moonstruck and therefore more difficult to locate and interview. Utica also argues that the untimely notice has deprived it of the opportunity to conduct its own investigation as soon as possible, locate witnesses, or possibly dispose of the matter. Plaintiffs have failed to overcome the presumption that the delay in providing timely notice prejudiced Utica.
Accordingly, it is hereby
ORDERED that plaintiffs' motion for summary judgment is denied and defendant's cross-motion is granted; and it is further
ADJUDGED and DECLARED that defendant Utica First Insurance Company is not obligated to provide a defense or indemnify plaintiffs in the underlying action of Jovita Sibrian v 244 Madison Realty Corp. and Maxwell-Kates, Inc., Sup Ct, Queens County, Index No. 708235/14; and it is further
ORDERED that the Clerk of the Court is directed to enter judgment dismissing the complaint in favor of defendant Utica First Insurance Company, with costs and disbursements to said defendant as taxed by the Clerk upon the submission of an appropriate bill of costs.
This constitutes the decision and order of the court.