Opinion
0114852/2006.
September 3, 2008.
DECISION and ORDER
In this action for a declaratory judgment, attorneys' fees and defense costs, plaintiffs move for partial summary judgment declaring that defendants must defend them in an underlying personal injury action. Defendants cross-move for summary judgment dismissing the complaint. Plaintiffs allege that the defendant insurers have an obligation to defend them pursuant to the terms of a policy issued to Solera Construction, Inc. (Solera). The defendant insurers deny that there is coverage under the policy pursuant to its terms and due to late notice of the claim.
Background
This action arises out of an underlying lawsuit involving Keith Donahue (Donahue), an employee of plaintiff A.J. McNulty Company (McNulty). Donahue was injured in a construction accident on August 30, 2004. The construction project was the Forensic Biological Laboratory at Bellevue Hospital Center (Bellevue), which was being constructed under the auspices of the Dormitory Authority of the State of New York (DASNY). Plaintiff Kline Iron Steel Co., Inc. (Kline), was hired by DASNY to perform work on the project. Kline subcontracted work to McNulty. McNulty entered into a subcontract with Solera to furnish and install metal decking and studs. Plaintiff Gilbane/TDX Joint Venture (Gilbane/TDX) was the construction manager.
Donahue v. New York City Health Hospitals Corp. et al., Sup. Ct. N.Y. Co., Index No. 115876/04.
In § 6(e) of the subcontract between Solera and McNulty, dated July 15, 2002, Solera agreed to indemnify McNulty and "all additional parties listed on page 1" of the subcontract for all losses, claims, expenses and actions at law arising out of Solera's performance under the subcontract, including attorneys' fees and expenses. The "additional parties listed on page 1" of the subcontract were DASNY, Kline, McNulty and Gilbane/TDX. In addition, § 6(e) provided that Solera assumed any additional indemnification obligations imposed on McNulty's subcontractors and suppliers arising out of McNulty's agreement with its "Customer," Kline, or any other contract documents concerning the project. The subcontract, § 7(d), provided that Solera would procure insurance in the amounts of and for the risks indicated on Exhibit D. However, Exhibit D does not specify amounts of insurance or the risks against which Solera was required to insure. Exhibit D does contain a promise by Solera that its insurance would name as additional insureds the following entities: Gilbane/TDX, Kline, McNulty, The City of New York, NYCHHC, Bellevue, and DASNY. In the McNulty/Solera subcontract, plaintiffs Gilbane Building Company (Gilbane) and TDX Construction Company (TDX) are not parties that Solera agreed to indemnify or to name as additional insureds.
On August 31, 2004, the day after the accident, a "Jobsite Incident Report" (Accident Report) was prepared and signed by the project manager for "G/TDX." The report states that Corbett Melfi, "the competent person and job steward" for McNulty, reported that Donahue had been involved in an accident and was "taken to Bellevue Emergency by Ambulance."
In the underlying suit, which was commenced on or about November 4, 2004, Donahue named NYCHHC, TDX Construction/Gilbane, Gilbane, Inc., and TDX Construction Corp. as direct defendants. In May 2005, Gilbane Building Co. and TDX Construction Corp. brought a third-party action against Kline, McNulty and Axis. In August 2005, McNulty brought a fourth-party action against Solera for contractual indemnification, contribution, common law indemnification and failure to procure insurance. In January 2006, "Gilbane Building Co./TDX Construction Corp., a Joint Venture," being sued as TDX Construction Corp., Gilbane, Gilbane Inc., and TDX Construction Corp., brought a fifth-party action against Solera for common law indemnification, contribution and contractual indemnification. The fourth party and fifth party complaints allege, inter alia, that Donahue's injuries arose out of Solera's negligence.
Plaintiff Axis Specialty Insurance Company (Axis) was the general liability insurer for McNulty. Solera procured insurance from defendant The Hartford Financial Services Group, Inc. (Hartford) through defendant Twin City Fire Insurance Company (Twin City) (Policy). The Policy was in effect from October 23, 2003 through October 23, 2004. The general liability insurance portion of the Policy, Section I, entitled "Coverages," contains an exclusion for bodily injury for liability assumed in a contract, but it contains the following exclusion to the exclusion:
This exclusion does not apply to liability for damages: . . .
(2) Assumed in a contract . . . that is an "insured contract", provided that the "bodily injury" . . . occurs subsequent to the execution of the contract. . . . Solely for purposes of liability assumed in an "insured contract", reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of "bodily injury". . . . provided
(a) Liability to such party for, or for the cost of, that Party's defense has also been assumed in the same "insured contract"; and
(b) Such attorney fees and litigation expenses are for the defense of that party against a civil . . . proceeding in which damages to which this insurance applies are alleged. An "insured contract" is defined in Section V(12) of the Policy. Subsection (f) defines an "insured contract" as including:
that part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay "bodily injury" . . . to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
Section II of the Policy is entitled "Who Is an Insured." It provides as follows:
6. The following are also an insured when you have agreed, in writing, in a contract . . . that another person or organization be added as an additional insured on your policy, provided the injury or damage occurs subsequent to the execution of the contract. . . .
e. Any other person or organization . . . but only with respect to your operations, "your work" or facilities owned or used by you. With respect to notice, the Section IV of the Policy contains the following conditions, upon which defendants rely:
2. Duties In The Event of Occurrence, Offense, Claim Or Suit
a. You must see to it that we are notified as soon as practicable of an "occurrence" . . . that may result in a claim. . . .
b. If a claim is made or "suit" is brought against any insured, you must: . . .
(2) Notify us as soon as practicable. You must see to it that we receive written notice of the claim or "suit" as soon as practicable.
Section I(1)(c), also relating to when an insured must notify the insurer, provides as follows, in pertinent part:
bodily injury will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1. of Section II — Who is an insured or any "employee" authorized by you to give or receive notice of any "occurrence" or claim:
(1) Reports all, or any part, of the "bodily injury" to us or any other insurer;
(2) Receives written or verbal demand or claim for damages because of the "bodily injury" . . .; or
(3) Becomes aware by any other means that "bodily injury" has occurred. . . .
On July 21, 2005, almost 11 months after the accident, Robert Nobel, an attorney for Axis sent a letter to Solera enclosing the summons and complaint in the Donahue action. The letter states:
On behalf of Axis, I write to tend [sic] the defense and indemnity of the above referenced matter to Solera . . . and its insurer(s).
Plaintiffs' Motion, Exh. 8. The parties agree that this was the first notice that defendants received of the accident and the Donahue suit. On page 3 of the letter, Mr. Nobel demanded: 1) that Solera should tender the matter to its insurance carrier with a request that the carrier defend and indemnify McNulty, Gilbane/TDX and NYCHHC and "other Additional Insureds;" and 2) that Solera should indemnify McNulty, Gilbane/TDX, and NYCHHC, pursuant to the indemnification clause in the McNulty/Solera subcontract. On August 22, 2005, Mr. Nobel sent a second letter to Solera. Id. In the second letter, Mr. Nobel stated that in his prior letter Axis had tendered to Solera the defense and indemnification of DASNY, Bellevue, the City of New York, and Kline, as well as the parties named in the first letter.
On August 30, 2005, defendant Hartford responded by acknowledging receipt of Mr. Nobel's letters and stating that Hartford had not made a determination because it wanted to conduct an investigation of the matter. Plaintiffs' Reply Aff., Exh. B. Defendants proceeded to investigate the claim, although the record does not reveal what the investigation entailed. See, Affidavit of Deborah Kaufman, Exh. Q to Defendants' Cross-Motion.
On December 9, 2005, Hartford disclaimed on the grounds that: 1) the accident did not arise out of Solera's operations; 2) the City of New York, NYCHHC and Bellevue were not additional insureds under the Policy or by contract; and 3) untimely notice.
Discussion
At the outset, the court rules that plaintiffs' motion is denied and defendants' cross-motion is granted with respect to plaintiffs Gilbane Building Company and TDX Construction Company. Under the plain language of the McNulty/Solera subcontract and the Policy, these entities are not entitled to defense, indemnification or additional insured status.
As to the remaining plaintiffs, defendants Hartford and Twin Cites argue that there is no coverage for plaintiffs because evidence in the underlying Donahue action demonstrates that the accident did not arise out of Solera's work or operations, as required by Section II(6)(e) of the Policy. Defendants rely on evidence demonstrating that the metal decking on which Mr. Donahue allegedly slipped was ordered by McNulty from Kline, that McNulty received delivery and determined where to store the decking, and that Solera was not working on the site at the time or during the month before the accident.
It is well settled that the duty to defend is broader than the duty to indemnify. Automobile Ins. Co. of Hartford v. Cook, 7 NY3d 131, 137-138 (2006). Indeed, the duty to defend is exceedingly broad and an insurer must provide a defense whenever the allegations of the underlying complaint, liberally construed, suggest a reasonable possibility of coverage no matter how groundless, false or baseless the suit may be. Id. The duty to defend exists even though facts outside the four corners of the pleadings indicate that the claim may lack merit or be uncovered. Id. A policy which promises that it will provide the insured with a defense, constitutes litigation insurance in addition to liability coverage, and an insurer may be required to defend even though it may not be required to pay once the litigation has run its course. Id.
In the case before the court, the fourth and fifth party complaints in the underlying action allege that Solera was negligent and, therefore, they fall within the Policy requirement that the suit must arise out of Solera's work. BP A.C. Corp. v. One Beacon Ins. Group, 8 NY3d 708, 715-716 (2007).
However, defendants are correct that they did not get timely notice of the claim. A delay of seven months is unreasonable as a matter of law where the insured was immediately aware that the person was injured and was removed from the premises by ambulance. St. Nicholas Cathedral of the Russian Orthodox Church in N. Am. v. Travelers Prop. Cas. Ins. Co., 45 A.D.3d 411 (1st Dept. 2007). Axis gave notice of the claim to Solera on July 21, 2005, almost 11 months after McNulty and Gilbane/TDX became aware of the accident. In fact, Axis, who is not an insured under the Policy, gave notice to Solera, not to the defendant/insurers. The Accident Report reflects that, on August 31, 2004, McNulty and Gilbane/TDX were aware of the accident and that Donahue was taken away by ambulance. Under the Policy, Section IV(2)(a), an insured was required to give notice of an occurrence which might result in claim "as soon as practicable," and, under Section I(1)(c)(3), bodily injury was deemed to have been known to have occurred at the earliest time when any additional insured listed under Section II(1), became aware of the injury. McNulty and Gilbane/TDX were additional insureds under Section II(1)(6) because Solera agreed by written contract to add them as an additional insureds. The 11 month delay was unreasonable as a matter of law.
Plaintiffs urge that their late notice is irrelevant because defendants' December 9, 2005 disclaimer was untimely, as it was issued more than four months after Axis gave notice to Solera. Insurance Law § 3420 provides that an insurer must disclaim as soon as is reasonably possible. An insurer's failure to provide notice as soon as is reasonably possible precludes effective disclaimer, even though the policyholder's own notice of the incident to its insurer is untimely. First Fin. Ins. Co. v. Jetco Contr. Corp., 1 N.Y.3d 64, 67 (2003) (48 day delay without reasonable excuse). However, the rule does not apply where notice is provided by an insurer seeking contribution. AIU Ins. Co. v. Investors Ins. Co., 17 A.D.3d 259 (1st Dept. 2005). The policy behind § 3420 is to protect the insured and any other interested party from prejudice resulting from a belated denial of coverage. Id. at 260. The protection of the statute is inapplicable to a co-insurer's request for contribution. Id. Here, Mr. Nobel's July 21, 2005 demand for defense and indemnification explicitly was made on behalf of Axis, not by the insured parties and, thus, plaintiffs' late notice is not excused by a late disclaimer. Accordingly, it is
Hartford's August 30, 2005 letter reserving its rights was not a disclaimer. Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1029(1979).
ORDERED that plaintiffs' motion for partial summary judgment for defense costs is denied; and it is further
ORDERED that defendants' cross-motion for summary judgment dismissing the complaint is granted and the complaint is hereby dismissed with prejudice; and it is further
ORDERED that the Clerk is directed to enter judgment in favor of defendants The Hartford Financial Services Group and Twin City Fire Insurance Company.