Opinion
2839/07.
Decided January 29, 2009.
The plaintiff is represented by the law firm of Anthony C. Donofrio, P.L.L.C., the defendants Kings County Hospital is represented by Michael Cardozo, Esq., Corporation Counsel of the City of New York, the defendant and third-party plaintiff AWL Industries, Inc., is represented by the law firm of French Rafter, LLP, by Howard Fishman, Esq., of counsel the defendant Nova Casualty Company is represented by the law firm of Neil B. Connelly, Esq.
Upon the foregoing papers, third-party defendant Nova Casualty Company (Nova) moves for an order, pursuant to 3211(a)(7): (1) dismissing all of the causes of action asserted against it by third-party plaintiff AWL Industries (AWL) on the ground that it has no duty of indemnification or contribution pursuant to a Payment and Performance Bond (the Bond) issued by Nova to Cole Mechanical Corp. (Cole), as principal, for certain renovation and reconstruction work to be completed at Kings County Hospital on Project No. 247969999 (the Project); (2) imposing sanctions against counsel for AWL on the ground that the third-party action as against Nova is frivolous and (3) awarding Nova reasonable attorney's fees and costs in defending the third-party action. AWL opposes the instant motion on the ground that Nova was obligated pursuant to the Bond to ensure that all of Cole's obligations under the Subcontract, including those duties of indemnification and contribution owed to AWL, were satisfied.
As the parties have not identified as relevant that portion of the Bond which refers to the payment, as opposed to performance, obligations of the surety, the court does not address the contents of same in the instant decision and order.
The third-party complaint in the instant action seeks indemnification and contribution from third-party defendants Nova and Nelson Air Device Corporation (Nelson). The claims against Nova are premised upon its status under the Bond issued in favor of AWL in the event that Cole did not complete its obligations under the Subcontract entered into by AWL and Cole.
In support of its motion, Nova submits an Affidavit of Facts from Warren B. Siefert, the Vice President of Claims for Nova, which states, in relevant part, the following, with respect to Nova's obligations under the Bond:
On October 29, 2003, AWL, as contractor, entered into a construction contract with the Dormitory Authority-State of New York, as Owner, whereby AWL was to perform work on the HVAC and Fire Protection System ("Prime Contract") at Kings County Hospital Building E in Brooklyn, New York ("Project").
As a consequence of the work to be performed by AWL under the Prime Contract, AWL contracted with [Cole] on or about December 11, 2003 ("Subcontract"). . . .
Thereafter, at the request of Cole and pursuant to the terms of the Subcontract, Nova issued subcontract Performance and Payment Bond Number NYCB 25986 [the Bond] in the penal sum of $1,000,000.00. . . .
Later, on or about August 14, 2004, AWL declared Cole in default of the Subcontract. Pursuant to Paragraph Two of the [Bond], Nova elected to arrange for completion of Cole's Subcontract.
Nova contracted with co-third party defendant, Nelson Air Device Corporation ("Nelson"), a mechanical contractor [the Completion Contract] to complete the remainder of the Subcontract. . . .
Under the terms of the Completion Contract, Nelson also agreed to furnish, at its own expense, worker's compensation, general liability insurance, and other insurance as specified in the Subcontract. . . .
In furtherance of Nova's satisfaction of its [Bond] obligations, Nova hired a construction consultant, Cashin, Spinelli Ferretti, LLP (Cashin Spinelli) to monitor Nelson's work at the Project.
Upon information and belief, on or about November 29, 2005, during the course of his employment, an employee of Cashin Spinelli, Peter Caravousanos ("Caravousanos"), allegedly sustained personal injuries after falling on a stairway at the Project
On or about January 22, 2007, Caravousanos commenced suit against Kings County Hospital, Mega/Marko Contracting, QNCC Electric and Third-Party Plaintiff, AWL ("Original Complaint") alleging that each of the entities was responsible for his injuries. . . .
Subsequently, AWL commenced this third-party action against Nova and [Nelson], seeking contribution, common law indemnification and contractual indemnification.
Pursuant to the terms of the [Bond], Nova's sole involvement in the project was as surety and its obligation to AWL was to remedy Cole's default.
The Subcontract between AWL and Cole obligates Cole to obtain Comprehensive General Liability Insurance, Worker's Compensation Insurance and Employer's Liability Insurance, Worker's Disability Insurance and Automobile Liability Insurance in amounts specified in the contract. Cole was also obligated to name AWL and the Dormitory Authority of the State of New York as additional insureds under its primary and umbrella/excess policies. The Subcontract also contains an indemnification clause providing, in relevant part, that Cole:
To the maximum extent permitted by law, assumes the entire responsibility and liability for, the defense of and specifically agrees to pay, indemnify AWL and/or [the Dormitory Authority of the State of New York] or any additional parties to be indemnified [pursuant to the Subcontract] harmless from and against . . . [a]ll claims, suits damages, liabilities, fines, professional fees, including attorneys' fees, costs, expenses and disbursements, related to death, personal injuries or property damages brought or assumed against [AWL and the Dormitory Authority of the State of New York] by any person or firm or by reason of any liability imposed upon the [aforesaid] Indemnities under any statute, ordinance or regulation, including OSHA, arising out of or in connection with, or as a consequence of, the work of the Subcontractor, as well as any additional work, extra work or add-on work, whether caused in whole or in part by the Subcontractor or any person or entity employed, either directly or indirectly, by the Subcontractor or acting as its agent or representative, including any subcontractors thereof and their employees.
The relevant terms and conditions of the subject Bond are as follows:
WHEREAS, principal [Cole] has by written agreement dated December 11, 2003, entered into a subcontract with Obligee [AWL] for Subcontract #40984, Furnish and Install all Mechanical/HVAC Piping, for the Construction or Renovation of Kings County Hospital Building E Renovation, Brooklyn, New York DA #99873, Project No. 247969999 in accordance with drawings and specification prepared by as stipulated in the contract which subcontract is by reference made a part thereof, and is hereinafter referred to as the subcontract.
NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH THAT, if Principal shall promptly and faithfully perform said subcontract, then this obligation shall be null and void; otherwise it shall remain in full force and effect.
Whenever principal shall be, and declared by Obligee to be in default under the subcontract, the Obligee having performed Obligee's obligations thereunder:
(1) Surety [Nova] shall promptly remedy the default, subject to the provisions of paragraph 3 herein, or;
(2) Obligee after reasonable notice to Surety may, or Surety upon demand of Obligee may arrange for the performance of Principal's obligation under the subcontract subject to the provisions of paragraph 3 herein;
(3) The balance of the subcontract price, as defined below, shall be credited against the reasonable cost of completing performance of the subcontract. If completed by the Obligee, and the reasonable cost exceeds the balance of the subcontract price, the Surety shall pay to the Obligee such excess, but in no event shall the aggregate liability of the surety exceed the amount of this bond. If the Surety arranges completion or remedies the default, that portion of the balance of the subcontract price as may be required to complete the subcontract or remedy the default and to reimburse the Surety for its outlays shall be paid to the Surety at the times and in the manner as said sums would have been payable to Principal had there been no default under the subcontract . The term "balance of the subcontract price," as used in this paragraph, shall mean the total amount payable by Obligee to Principal under the subcontract and any amendments thereto, less the amounts heretofore properly paid by Obligee under the subcontract.
Any suit under this bond must be instituted before the expiration of two (2) years from date on which final payment under the subcontract falls due.
No right of action shall accrue on this bond to or for the use of any person or corporation other than the Obligee named herein or heirs, executors, administrators or successors of Obligee.
With respect to insurance, the Completion Contract entered into between Nova and Nelson obligates Nelson "to furnish at its own expense all worker's compensation, general liability insurance, and other insurance as specified in the Original Subcontract. The Completion Contractor [Nelson] shall name as additional insureds the Surety, and Cashin Spinelli Ferretti, LLC ("Consultant"), on all project-related insurances." Concerning indemnification, the Completion Contract provides that:
[Nelson] further specifically obligates himself to [Nova] in the following respects, to-wit: (a) To indemnify the Surety and consultant against and save them harmless from any and all claims, suits or liability on account of any negligent or malicious act or omission of [Nelson], or any of his officers, agents, employees or servants; (b) to obtain all applicable permits, licenses and official inspections made necessary by its Work; (c) [Nelson] warrants and guarantees the work and materials covered by this Contract and as provided herein and agrees to remediate at his own expense, any defect in materials or workmanship which may occur or develop prior to the Surety's release from responsibility to [Nelson]. And [Nelson] shall indemnify the Surety and consultant against, and save them from, any and all liability, loss, damage, costs, expenses and reasonable attorney's fees suffered or incurred on account of any finally adjudicated breach of the aforesaid obligations and covenants, and of any other material provision or covenant of [Nelson] which is not cured pursuant to this Contract.
Nova maintains that it fulfilled all of its obligations under the Bond by entering into a Completion Contract with Nelson pursuant to which the unfinished work of Cole was to be performed and Nelson was also obligated to furnish all insurance specified in the Original Subcontract. AWL contends that Nova is liable to it for indemnification and contribution with respect to the underlying personal injury action commenced by Caravousanos since Cole, as principal, was liable to it for same pursuant to the Subcontract and was also obligated to procure insurance naming AWL as an additional insured. Accordingly, AWL argues that Nova, as surety, assumed not only the work obligations of Cole, but also the indemnification obligations of Cole upon Cole's default under the Subcontract.
Generally, "[o]n a motion to dismiss a complaint pursuant to CPLR 3211 (a) (7), the court must afford the complaint a liberal construction, accept all facts as alleged in the complaint to be true, accord the plaintiff the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" ( Fishberger v Voss , 51 AD3d 627 , 628). However, "where evidentiary material is submitted, the court is required to determine whether the proponent of the pleading has a cause of action, not whether he or she has stated one" ( Town of Riverhead v County of Suffolk , 39 AD3d 537 , 539; see also Guggenheimer v Ginzburg, 43 NY2d 268, 275["When evidentiary material is considered, the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one, and, unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, . . . dismissal should not eventuate"]; Peter F. Gaito Architecture, LLC v Simone Dev. Corp. , 46 AD3d 530 , 530["If the documentary proof disproves an essential allegation of the complaint, dismissal pursuant to CPLR 3211 (a) (7) is warranted even if the allegations, standing alone, could withstand a motion to dismiss for failure to state a cause of action"]).
Here, the court finds that the documentary evidence produced is insufficient to disprove an essential allegation of the third-party complaint as against Nova and, accordingly, declines to dismiss same at this juncture. The court is mindful that "[o]rdinarily the only obligation of a surety is to complete the building" or other construction project which is the subject of the contract in question ( Hunt v Bankers and Shippers Ins. Co., 73 AD2d 797, 798, affd 50 NY2d 938; see also Matter of Cataract Disposal Inc. v Town Bd. of the Town of Newfane, 53 NY2d 266, 271[noting that the term "performance bond" is generally defined as a bond which guarantees against breach of contract and, therefore, is construed as an undertaking given to insure a public authority that a contract, once awarded, will be completed as awarded]). "[T]he amount recoverable from a surety shall not exceed the amount specified in the undertaking" ( Hunt, 73 AD2d at 797). However, it is similarly well established that "the extent of an undertaking is determined by the surety's words of express promise" ( Merchants Mut. Cas. Co. v United States Fid. and Guar. Co., 253 AD2d 151, 154). Stated somewhat differently:
It has long been the law that a surety's liability is to be strictly limited by the scope and meaning of its agreement. The fact that a bond herein enumerated some of the terms covered does not necessarily limit liability to these specifics, but it does spell out generally the intent of the parties. Absent more specific language, a surety should not be obligated [for instance] to pay such extraneous charges as attorney fees for collection of claims. . . .[Indeed] [n]o citation of authorities is needed to show that the contracts of sureties are to be construed like other contracts so as to give effect to the intentions of the parties. In ascertaining that intention we are to read the language used by the parties in light of the circumstances surrounding the execution of the instrument, and when we have this ascertained their meaning we are to give it effect; but, when the meaning of the language used has thus been ascertained, the responsibility of the surety is not to be extended or enlarged by implication or construction. . . . Of course, in determining the scope and meaning of the surety's agreement, reference may be made to the principal's contract with third parties [internal quotation marks and citations omitted]).
( Davis Acoustical Corp. The Hanover Ins. Co., 22 AD2d 843, 843-844).
Accordingly, the salient issue in the instant action is the extent of the default of Cole and the scope of Nova's obligations as surety on the Bond pursuant to which Cole was the principal. "There is no dispute that a surety's obligations are limited to those it undertakes in its bond and that the bond attaches to the principal contract and must be construed in conjunction therewith" ( Varlotta Constr. Corp. v Sette-Juliano Constr. Corp., 234 AD2d 183, 183; see also Universal/MMEC, Ltd. v the Dormitory Auth. of the State of New York, 50 AD3d 352, 353[recognizing that where "the surety bond was unambiguous in its incorporation of the terms of the [underlying contract with the principal], plaintiff cannot recover against the surety for claims prohibited by the contract"]; U.W. Marx, Inc. v Mountbatten Sur. Co., Inc. , 3 AD3d 688 , 691["The purpose of a performance bond is to insure that a contract will be completed consistent with its terms . . .[,] attaches to the principal contract and must be construed in conjunction with it . . . [and] [i]n the event of a contractor's default, the surety's obligation is to either complete the work or to pay the obligee the amount necessary for it to have the contract completed . . . [with] [l]iability of the surety . . . generally limited to the amount of the bond and as provided in the contract" [internal quotation marks and citations omitted]); Carrols Equities Corp. v Villnave, 57 AD2d 1044, 1045, lv denied 42 NY2d 810[recognizing the well settled rule "that a surety bond attaches to the principal contract and must be construed in conjunction with it," and finding, therefore, that since the subject surety had assented to contract provision permitting the owner to order changes and alterations without invalidating the principal contract, "any subsequent modifications in the original plans made in conformity with the provisions of the contract will not invalidate the performance bond"]).
The intention of the parties with respect to the scope of the incorporation of the underlying contract can present a question of fact in construing the surety's obligations under a performance bond. In Babylon Assoc. v County of Suffolk, 101 AD2d 207, 218, the Appellate Division, Second Department found that dismissal of the municipal owner's counterclaim impleading the contractor's sureties was improperly dismissed where the terms of the performance bond did not limit the sureties' liability solely to the cost of completion of the underlying contract, incorporated by reference the terms of said contract and the sureties' liability under the bond appeared to be coextensive with the principal contractor's liability. In so finding, the court stated that, based upon the foregoing, a triable issue of fact existed as to the parties' intention concerning the extent of the sureties' liability. Indeed, the meaning of a contract becomes an issue of fact "when a term or clause is ambiguous and the determination of the parties' intent depends upon the credibility of extrinsic evidence or a choice among inferences to be drawn from extrinsic evidence" ( Manchester Technologies, Inc. v Didata (NY) Inc., 303 AD2d 726, 726[internal quotation marks and citation omitted]).
Here, the court finds multiple ambiguities in the contracts identified by the parties as relevant to the instant third-party action and, therefore, cannot find that the action is subject to dismissal. Although, the Bond states that the subcontract is "by reference made a part thereof," referring quite plausibly to either the original contract or the Bond itself, it also refers specifically to that aspect of the subcontract which defines the work to be done thereunder but does not identify that portion of the subcontract relating to indemnification or insurance. The subcontract is thereafter referred to generally in the Bond, but the term "default" is not defined and the liability of the Surety under the Bond arguably is defined largely in terms appropriately referable to a work-performance based default. For instance, the Bond states that "in no event shall the aggregate liability of the surety exceed the amount of this bond." It further provides that "[i]f the Surety arranges completion or remedies the default, that portion of the balance of the subcontract price as may be required to complete the subcontract or remedy the default and to reimburse the Surety for its outlays shall be paid to the Surety at the times and in the manner as said sums would have been payable to Principal had there been no default under the subcontract" and "balance of the subcontract price,'" as used in this paragraph, shall mean the total amount payable by Obligee to Principal under the subcontract and any amendments thereto, less the amounts heretofore properly paid by Obligee under the subcontract." The Subcontract states, under its "contract price" provision, that "[t]he sum to be paid by AWL to [Cole] for the satisfactory performance and completion of the Work and of all the duties, obligations and responsibilities of [Cole] under this Subcontract and the General Contract shall not exceed One Million Six Hundred Thousand ($1,600,000) dollars."
From the aforesaid terms of the Bond and Subcontract it is not clear, without reference to extrinsic evidence, whether the intent of the parties was to limit the obligations of the surety to remedy the actual performance-of-work default of Cole or to extend such obligations to encompass Cole's duties under the subcontract of indemnification or procurement of insurance naming AWL as an additional insured. Neither party has identified authority definitively establishing that the incorporation by reference of a subcontract into a performance bond is either automatically limited to performance-of-work clauses contained in the subcontract or also encompasses indemnification and insurance clauses found therein. Indeed, the court notes that, in a persuasively analogous context, an incorporation clauses contained in a construction subcontract which incorporates prime contract clauses by reference is generally construed to bind the subcontractor only to those clauses related to the scope, quality, character and manner of the work to be performed by the subcontractor, absent additional language explicitly expanding the subcontractor's obligations ( see generally Adams v Boston Properties Ltd. Partnership , 41 AD3d 112, 112; Goncalves v 515 Park Ave. Condominium , 39 AD3d 262 , 262-263; Bussanich v 310 55th Street Tenants, 282 AD2d 243, 244).
Moreover, the factual context of the action is rendered even murkier by the general pleading of the alleged "default" of Cole and AWL's notice of same to Nova, which, although sufficient under the liberal pleading rules applicable to motions to dismiss brought pursuant to CPLR 3211(a)(7), is bereft of any detail as to the scope of the alleged default. Again, extrinsic evidence is necessary, in the absence of a definition of the term "default" and in light of the Bond's requirement that such default be "declared" in order to trigger Nova's obligations under same, whether Cole was, indeed, in default of its insurance or indemnification obligations at the time such default was declared, if Nova was informed of such default or if such indemnification obligations would be in excess of the amount of the Bond, given the performance obligations already undertaken by Nova in retaining Nelson to complete the defaulted work performance in question.
Further ambiguities are presented by the Completion Contract and whether same sufficed to fulfill Nova's indemnification and insurance obligations under the Bond and the referred-to subcontract, to the extent such obligations can be established to have been intended by the parties. Although the Completion Contract obligates Nelson "to furnish at its own expense all worker's compensation, general liability insurance, and other insurance as specified in the Original Subcontract," its inclusion of the proviso that [t]he Completion Contractor [Nelson] shall name as additional insureds the Surety, and Cashin Spinelli Ferretti, LLC ("Consultant"), on all project-related insurances," renders ambiguous whether the insurance "as specified in the Original Subcontract" was meant to include AWL and the Dormitory Authority as additional insureds while also designating Nova as an additional insureds, or merely obligated nelson to obtain the same kind of insurance specified in the Subcontract, while limiting the additional insureds thereunder to Nova and Cashin Spinelli. The indemnification provision of the Completion Contract fails to include any specific duty on the part of Nelson to indemnify AWL or the Dormitory Authority of New York. Further, as noted by AWL, any contract with Cashin Spinelli has not been submitted to the court.
As a result, the documentary evidence submitted to the court has not demonstrated, as required for purposes of dismissal where evidentiary material accompanies a CPLR 3211(a) (7) motion to dismiss, that "a material fact as claimed by the pleader to be one is not a fact at all . . . that no significant dispute exists regarding it"( Guggenheimer, 43 NY2d at 275). Rather, the submission of such material has merely served to highlight the ambiguities of the contracts and agreements relied upon, particularly when read in conjunction with one another, and the factual questions presented by same which, in this court's view, necessitate further discovery in aid of resolution. Accordingly, "dismissal [of this action] should not eventuate" at this time ( see id.).
The motion by Nova to dismiss the third-party action as against it is hereby denied in its entirety. Given said denial, that portion of its motion seeking sanctions and attorneys' fees and costs is also denied.
The foregoing constitutes the decision and order of the court.