Opinion
16-cv-04641 (LDH) (RER)
07-26-2018
U.S. UNDERWRITERS INSURANCE COMPANY, Plaintiff, v. ORION PLUMBING & HEATING CORP., Arkadiy Bangiyev, Joseph Pomilla, J Bayot Home Design and Arnulfo Bayot, Defendants.
MEMORANDUM AND ORDER
On April 17, 2018, United States Magistrate Judge Ramon E. Reyes, Jr., issued a Report and Recommendation (the "R&R"), wherein he recommended that Plaintiff U.S. Underwriters Insurance Company's ("U.S. Underwriters") motion for default judgment against Defendant Orion Plumbing & Heating Corporation ("Orion") be denied and that Plaintiff's claims be dismissed for lack of subject matter jurisdiction.
Plaintiff commenced this action against Defendant Orion on August 19, 2016, seeking the rescission of an insurance policy and a declaration that Plaintiff has no duty to defend or indemnify Orion for claims asserted in a New York State court action captioned Joseph Pomilla v. Arkadiy Bangiyev, et al. , (the "Underlying Action"). (Compl., ECF No. 1, ¶¶ 10, 29, 34, 38.) Orion has failed to appear in or defend itself in this matter. On December 22, 2016, the Clerk of Court entered default against Orion, and Plaintiff moved for default judgment pursuant to Fed. R. Civ. P. 55. (ECF No. 28.) Plaintiff's Motion for Default Judgment was referred to Magistrate Judge Reyes for a report and recommendation, which he issued on April 17, 2018. (ECF No. 43.) In the R&R, Magistrate Judge Reyes recommended denying Plaintiff's requests for two declarations: one rescinding the insurance policy issued to Orion and another finding that Plaintiff is under no obligation to defend or indemnify Orion. On April 25, 2018, Plaintiff filed an objection challenging Magistrate Judge Reyes' recommendation that the Court deny Plaintiff's request for a declaration of rescission. (See Objection, ECF No. 44). In reaching that conclusion, Magistrate Judge Reyes found that, because Orion had not made a claim under Plaintiff's policy and was unlikely do so, there was no case or controversy before this Court. (See R&R, –––– ). Plaintiff did not object to Magistrate Judge Reyes' denial of Plaintiff's request for a declaration that Plaintiff has no duty to defend or indemnify Orion in the Underlying Action.
The Underlying Action, Index No. 1590/2015, was filed on February 11, 2015, and is before the Supreme Court of New York, Queens County.
The Court reviews any portion of Magistrate Judge Reyes' R&R that has been objected to de novo . See Fed. R. Civ. P. 72(b)(1), (3); 28 U.S.C. § 636(b)(1)(C). As to the balance, "the district court need only satisfy itself that there is no clear error on the face of the record." Estate of Ellington ex rel. Ellington v. Harbrew Imps. Ltd. , 812 F. Supp. 2d 186, 189 (E.D.N.Y. 2011) (quoting Urena v. New York , 160 F. Supp. 2d 606, 609-10 (S.D.N.Y. 2001) (internal quotation marks and citations omitted)).
For the reasons set forth below, the Court adopts Magistrate Judge Reyes' opinion in full.
All facts are drawn from Plaintiff's complaint. (ECF No. 1).
In 2012, Plaintiff, an insurance provider, extended a commercial liability policy (the "Policy") to Orion, a heating and plumbing contractor. (Compl. ¶ 16.) Orion subsequently performed work on a property located at 112-44 68th Avenue in Rego Park, Queens (the "Property"). On June 3, 2012, a fire occurred on the Property, allegedly injuring Pomilla. (ECF. No. 1-1 ("Underlying Compl.") ¶¶ 59-61.) In 2015, Pomilla commenced the Underlying Action against the Property's owner, Bangiyev, and several other defendants for injuries Pomilla allegedly suffered as a result of the fire. (Underlying Compl. ¶ 1.) Bangiyev, in turn, filed a third-party complaint against Orion, seeking indemnification and contribution based on the work performed by Orion on the Property. (Compl. ¶ 14.) Orion never sought indemnification from Plaintiff or sought to implead Plaintiff in the Underlying Action. Bangiyev and Orion were subsequently dismissed as defendants in the Underlying Action, a decision which Pomilla is currently appealing. (ECF. No. 39); Pomilla v. Bangiyev , Sup. Ct., Queens County, June 8, 2017, Raffaele, J., Index No. 1590/15, 2017 WL 4541316.
DISCUSSION
Plaintiff objects to Magistrate Judge Reyes' recommendation that the Court deny Plaintiff's request for a declaration of rescission. Plaintiff contends that its rescission claim presents a justiciable controversy because Plaintiff issued the Policy based on Orion's material misrepresentations in its insurance application. (See Objection, 3-7.)
To grant Plaintiff's motion, the Court must first be satisfied that the complaint presents a case or controversy as required by Article III of the Constitution. That is, "[t]he controversy must be ‘real and substantial ... admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.’ " Olin Corp. v. Consol. Aluminum Corp. , 5 F.3d 10, 17 (2d Cir. 1993) (quoting Aetna Life Ins. Co. v. Haworth , 300 U.S. 227, 241, 57 S.Ct. 461, 81 L.Ed. 617 (1937) ). In other words, "[t]he [controversy] ... must [take] a fixed and final shape so that a court can see what legal issues it is deciding, what effect its decision will have on its adversaries, and some useful purpose to be achieved in deciding them." U.S. Underwriters Ins. Co. v. Kum Gang Inc. , 443 F. Supp. 2d 348, 352 (E.D.N.Y. 2006) (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., Inc. , 344 U.S. 237, 244, 73 S.Ct. 236, 97 L.Ed. 291 (1952) ). Magistrate Judge Reyes found that Plaintiff's claims did not present a case or controversy. The Court agrees.
Orion's conduct has not been shown to cause actual or threatened injury to Plaintiff. Orion has not claimed a loss based on the Underlying Action. And, because the Underlying Action has been dismissed against Orion, Orion appears unlikely to do so. (See R&R, ––––.) Plaintiff argues that under New York law, "an insurer is entitled to rescind an insurance policy thereby rendering the policy void ab initio if it issued the policy in reliance on a material misrepresentation made by the insured." (Objection, *4.) While this may be true, Plaintiff conflates the grounds upon which an insurance policy can be rescinded with the grounds upon which this Court may exercise jurisdiction. Further undermining Plaintiff's arguments, in each and every case cited by Plaintiff, an insured had already made a claim for insurance coverage pursuant to an insurance policy. See, e.g. , U.S. Underwriters Insur. Co. v. Novel Home Health Care Servs. of New York, Corp. , No. 14 Civ. 3715, 2016 WL 5339358, *4 (E.D.N.Y. Jan. 13, 2016) (addressing rescission claim where the insured defendant had already made a claim for insurance coverage pursuant to an insurance policy); Fidelity and Guaranty Insur. Underwriters, Inc. v. Jasam Realty Corp. , 540 F.3d 133, 143 (2d Cir. 2008) (same); Vella v. Equitable Life Assurance Soc'y of the U.S. , 887 F.2d 388, 390-391 (2d Cir. 1989) (same); John Hancock Life Insur. Co. v. Perchikov , 553 F.Supp. 2d 229, 232-233 (E.D.N.Y. 2008) (same). That is not the case here. Indeed, it is undisputed that Orion has not been found liable in the Underlying Action, has not challenged the coverage, and has made no claims whatsoever under the Policy.
In determining the justiciability of declaratory actions, courts "focus on the practical likelihood that the contingencies will occur." Century Sur. Co. v. Odyssey Mech. Corp. , No. 9 Civ. 1040, 2011 WL 4529637, *3 (E.D.N.Y. Sept. 27, 2011) (quoting Associated Indem. Corp. v. Fairchild Indus., Inc. , 961 F.2d 32, 35 (2d Cir. 1992) ). As Magistrate Judge Reyes correctly found, an attenuated chain of contingencies would have to occur for Orion to present a justiciable claim to the Court. First , the Underlying Action would have to be reinstated against Orion. Second , an unfavorable opinion would have to be entered against Orion, causing a loss to Orion. Third , Orion would have to make a claim under the Policy. Because the Policy was cancelled six years ago, and because Orion has made no claims under the Policy, there is no practical likelihood that these contingencies will occur. Therefore, Plaintiff's claim is not justiciable.
CONCLUSION
The Court has reviewed the remaining portions of the R&R for clear error and, finding none, hereby adopts Magistrate Judge Reyes' R&R as the opinion of this Court. For the foregoing reasons, the Court orders, consistent with Magistrate Judge Reyes' R&R, that Plaintiff's claims be dismissed without prejudice.
SO ORDERED.
REPORT & RECOMMENDATION
April 17, 2018
Ramon E. Reyes, Jr., U.S.M.J.:
U.S. Underwriters Insurance Company ("Plaintiff") commenced this action against Orion Plumbing & Heating Corp. ("Orion") on August 19, 2016, seeking the rescission of an insurance policy or a declaration that Plaintiff has no duty to defend or indemnify Orion in a pending state court action (the "Underlying Action"). (Dkt. No. 1). Orion has failed to appear or otherwise defend against this action. On December 22, 2016, the Clerk of the Court entered default against Orion, and Plaintiff now moves for default judgment pursuant to Fed. R. Civ. P. 55. (Dkt. No. 28). Your Honor has referred this motion to me for a report and recommendation. (Order Dated 3/12/18). For the reasons set forth below, I respectfully recommend that Plaintiff's request for default judgment be denied and the Plaintiff's claims be dismissed for lack of subject matter jurisdiction.
Plaintiff also named J Bayot Home Design, Arkadiy Bangiyev, Joseph Pomilla, and Arnulfo Bayot as defendants. (Dkt. No. 1). Claims against these parties were dismissed pursuant to Your Honor's ruling dated March 1, 2018. (Dkt. No. 40).
BACKGROUND
Plaintiff, an insurance provider, extended coverage to Orion in 2012 (the "Policy"). (Dkt. No. 1 ("Compl.") ¶ 16). That same year, Joseph Pomilla ("Pomilla") was allegedly injured while responding to a fire at 112-44 68th Ave in Rego Park Queens (the "Property"). (Dkt. No. 1-1 ("Underlying Compl.") ¶ 3). The Property is residential in nature. (Compl. ¶ 27). In 2015, Pomilla commenced the Underlying Action against the Property's owner, Arkadiy Bangiyev ("Bangiyev"), and several other defendants. (Underlying Compl. ¶ 1). Bangiyev then filed a third-party complaint against Orion, seeking indemnification and contribution based on work performed by Orion on the Property prior to the fire. (Compl. ¶ 14). Subsequently, Bangiyev succeeded on a motion for summary judgment and he and Orion were dismissed as defendants in the Underlying Action, which Pomilla is currently appealing. (Dkt. No. 39); Pomilla v. Bangiyev , Sup. Ct., Queens County, June 8, 2017, Raffaele, J., index No. 1590/15, 2017 WL 4541316.
Under the terms of the Policy, Plaintiff was required to provide Orion liability coverage from May 22, 2012, to May 22, 2013. (Compl. ¶ 16). Four months into the coverage period the Policy was canceled for failure to pay required premiums. (Compl. ¶ 16). However, this cancelation occurred after the events leading to Pomilla's alleged injury. (Compl. ¶ 13). Despite this, Plaintiff contends it has no duty to defend or indemnify Orion in the Underlying Action. (Compl. ¶ 29, 34, 38). Plaintiff further contends that due to Orion's material misrepresentations in securing the Policy, the Court should rescind the Policy and declare it void ab initio. (Compl. ¶ 46). DISCUSSION
A plaintiff seeking default judgment must first comply with Rule 55's procedural requirements. When a defendant fails to file a timely response to the complaint the plaintiff must request entry of default. Priestley v. Headminder, Inc. , 647 F.3d 497, 504 (2d Cir. 2011). (citing Fed. R. Civ. P. 55(a) ). Once the clerk of the court has entered default, the plaintiff "must apply to the court for a default judgment." Fed. R. Civ. P. 55(b)(2). Plaintiff has satisfied these procedural requirements. Consequently, the motion will be granted if, accepting "all well-plead allegations" as true, the complaint "establishes the defendant's liability as a matter of law." Gesualdi v. Ava Shypula Testing & Inspection, Inc. , No. 12-CV-1873 (DRH) (GRB), 2014 WL 1399417, at *4 (E.D.N.Y. Apr. 10, 2014) (internal quotations omitted).
This Court will not consider the additional evidence presented by Plaintiff in its motion papers.
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I. Right to Declaratory Judgment
Courts have discretion to award declaratory relief following a defendant's default. See Cont'l Ins. Co. v. Huff Enter. Inc. , No. 07-CV-3821 (NGG), 2009 WL 3756630, at *3 (E.D.N.Y. Nov. 6, 2009). Such relief is only appropriate where there is "a case of actual controversy within [the court's] jurisdiction." 29 U.S.C. § 2201(a). This Court's jurisdiction is similarly limited by the cases and controversies requirement of the Constitution. U.S. Const. art. III, § 2, cl. 1. This statutory and constitutional limit on the Court's power requires there to be "a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Md. Cas. Co. v. Pac. Coal & Oil Co. , 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941). This is known as ripeness, and "in the insurance context, an insurer's right to dispute coverage ripens when a live claim for coverage is made by the policyholder." Scottsdale Ins. Co. v. Priscilla Props., LLC , 254 F.Supp.3d 476, 483 (E.D.N.Y. 2017) ; accord MacMillan, Inc. v. Fed. Ins. Co. , 764 F.Supp. 38, 42 (S.D.N.Y. 1991) ; Nat'l Union Fire Ins. Co. v. Hicks, Muse, Tate & Furst, Inc. , 02-CV-1334 (SAS), 2002 WL 1313293, at *3-4, 2002 U.S. Dist. LEXIS 10672, at *13 (S.D.N.Y. June 13, 2002) ; United Fin. Cas. Co. v. Paddon , 248 F.Supp.3d 368, 373 (N.D.N.Y. 2017).
Here, the Plaintiff's well-pleaded allegations do not show that the feared legal consequence, indemnity for Orion, has been imposed on the Plaintiff. Bangiyev impleaded Orion as a third-party defendant in the Underlying Action, but he has since succeeded on a motion for summary judgment that determined he has no liability to Pomilla. Pomilla v. Bangiyev , Sup. Ct., Queens County, June 8, 2017, Raffaele J., index No. 1590/15, 2017 WL 4541316. Consequently, Orion has no liability to either Bangiyev or Pomilla. Orion never impleaded U.S. Underwriters in the Underlying Action and, without the imposition of liability against Bangiyev or Orion, it is unlikely that Orion will seek indemnity from U.S. Underwriters for that action. Therefore, a declaration by this Court that U.S. Underwriters has no duty to indemnify Orion in the Underlying Action would be premature.
II. Rescission of the Policy
Separate from seeking a declaratory judgment that Plaintiff has no duty to indemnify Orion in the underlying action, the Plaintiff requests that this Court rescind the Policy and declare it void ab initio due to Orion's material misrepresentations during the formation of the contract. (Compl. ¶ 46) (Pl. Br. at 5).
This claim for relief is also subject to the constitutional requirement that it present a case or controversy. U.S. Const. art. III, § 2, cl. 1 ; In re Joint E. & S. Dist. Asbestos Litig. , 14 F.3d 726, 731 (2d Cir. 1993) ("[T]he plaintiff must assert that some conduct on the part of the defendants that has caused or is causing actual or threatened injury to the plaintiff that will be remedied or avoided by a determination of liability.") (internal citations omitted). This Court will only grant relief if Plaintiff's request to have the Policy rescinded and declared void ab initio presents a case or controversy within the meaning of Article III.
Orion has not claimed a loss based on the Underlying Action, has not contested a rescission of the Policy, and the Underlying Action has been dismissed against them. While the justiciability case law is less clear in the rescission context than in the coverage context, this attenuated chain of contingencies does not meet the case or controversy requirement.
Actions specifically disputing coverage do not ripen until a claim has been made on the policy. Part I, supra. But in other types of insurance actions, "[t]he existence of a justiciable controversy does not depend on the pendency of a live claim against the insured." Republic Ins. Co. v. Masters, Mates & Pilots Pension Plan , 77 F.3d 48, 51 (2d Cir. 1996). The fact that "the liability [between U.S. Underwriters and Orion] may be contingent does not necessarily defeat jurisdiction," because in some cases, "[an insurer's] claim to rescind its policies is by itself a justiciable controversy." Associated Indemnity Corp. v. Fairchild Industries, Inc. , 961 F.2d 32, 35 (2d Cir. 1992) ; Republic Ins. Co. v. Masters, Mates & Pilots Pension Plan , 77 F.3d 48, 51 (2d Cir. 1996). The Second Circuit has acknowledged the challenge in determining justiciability for insurance cases, noting that "litigation over insurance coverage has become the paradigm for asserting jurisdiction despite future contingencies that will determine whether a controversy ever actually becomes real." Associated Indemnity Corp. v. Fairchild Industries , Inc. , 961 F.2d 32, 35 (2d Cir. 1992).
But insurance cases are not an unlimited grant of subject matter jurisdiction. This Court must still give some meaning and effect to the words "case or controversy." Even in the insurance context, "courts should focus on the practical likelihood that the contingencies will occur." Associated Indemnity Corp. v. Fairchild Industries , Inc. , 961 F.2d 32, 35 (2d Cir. 1992). Courts have granted jurisdiction in the rescission context where the facts established that the insured was liable to someone, that the liability was arguably covered under the policy, and that the insured sought coverage under the policy. See E.R. Squibb & Sons, Inc. v. Lloyd's & Cos. , 241 F.3d 154, 177-178 (2d Cir. 2001) (finding an actual controversy where insured was already found liable for at least $100 million); Associated Indem. Corp. v. Fairchild Indus., Inc. , 961 F.2d 32, 35 (2d Cir. 1992) (finding an actual controversy where insured had agreed to a remedial plan with the EPA imposing liability of at least $15 million); Pruco Life Ins. Co. v. Estate of Jeffrey Locker , No. 12-CV-882 (ENV) (RML), 2014 WL 1668339, at *2, 2014 U.S. Dist. LEXIS 57333, at *4 (E.D.N.Y. Feb. 25, 2014) (finding an actual controversy where the insured had made a claim for life insurance benefits), adopted by 2014 WL 1668292, 2014 U.S. Dist. LEXIS 56662 (E.D.N.Y., Apr. 16, 2014).
Here, the Plaintiff has not established any of these factors. Orion has not been found liable in the Underlying Action, Orion has not challenged Plaintiff's coverage, and Orion has not made a claim under the policy. Even a potential claim from Orion is based on an attenuated chain of contingencies which are unlikely to occur: The Underlying Action would have to be reinstated against Bangiyev on appeal; Orion would have to lose its motion for summary judgment (which was dismissed as moot when Bangiyev was granted summary judgment); the plaintiff in that action would then have to succeed; and Orion would have to claim coverage under a policy that was cancelled six years ago. Such an attenuated chain of contingencies does not amount to a case or controversy. H.I.S. Juveniles, Inc. v. Tokio Marine Speciality Ins. Co. , No. 15-CV-1367 (VEC), 2015 WL 3404202, at *3, 2015 U.S. Dist. LEXIS 68415, at *8 (S.D.N.Y. May 27, 2015) (holding that "there could be no cause of action unless and until Defendants determined to exercise the[ir] rights"). Accordingly, this claim is not currently justiciable.
CONCLUSION
Because Plaintiff's claims for relief do not now, and may not ever, present a justiciable controversy, this Court lacks subject matter jurisdiction. Metro. Wash. Airports Auth. v. Citizens for Abatement of Aircraft Noise , 501 U.S. 252, 265, 111 S.Ct. 2298, 115 L.Ed.2d 236 (1991). Consequently, I respectfully recommend that Plaintiff's claims be dismissed without prejudice. Dismissal without prejudice leaves Plaintiff free to bring these claims if and when they sufficiently ripen.
Any objections to the recommendations set forth above must be filed with the Clerk of the Court and the Honorable LaShann DeArcy Hall within fourteen days of receipt hereof. Failure to file timely objections waives the right to appeal the District Court's Order. See 28 U.S.C. § 636(b)(1) ; Fed. R. Civ. P. 72 ; Small v. Sec'y of Health & Human Servs. , 892 F.2d 15, 16 (2d Cir. 1989).
SO ORDERED.