Opinion
No. 02 Civ. 0504 (RCC).
March 8, 2005
OPINION ORDER
Plaintiff Goodyear Tire Rubber Company ("Goodyear" or "Plaintiff") brings this suit for negligence and breach of contract against its sublessee Defendant Kirk's Tire Auto Servicecenter of Haverstraw, Inc. ("Kirk's" or "Defendant"). Both parties have moved for summary judgment. For the reasons explained herein Plaintiff's motion is granted and Defendant's motion is denied.
I. Background
Unless otherwise noted, the following facts are not in dispute. Goodyear leased the property located at 11 Route 9W, West Haverstraw, New York ("the Property"), from Allen Frost and the Estate of Seymour Frost (the "Frost-Goodyear Lease"). Def. 56.1 Statement (hereinafter "Def. 56.1") ¶ 1; see also Frost-Goodyear Lease, at Delguyd Aff. Ex. 1. Thereafter, Goodyear subleased the Property to Kirk's (the "Goodyear-Kirk's Sublease"). Complaint ¶ 5; see also Goodyear-Kirk's Sublease, at Delguyd Aff. Ex. 2. At all relevant times, Kirk's operated a tire and motor vehicle service center on the Property. Def. 56.1 ¶ 8. On January 23, 1999, the building on the Property was completely destroyed by fire. Def. 56.1 ¶ 12. Plaintiff alleges an employee of Kirk's caused the fire by draining fuel from a vehicle into an open container. Complaint ¶ 11.
The Goodyear-Kirk's Sublease provided:
Sublessee [Kirk's] hereby covenants and agrees to indemnify, save and hold Sublessor [Goodyear] and the premises free, clear and harmless from any and all liability, loss, costs, charges, penalties, obligations, expenses, attorneys' fees, litigation, judgments, damages, claims and demands of any kind whatsoever in connection with, arising out of or by reason of any violation of law, ordinance or regulation by Sublessee, its agents, employees, servants. . . .
Goodyear-Kirk's Sublease ¶ 13.
The Sublease also explained that the "Sublessor [Goodyear] is not the owner of the premises but has possession by virtue of its Basic Lease, dated August 5, 1965, a copy of which Basic Lease will be delivered to Sublessee upon request. . . ." 56.1 ¶ 9 (quoting Goodyear-Kirk's Sublease ¶ 1). The Sublease further stated:
The applicable terms and conditions of such Basic Lease shall be binding on Sublessee in the same manner and with like effect as if fully set forth herein, it shall be the intention of the parties hereto that Sublessor shall be reimbursed by Sublessee for all costs and expenses incurred by Sublessor with respect to such Basic Lease (including, but not limited to, real estate taxes, assessments and insurance costs).Id. ¶ 9 (quoting Goodyear-Kirk's Sublease ¶ 1). Accordingly, in addition to rent, Kirk's owed Goodyear "[a] monthly charge representing one-twelfth (1/12th) of estimated annual cost of Fire and Extended Coverage Insurance on said premises." Goodyear-Kirk's Sublease ¶ 2. Goodyear contends that nothing in the Sublease indicates this charge was an insurance premium for a fire insurance policy specifically covering the Property. Pltf. Response to Def. 56.1 ¶ 5.
With respect to its insurance of the Property, pursuant to the Frost-Goodyear Lease, Goodyear contracted:
at its expense, [to] carry Fire and Extended Coverage Insurance on the demised premises to the full replacement value thereof, with proceeds payable to Lessor [Frost], Lessee [Goodyear], and/or any mortgagee . . . as their interests appear and Lessee [Goodyear] will, upon request, furnish to Lessor [Frost] a Certificate showing the issuance of such coverage.
Frost-Goodyear Lease ¶ 6. Accordingly, Goodyear obtained a certificate of insurance demonstrating that Allianz Insurance Company had issued a policy ("Allianz Fire Extended Coverage Policy") to Goodyear to cover the "full replacement value" of the Property, with a "nil" deductible. Def. 56.1 ¶ 6 (quoting Certificate of Insurance, at Sweetman Apr. 9, 2004 Aff. Ex. B);see also Carr. Decl. Ex. 4 (Allianz Fire Extended Coverage Policy declaration page demonstrating $1.00 premium for three year period and $1,000,000 policy limit).
Goodyear submits that because it leases thousands of properties in the United States and abroad, it is most efficient to insure them all under one global policy. See Eldrich Carr, Goodyear Global Risk Manager, Decl. ("Carr. Decl.") ¶ 4; Carr Decl. Ex. 3 (Allianz Global Policy declaration page indicating $3,449,502 premium for one year period); see also Def. 56.1 ¶ 15; Pltf. Response to Def. 56.1 ¶ 8. Goodyear claims that the Allianz Fire and Extended Coverage Policy it secured pursuant to the Frost-Goodyear Lease was a "fronting" policy. Carr Decl. ¶ 6. While on its face it provided $1 million in coverage for a $1.00 premium, Goodyear contends that when it is interpreted as part of Goodyear's overall insurance program it should be read as "exist[ing] primarily for the purpose of issuing certificates [of insurance]." Id. "Allianz's exposure [under the Fire and Extended Coverage Policy] was fully reinsured under a reinsurance agreement (the "Reinsurance Agreement") between Allianz and Goodyear's wholly-owned insurance subsidiary, Wingfoot Insurance Company." Id ¶ 8; see also Carr Decl. Ex.6 (Reinsurance Agreement). Pursuant to the Reinsurance Agreement, Wingfoot would be responsible for any of Allianz's exposure based on policies it issued to Goodyear, and Wingfoot's obligation to Allianz was, in turn, guaranteed by Goodyear. Carr Decl. ¶¶ 9-11; see also Carr Decl. Ex. 8 (Guaranty Agreement). Goodyear contends any claim it submitted under the Allianz Fire and Extended Coverage Policy would have triggered Wingfoot's obligation to Allianz and Goodyear's guaranty of Wingfoot, such that "Goodyear did not and would not have submitted a claim to Allianz under the Fire and Extended Coverage Policy." Carr Decl. ¶ 12; see also Angelo Natoli Dep. Tr. 64:20-65:6; 66:1-66:9 (Goodyear's Risk Manager testifying that pursuant to the Allianz Fire and Extended Coverage Policy, Allianz would recover the amount it paid on a claim from Goodyear), at Sweetman Apr. 9, 2004 Aff. Ex. G; see also Natoli Dep. Tr. 67:1-5; 13-20 (explaining Goodyear paid Frost directly to avoid the "whole pay, get back, pay, get back regimen"), at Sweetman Apr. 9, 2004 Ex. H.
The net effect of Goodyear's insurance program was that it did not have any coverage for the first $250,000 in losses and was covered for only 50% of the losses over $250,000. Carr Decl. ¶ 17; see also Def. 56.1 ¶ 15. Goodyear claims that it incurred a total of $507,466.89 in costs for replacement of the property, $128,733.45 of which was covered by insurance. Accordingly, Goodyear seeks recovery from Kirk's of the $378,733.45 balance.
Goodyear paid Frost $503,076.05, the replacement value of the Property, pursuant to the terms of the Frost-Goodyear Lease. Carr Decl. ¶ 18. Goodyear incurred additional costs related to the fire in the amount of $4,390.84. Carr Decl. Ex. 13.
II. Discussion
A. Summary Judgment Standard
Summary judgment is appropriate only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Security Ins. Co. of Hartford v. Old Dominion Freight Line Inc., 391 F.3d 77, 82 (2d Cir. 2004). The party moving for summary judgment bears the burden of demonstrating that no genuine factual dispute exists. Old Dominion, 391 F.3d at 83. The court must resolve all ambiguities and draw all possible factual inferences in favor of the party opposing summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). "If as to the issue on which summary judgment is sought, there is any evidence in the record from which a reasonable inference could be drawn in favor of the opposing party, summary judgment is improper." Gummo v. Village of Depew, 75 F.3d 98, 107 (2d Cir. 1996).
B. Negligence Claim
Goodyear moves for summary judgment on its claim that an employee of Kirk's negligently caused the fire that destroyed the building on the Property. Kirk's argues that Goodyear's negligence claim must fail because its sole legal duty to Goodyear arose out of a contract. "It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 389 (1987) (emphasis added); cf. Int'l Ore Fertilizer Corp. v. SGS Control Servs., Inc., 38 F.3d 1279, 1283-84 (2d Cir. 1994) (finding defendant's duties to plaintiff arose solely from their contractual relationship and dismissing negligence claim). Here, however, Kirk's owed Goodyear a duty independent from the Sublease, i.e., a duty to comply with the New York State Uniform Fire Prevention and Building Code and Occupational Safety and Health Act ("OSHA") regulations.
As an automotive service station in New York, Kirk's was required to comply with New York Uniform Fire Prevention and Building Code as explained in the governing "reference standard."See 9 N.Y.C.R.R. § 1250.1 (defining "reference standard" as "a specification, code, rule, guide or procedure . . . recognized and accepted as authoritative" and noting "compliance with applicable provisions of a reference standard shall constitute compliance with the code"); 9 N.Y.C.R.R. § 1250.3 (listing reference standard 47-2 NFPA Bulletin 30A as governing automotive and marine service stations). The reference standard requires automotive service stations to store gasoline only in closed containers. See NFPA Bulletin 30A, at § 2-3.1 ("[N]o Class I liquids shall be stored within any service station building except in closed containers. . . ."), at Loomba Decl. Ex. 17. Additionally, OSHA regulations govern the storage and transport of gasoline. Most notably, the regulations explain that Class 1 liquids, including gasoline, may be used only where there are no open flames or other sources of ignition within the possible path of vapor travel. See 29 C.F.R. § 1910.106(e)(2)(iv)(c); see also 29 C.F.R. § 1910.106(a)(3) (defining automotive service station); 29 C.F.R. § 1910.106(g)(1)(v) (outlining requirements for portable containers holding Class 1 liquids).
The parties do not contest that "the fire was caused by an employee and/or agent of Kirk's who was draining fuel from a vehicle into an open container." Complaint ¶ 11; see also Answer ¶ 7 (admitting paragraph 11 of Complaint). Witnesses for both Goodyear and Kirk's testified that the Kirk's employee drained the gasoline near an open flame of a water heater. See Bruce Guttenplan Dep. 19:16-21, at Loomba Decl. Ex. 16 ("Our insured [Kirk's] was making a repair involving the draining of gasoline from the gas tank. And apparently in draining the gasoline the fumes reached some ignition source possibly hot water heater which ignited the vapors and caused the fire."); W.C. Schweizer Report at p. 8, at Loomba Reply Decl. Ex. 18 ("Due to statements by the occupants (workmen) in the building, it is this firm's opinion that the most probable source of ignition was the pilot light of the hot water heater located in this garage area."); Eammon Kirk Dep. 100:14-24, at Loomba Reply Decl. Ex. 19 (testifying to his understanding that the hot water heater ignited the gasoline fumes to cause the fire). Accordingly, there can be no dispute that a Kirk's employee violated provisions of the New York Uniform Fire Prevention Code and OSHA regulations, and thereby negligently caused the fire. See NFPA Bulletin 30A, at § 2-3.1 (proscribing the storage of gasoline in open containers); 29 C.F.R. § 1910.106(e)(2)(iv)(c) (proscribing the draining of gasoline near open flames); see also Battista v. United States, 889 F. Supp. 716, 721-22 (S.D.N.Y. 1994) (finding defendant was negligent based on its violation of OSHA regulations). Summary judgment on the issue of Kirk's negligence is therefore granted in favor of Goodyear.
C. Contract Claim
Goodyear contends that summary judgment in its favor on its contract claim is appropriate because Kirk's agreed to indemnify it for losses caused by its employees' violations of laws, ordinances, or regulations. Goodyear-Kirk's Sublease ¶ 13. Kirk's disagrees and argues that summary judgment in its favor is appropriate pursuant to the terms of the Sublease, which provided Kirk's was not obligated to repair the Property if it was damaged by fire. See Kirk's-Goodyear Sublease ¶ 14. Additionally, Kirk's claims it should be allowed to enjoy the benefits of the insurance coverage it paid for and not be bound by Goodyear's decision to pay Frost directly instead of submitting the claim to Allianz.
The Second Circuit has instructed that "`[i]f the court finds that the contract is not ambiguous it should assign the plain and ordinary meaning to each term and interpret the contract without the aid of extrinsic evidence' and it may then award summary judgment." Int'l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002) (quoting Alexander Alexander Servs. Inc. v. These Certain Underwriters at Lloyd's London, 136 F.3d 82, 86 (2d Cir. 1998)). The contract provision in question here is straightforward. Kirk's agreed to indemnify Goodyear for losses caused by its employees' violations of "law, ordinance or regulation." Goodyear-Kirk's Sublease ¶ 13. As explained above, there is no question that a Kirk's employee draining gasoline into an open container violated New York Code provisions and federal OSHA regulations. Therefore, pursuant to the clear terms of the Sublease, Kirk's must indemnify Goodyear for its losses and obligations. Id.
Kirk's claims it did not know the details of Goodyear's insurance program prior to this litigation and assumed the monthly insurance payments it made compensated Goodyear for an insurance policy on the Property. Kirk's belief that Goodyear was not adequately forthcoming about its insurance program does not create an issue of material fact here. Although the elements of Goodyear's self-described insurance program are somewhat complicated, see Carr Decl. ¶¶ 6-17, there is no dispute that the net effect of this program caused Goodyear to pay Frost the full replacement value, see Carr Decl. Ex 12 (checks from Goodyear payable to Frost); see also Def. 56.1 ¶ 15 (acknowledging Goodyear's insurance program). Kirk's does not dispute the amount Goodyear expended in that regard. See Carr Decl. Ex 12 (checks from Goodyear payable to Frost); Carr Decl. Ex. 13 (check and receipts for Goodyear's costs). Further, Kirk's does not dispute that, pursuant to Goodyear's insurance program, only $127,733.45 of the full replacement value would be covered by Goodyear's insurance. Def. 56.1 ¶ 15. Accordingly, the Court grants summary judgment in Goodyear's favor in the amount of $378,733.45 and finds it unnecessary to address Goodyear's remaining arguments.
In reaching its conclusion, the Court dispenses with Kirk's argument that it cannot be liable because it was not obligated to repair the Property if it was destroyed by fire. Paragraph fourteen of the Sublease states, in part, that "[e]xcept to the extent the Basic Lessor assumes such obligations, Sublessee will . . . surrender the premises to Sublessor in as good condition and repair as when received, . . . damage by . . . fire . . . excepted." Goodyear-Kirk's Sublease ¶ 14. Contrary to Kirk's assertions, "a contract will not be construed to exempt a party from liability for his negligent acts unless such intention is expressed in unequivocal terms." Galante v. Hathaway Bakeries, 6 A.D. 142, 147 (4th Dep't 1958) (construing similar repair provision in lease and dismissing defendant's argument that the provision immunized him from liability for damages arising out of fire he caused); see also Jaylynn, Inc. v. Star Supermarkets, Inc., 348 N.Y.S.2d 85, 87 (1973) (same); N.Y. Jur. Contracts § 274 (2005) (same). Here, the Sublease expressly makes Kirk's liable for its acts in violation of code or regulation. See Goodyear-Kirk's Sublease ¶ 13; see also Doctors Assocs. v. Distajo, 66 F.3d 438, 452 (2d Cir. 1995) (noting contracts must be read as a whole) (citing Restatement (Second) of Contracts § 202(2)). Accordingly, the repair provision of paragraph fourteen neither precludes summary judgment in Goodyear's favor nor dictate summary judgment in Kirk's favor.
Additionally, contrary to Kirk's assertions the Court does not find that Goodyear paid Frost as a volunteer. Pursuant to the Frost-Goodyear Lease, Goodyear was contractually obligated to insure the Property for its fully replacement value. Frost-Goodyear Lease ¶ 6. To the extent the Allianz Fire and Extended Coverage Policy did not cover that amount, Goodyear was responsible for the difference. Ptf. Response to Def. 56.1 ¶ 5.
III. Conclusion
For the reasons explained above, Plaintiff's motion for summary judgment is granted and Defendant's motion for summary judgment is denied. The Clerk of the Court is to enter judgment in Plaintiff's favor in the amount of $378,733.45. Thereafter, the Clerk is asked to close the case.