Opinion
No. 03 Civ. 3624 (RJH) (HBP).
February 10, 2005
OPINION AND ORDER
Plaintiffs Greenwich Insurance Company ("Greenwich") and Landpen Co., L.P. ("Landpen") bring this action against The Maryland Casualty Company ("MCC"), alleging that MCC has wrongfully refused to defend and indemnify Landpen in a personal injury lawsuit currently pending in New York State Supreme Court, Bronx County, captioned as Gumercinda Lugo v. Mandl School, Inc. and Landpen Co., L.P., Index No.: 7769/2001 (the "Lugo Action"). MCC denies this charge, arguing that the manner in which the underlying injury occurred was outside the scope of coverage afforded by the operative insurance policy. Plaintiffs disagree, and seek to recover litigation costs incurred in defending Landpen to this point, as well as a declaration that MCC must defend and indemnify Landpen going forward.
Both parties have moved for summary judgment. For the reasons that follow, the Court finds that MCC has a duty to defend Landpen in the Lugo Action, but defers judgment on the issue of MCC's duty to indemnify. The Court therefore grants Landpen's motion in part and denies it in part without prejudice. MCC's cross-motion for summary judgment is denied.
I. Background
The operative facts are relatively straightforward, and are contained in substantially similar Rule 56.1 statements. Nonetheless, defendant has submitted a half-hearted "Counterstatment to Plaintiff's Rule 56.1 Statement", which purports to object to plaintiffs' proposed facts on the grounds that (i) most are "summaries or subjective descriptions" of actual documents or deposition testimony, and (ii) the balance are argumentative, are not based on admissible evidence, or state an impermissible legal conclusion. (Counterstatement, pp. 1-2). In some cases, these objections are directed at factual statements identical to those found in defendant's own Rule 56.1 statement; in most other cases they are without foundation.
Defendant objects to paragraph 4 of plaintiffs' Rule 56.1 statement on the ground that it is a "summary" or "subjective description or characterization" of an actual document, yet paragraph 11 of defendant's Rule 56.1 statement is substantially identical to plaintiffs' paragraph 4. Compare also Pl. ¶ 5, 6 with Def. ¶ 11; Pl. ¶ 8 with Def. ¶ 10; Pl. ¶ 12 with Def. ¶¶ 2, 4; Pl. ¶¶ 13, 14 with Def. ¶ 17; Pl. ¶ 15 with Def. ¶¶ 2, 12, 13; Pl. ¶ 18 with Def. ¶ 16; Pl. ¶ 19 with Def. ¶ 7.
For example, defendant appears to object to paragraph 1 of plaintiffs' Rule 56.1 statement because it "reference[s] an attorney's affirmation as the only evidentiary source" for the material fact. That is simply not true — plaintiffs' paragraph 1 is supported by a document attached as an exhibit to the affidavit of plaintiffs' counsel.
To be sure, the parties' Rule 56.1 statements must "be followed by citation to [admissible] evidence," and a non-movant is free to object to a proposed fact on the ground that this requirement has not been met. See Local Rule 56.1(d). But such objections should be specific, and any "counterstatement" should include a "paragraph-by-paragraph response to the movant's 56.1 statement, much like an answer to a complaint." Goldstick v. The Hartford, Inc., 2002 WL 1906029, at *1 (S.D.N.Y. Aug 19, 2002) (citations omitted); see also Local Rule 56.1(b). As neither party has submitted a sufficient Rule 56.1 counterstatement, and because defendant's objections are without merit, the facts set forth in the parties' statements are deemed established. Giannullo v. City of New York, 322 F.3d 139, 140 (2d Cir. 2003) ("If the opposing party . . . fails to controvert a fact . . . set forth in the moving party's Rule 56.1 statement, that fact will be deemed admitted.").
Those facts are as follows.
A. The Lugo Action
In November 2000, Gumercinda Lugo was enrolled as a student at the Mandl School, Inc. ("Mandl"). (Def. Rule 56.1 Statement, ¶ 2 ("Def. Facts")). On or about November 8, 2000, Lugo attended a Mandl "communications" class on the 7th Floor of a building located at 254 West 54th Street (the "254 Property) in New York City. ( Id.; Pl. Rule 56.1 Statement, ¶ 15 ("Pl. Facts")). Before class began, Lugo attempted to open or close a window located in the classroom; as she was doing so, the window allegedly dislodged from its hinges, hitting her as it fell and causing "serious, severe and painful injuries . . . of a permanent and lasting nature." (Lugo Compl., ¶ 15, attached as Exhibit B to June 30, 2004 Affirmation of Howard K. Fishman ("Fishman Aff.")); (Def. Facts, ¶¶ 12, 13).
On February 7, 2001, Lugo filed suit against both Landpen and Mandl in New York State Supreme Court, Bronx County, alleging that the window in question was in a "hazardous, defective, dangerous, unsafe, trap-like condition" as a result of the "negligence, carelessness, and/or recklessness in . . . ownership, control, supervision, operation, [and] management" of the premises. (Lugo Compl., ¶ 11-12). Lugo further alleged that Landpen "owned, managed, supervised, inspected and controlled" the premises, and that Mandl "occupied, operated, used, and maintained" the premises. ( Id., ¶¶ 6-7).
B. The 254 Property Lease
At the time of Lugo's injury, Landpen owned the 254 Property and was leasing it to Mandl for purposes of running a school. (Def. Facts, ¶ 1). The operative lease agreement was entered into on January 1, 1994 between Newmel Allied Corporation and 254 West 54 Venture Company (the "254 Lease"). (Pl. Facts, ¶ 1). At some point after the 254 Lease was executed, Landpen succeeded to the ownership of the 254 Property. Subsequently, in May 1999, Landpen, Newmel and Mandl entered into a modification, assignment, and assumption of lease, under which Newmel agreed to assign, and Mandl agreed to assume, all of Newmel's rights, title and interest in and to the 254 Lease. (Pl. Facts, ¶ 3). Thus, at the time Lugo was injured at the 254 property, Mandl and Landpen were the only parties to the Lease.
Under the terms of the 254 Lease, Mandl was obligated to obtain liability and property insurance and to name Landpen as an insured thereunder:
[Mandl] shall obtain and keep in full force and effect during the term of [the] [l]ease . . . comprehensive public liability and property damage insurance . . . naming [Landpen and Mandl] as insureds against any and all claims for personal injury, death or property damage occurring in, upon, adjacent to, or connected with the [254 Property].
(Pl. Facts, ¶ 4). The 254 Lease also required Mandl to "indemnify and [hold Landpen] harmless from and against all . . . liabilities . . . arising out of the use of the [254 Property] . . . [when such liability is solely] caused by negligence or breach of an obligation by [Mandl] and not by the negligence of [Landpen]. (Pl. Facts, ¶ 5; Def. Facts, ¶ 11).
Relying on this indemnification provision, Landpen moved for summary judgment in the Lugo Action against Mandl on its claim for contractual indemnity. (Pl. Facts, ¶ 24). On March 1, 2004, the Bronx County Supreme Court conditionally granted that motion, holding that "if Landpen is found to be not negligent, Mandl must indemnify Landpen pursuant to the terms of the [254 Lease]." (Pl. Facts, ¶ 26).
C. The MCC Policy and Landpen's Tender of Defense
As required by the 254 Lease, Mandl duly obtained "comprehensive public liability and property damage insurance" from MCC and named Landpen as an insured thereunder. In particular, Mandl obtained an omnibus insurance policy from MCC for the period April 30, 2000 through April 30, 2001 (the "MCC Policy). Section II of the Policy, entitled "Who is an Insured", provides in relevant part:
With respect to . . . BODILY INJURY AND PROPERTY DAMAGE LIABILITY and . . . PERSONAL AND ADVERTISING INJURY LIABILITY, any person or organization with whom you agree, because of a written "insured contract" or permit to provide insurance such as is afforded under this policy is an insured, but only with respect to liability arising out of your operations, "your work" or facilities owned or used by you.
(Pl. Facts, ¶ 8; see also MCC Policy, attached as Ex. E to Fishman Aff., 2E2101 Ed. 4-97, p. 9). The term "written insured contract" is defined by the Policy to include a "lease of premises" such as the 254 Lease. (Pl. Facts, ¶ 9; MCC Policy, 2E2101 Ed. 4-97, p. 15). The MCC Policy also contains a coverage disclaimer, which provides that parties are not covered pursuant to "insured contracts" such as the 254 Lease if "the `bodily injury,' `property damage,' `personal injury,' or `advertising injury' arises out of structural alterations, new construction or demolition operations performed by or on behalf of the lessor" (the "Structural Disclaimer"). (Def. Facts, ¶ 10; MCC Policy, 2E2101 Ed. 4-97, p. 10).
At some point after the Lugo Action was commenced, Landpen independently determined that it was an additional insured pursuant to Section II of Policy, and also that the Structural Disclaimer did not preclude coverage. (Pl. Facts, ¶¶ 10, 11, 19). Accordingly, by letter dated November 29, 2002, Landpen attempted to tender its defense of the Lugo Action to MCC. ( See Nov. 29, 2002 Landpen Letter, attached as Ex. G to Fishman Aff.). After a several exchanges by phone and letter, MCC formally responded to Landpen's request by letter dated February 19, 2003, explaining that it had rejected Landpen's tender because Lugo's injuries were caused by "windows which were in a hazardous defective and unsafe condition," and that its insured, Mandl, "is not responsible for the maintenance . . . of the property." ( See Feb. 19, 2003 Letter from Joann Hagmeyer to John T. Rafter, attached as Ex. I to Fishman Aff.). MCC further noted that Landpen is "not named on [the MCC Policy]," and is not otherwise covered as an "additional insured." ( Id.; Def. Facts, ¶ 7). After receiving notice of MCC's decision, plaintiff Greenwich assumed Landpen's defense; both parties then brought this suit against MCC, who continued to defend only Mandl in the Lugo Action. (Def. Facts, ¶ 6).
II. Discussion
Summary judgment is appropriate when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "A dispute regarding a material fact is genuine `if the evidence is such that a reasonable jury could return a verdict for the non moving party.'" Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1535 (2d Cir. 1997) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). Although the moving party must demonstrate the absence of any genuine factual dispute, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986), and a reviewing court must "examine the evidence in the light most favorable to the party opposing the motion, and resolve ambiguities and draw reasonable inferences against the moving party," In re Chateaugay Corp., 10 F.3d 944, 957 (2d Cir. 1993), the party against whom summary judgment is sought "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (internal quotation marks and citations omitted). Indeed, "the nonmoving party must come forward with specific facts showing that there is a genuine issue for trial." Id. (emphasis in original).
The parties agree that this Court has jurisdiction to hear plaintiffs' claims pursuant to 28 U.S.C. § 1332, and that New York law applies to this action. Under New York law, an insurer's duty to indemnify and duty to defend are separate and distinct, Servidone Const. Corp. v. Security Ins. Co. of Hartford, 488 N.Y.S.2d 139, 142 (N.Y. 1985), and a duty to indemnify cannot arise unless a duty to defend is found. Thus, the Court will address Landpen's claim that MCC has a duty to defend in the Lugo Action before turning to the question of indemnity. Before reaching either issue, however, it will be helpful to set forth three controlling principles.
Under 28 U.S.C. 1332(a)(2), this Court has original subject matter jurisdiction over a claim if the matter in controversy exceeds $75,000 and is between "citizens of different states." 28 U.S.C. § 1332(a)(2). § 1332(a)(2) has been interpreted to require complete diversity, such that the citizenship of each plaintiff must be different from that of each defendant. Caterpillar Inc. v. Lewis, 519 U.S. 61, 75-78 (1996). Complete diversity exists in this case: plaintiff Landpen is a New York limited partnership with a New York principal place of business; plaintiff Greenwich is a California corporation with a principal place of business in Connecticut; and defendant MCC is a Maryland corporation with an Illinois principal place of business.
First, the Court notes that contract claims are generally not subject to summary judgment if the resolution of the dispute turns on the meaning of an ambiguous term or phrase. See Haber v. St. Paul Guardian Ins. Co., 137 F.3d 691, 695 (2d Cir. 1998) ("Language in an insurance contract will be deemed ambiguous if reasonable minds could differ as to its meaning."); see also State v. Home Indem. Co., 66 N.Y.2d 669, 671 (1985) (per curiam) ("If . . . the language in the insurance contract is ambiguous and susceptible of two reasonable interpretations, the parties may submit extrinsic evidence as an aid in construction, and the resolution of the ambiguity is for the trier of fact.") (citation omitted). On the other hand, where there is no such ambiguity, summary judgment may be appropriate. As the Second Circuit has explained: "[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." International Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002) (citations and quotation marks omitted).
Even where a contract is ambiguous, summary judgment can be granted "if the non-moving party fails to point to any relevant extrinsic evidence supporting that party's interpretation of the language." Compagnie Financiere De Cic Et De l'UNION Europeenne v. Merrill Lynch, Pierce, Fenner Smith Inc., 232 F.3d 153, 158 (2d Cir. 2000).
Second, "[t]he New York approach to the interpretation of contracts of insurance is `to give effect to the intent of the parties as expressed in the clear language of the contract.'" Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277 F.3d 232, 236 (2d Cir. 2002) (quoting Vill. of Sylvan Beach, N.Y. v. Travelers Indem. Co., 55 F.3d 114, 115 (2d Cir. 1995)). Additionally, New York follows the well-established contra proferentem principle, which requires that "equivocal contract provisions are generally to be construed against the drafter." Revson v. Cinque Cinque, P.C., 221 F.3d 59, 67 (2d Cir. 2000) (citations omitted).
Third and finally, the question "whether the language of a contract is clear or ambiguous" is one of law, and therefore must be decided by the court. Compagnie Financiere De Cic Et De l'UNION Europeenne v. Merrill Lynch, Pierce, Fenner Smith Inc., 232 F.3d 153, 158 (2d Cir. 2000). In making this decision, "the court should not find the language ambiguous on the basis of the interpretation urged by one party, where that interpretation would strain the contract language beyond its reasonable and ordinary meaning." Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir. 1990) (quotation marks and citation omitted).
With these general principles in mind, the Court turns to the questions presented by this case.
A. Duty to Defend
MCC first contends that it does not have a duty to defend Landpen in the Lugo Action under the plain language of the MCC Policy. Insurers taking this position bear a "heavy burden", as explained by the Second Circuit in City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146, 1149 (2d Cir. 1989):
New York courts have consistently held that . . . an insurer seeking to avoid its duty to defend bears a heavy burden. That burden, in practice, is seldom met. Indeed, before an insurance company is permitted to avoid policy coverage, it must . . . establish that the exclusions or exemptions [claimed] apply in the particular case, and that they are subject to no other reasonable interpretation. To avoid the duty to defend, the insurer must show that the allegations in the underlying complaint are solely and entirely within the policy's exclusions from coverage. A court applying New York law, then, should only excuse an insurer from its duty to defend if it can be concluded as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be held to indemnify the insured.Id. (citations and quotation marks omitted). Thus, "[i]f the allegations of the complaint are even potentially within the language of the insurance policy, there is a duty to defend." Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443 (2002) (emphasis added) (citations omitted). MCC invoked this substantial burden when it refused Landpen's tender.
As noted above, the MCC Policy provides insurance coverage for bodily injury liability to those parties "with whom [Mandl] agree[s]" to insure pursuant to a "written `insured contract'". (MCC Policy, 2E2101 Ed. 4-97, p. 9). Such "additional insured" coverage is limited "to liability arising out of [Mandl's] operations, [work] or facilities owned or used by [Mandl]." ( Id.). MCC concedes that the 254 Lease is an "insured contract" within the meaning of the policy; thus, the threshold question is whether Landpen's exposure to liability in the Lugo Action arose out of Mandl's operations, it's work, or facilities owned or used by it. (Memo. of Law in Opp. to Pl. Mot. for Summ. J., p. 8 ("Def. Opp.")). MCC has taken the position that Landpen's liability in the Lugo Action — if any — did not arise in such a manner. This position is at odds with several New York cases.
In Long Island R. Co. v. Interboro Mut. Indem. Ins. Co., 84 A.D.2d 809 (N.Y.App.Div. 2nd Dept. 1981), plaintiff Long Island Railroad Co. ("LIRR") brought suit to enforce the additional insured provision under similar circumstances. LIRR had leased land to an entity called "Farmers Feed," and had required as a condition of the lease that Farmers Feed procure an insurance policy than named LIRR as an additional insured. As the court explained:
[t]he policy contained an additional insured indorsement which amended the "`Persons Insured' provision" of the policy to include plaintiff [LIRC] as an insured. The additional insured indorsement covered "liability arising out of the ownership, maintenance or use" of the land leased to Farmers Feed. An employee of Farmers Feed, Verzyl, was injured while working on the leased property. Plaintiff [LIRR] gave defendant timely notice of the accident and requested that defendant represent and defend it in the case. Defendant refused, but did defend Farmers Feed pursuant to the policy.Id. at 809. Framing the issue as "whether the claim for the injury to the employee of Farmers Feed" fell within the language of the policy, the Second Department observed that "the general rule of construction to be used in interpreting insurance policies is that words are to be given their ordinary meaning and, if an ambiguity arises, it should be resolved in favor of the insured." Id. Applying that rule, the court held that "the words used in the additional insured indorsement include the injury to the Farmers Feed employee." Id. Other New York courts have held similarly. See, e.g., Catchpole v. U.S. Underwriters Ins. Co., 250 A.D.2d 566, 567-68 (N.Y.App.Div. 2nd Dept. 1998) (where plaintiff lessor was additional insured with respect to liability arising out of the "ownership, maintenance or use of [a swimming pool] leased to the named insured," policy provided coverage to additional insured where swimmer was injured during swimming lesson offered by the named insured); Maggio v. Frank Mercogliano, Inc., 262 A.D.2d 612, 613 (N.Y.App.Div. 2nd Dept. 1999).
MCC concedes that it would be required to defend and indemnify Landpen under the "standard" additional insured clause that provides coverage to a lessor for liability "arising out of the ownership, maintenance or use" of leased premises. (Def. Opp., p. 9). MCC contends, however, that the additional insured clause in the instant policy is more restrictive. According to MCC, the language providing coverage to Landpen for liability "arising out of [Mandl's] operations, [work] or facilities owned or used by [Mandl]" does not extend to injuries arising out of the operation of a window by a student on the leased premises. To support this contention, MCC offers two interpretations of the operative language. First, MCC argues that Mandl's "operations" are limited to "teaching students" and "do not involve . . . windows." (Def. Opp., p. 8). Second, MCC claims that Mandl's "facilities" are limited to items such as "tables and desks", and that the term "facilities" excludes windows because they are purportedly "an integral part of the building structure itself." (Def. Opp., p. 10). The Court will address these arguments in turn.
MCC also argues that because the Lugo Complaint alleges that Landpen is responsible for the allegedly defective condition and maintenance of the window in question, the "Complaint does not allege Landpen's liability to be arising from Mandl's operations, work or facility [sic] owned or used by it." (Def. Opp., p. 12). This argument misses the point; simply because Lugo claims that Landpen is ultimately responsible for the condition of the window does not mean that the liability did not or could not have arisen from Mandl's operations. In any case, Lugo clearly alleges that both Landpen and Mandl are responsible for the window's condition. See Lugo Compl., ¶¶ 6, 7, 12); Curtis v. Nutmeg Ins. Co., 204 A.D.2d 833, 834 (1994) (reviewing courts should consider only "the facts alleged", and should ignore "the conclusions which the pleader draws therefrom" when determining whether a duty exists.).
The terms "arising out of" and "operations" are not defined in the MCC Policy, and must therefore be given their plain and ordinary meaning. See Demopoulous v. New York Central Mutual Fire Insurance Co., 280 A.D.2d 855, 856 (N.Y.App.Div. 3rd Dept. 2001). In the insurance context, courts in New York have deemed the words "arising out of" to be "broad, general, comprehensive terms ordinarily understood to mean originating from, incident to, or having connection with" the subject of the exclusion. United States Fire Ins. Co. v. New York Mar. Gen. Ins. Co., 268 AD2d 19, 21-22 (2000) (internal quotation marks omitted). Although the term "operations" is susceptible to more than one meaning, the ordinary meaning of the word is the "doing or performing" or work. See Webster's Third New International Dictionary, 1581 (2002 ed.); see also In re Chateaugay Corp., 891 F.2d 1034, 1039 (2d Cir. 1989) (in the context of the coal industry, noting that "[w]e believe the meaning of the word `operations' should cover those methods of . . . mining, production, preparation, transportation and other ancillary activities in which the [parties] were engaged.").
In Scholastic Inc. v. Harris, 259 F.3d 73, 84-85 (2d Cir. 2001), the Second Circuit held that whether a partnership continues to operate during liquidation is a question of fact for the jury to resolve. In reaching that conclusion, they observed that because "the term `operations' is reasonably susceptible to differing interpretations," a jury must determine whether the parties intended that it be given "an expansive or narrow meaning." Scholastic Inc., 259 F.3d at 84. There is no similar ambiguity in this case. Mandl was clearly "operating" when Lugo was injured.
As the Second Circuit did in In re Chateaugay Corp., the Court finds Mandl's "operations" encompass all activities in which it is engaged, including the activities of students while attending class, even if those activities may technically be incidental to the "teaching" of a class. Indeed, MCC's argument to the contrary begs the question: exactly what sort of injury could a student suffer that would "ha[ve something] to do with Mandl's teaching `operations'"? (Def. Opp., p. 10). For example, what if a student "made a unilateral decision" to use the restroom, or to fulfill some other task to make himself more comfortable, and was injured in the process? If that is the question, is there a principled distinction between using the restroom, adjusting one's seat, or opening a window? MCC's position would force the Court to address such questions, an exercise in which the Court declines to engage.
In any case, it is quite clear that the injury in question would not have occurred but for Mandl's "operations." Lugo alleges in her complaint that she was injured while attending a "Communications class" being offered by Mandl, in the building used by Mandl to conduct such classes. That she was opening a window when the injury occurred does not remove her actions from those "arising from" Mandl's "operations."
MCC next argues that Landpen was not covered as an additional insured under the Policy because Lugo was using a window when she was injured and windows are not "facilities". This argument also fails. The Policy clearly states that Landpen is an additional insured for liability arising out of "facilities . . . used" by Mandl. Consequently, the relevant question is not what Lugo was doing when she was injured, but rather whether Lugo's injury arose from facilities used by Mandl. The 254 Property, including the classroom on the seventh floor where Lugo was injured, is certainly a "facility," both as that term is commonly understood and as it is used in the Policy. Moreover, MCC's attempt to distinguish between classroom tables and chairs, which it concedes are part of the "facilities", and classroom windows, doors and floors, which it claims are "structures," finds no support in logic or in the language of the MCC Policy. If MCC in fact intended to permit coverage for tripping over a chair but to exclude coverage for injuries caused by operating a window, it should have drafted the MCC Policy accordingly. Kuo v. Home Ins. Co., 117 A.D.2d 320, 325 (N.Y.App.Div. 2nd Dept. 1986) ("It is a familiar principle of law that policy language is to be liberally construed in favor of the insured. The most frequent statement of the rule is that a contract of insurance couched in language chosen by the insurer is, if open to the construction urged by the insured, to be construed most strongly or strictly against the insurer and liberally in favor of the contention of the insured."). Finally, as noted above, Lugo's injury would not have occurred but for Mandl's use of the 754 Property; thus, MCC's argument to the contrary fails whether the term "use" is construed to mean "operations" or the "use of facilities."
MCC also argues that the Structural Disclaimer clause precludes coverage because at some point in the past five years all windows in the 254 Property were replaced. "To show that an exclusion abrogates coverage, the insurer bears the burden of proving that the exclusion `is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.'" Commercial Union Assur. Co., PLC v. Oak Park Marina, Inc., 198 F.3d 55, 60 (2d Cir. 1999) (quoting State of N.Y. v. Blank, 27 F.3d 783, 789 (2d Cir. 1994)). This burden is "heavy," especially when the insurer is seeking to avoid a duty to defend. See Blank, 27 F.3d at 789 (citing Seaboard Sur. Co. v. Gillette Co., N.Y.S.2d 873, 876 (1984)).
MCC has not carried its burden here. As noted above, the MCC Policy contains a disclaimer provision whereby parties are not covered under "insured contracts" such as the 254 Lease if "the `bodily injury,' `property damage,' `personal injury,' or `advertising injury' arises out of structural alterations, new construction or demolition operations performed by or on behalf of the lessor." (Def. Facts, ¶ 10; MCC Policy, 2E2101 Ed. 4-97, p. 10). MCC contends that when Landpen replaced the windows in the 254 Property it made a "structural alteration" within the meaning of the MCC Policy, and therefore argues that because Ms. Lugo's injury "arose from" this alteration, coverage is excluded.
It is undisputed that Landpen replaced the windows in the 254 Property within the last five years. (Def. Facts, ¶ 3; Pl. Facts, ¶ 18).
Although the term "structural alteration" is not defined in the MCC Policy, the Court need not construe the term because it finds the Structural Disclaimer inapplicable for another reason: it was clearly intended to apply to injuries arising from ongoing "structural alterations, new construction or demolition operations." (Def. Facts, ¶ 10; MCC Policy, 2E2101 Ed. 4-97, p. 10). Indeed, this interpretation is compelled by taking MCC's contention to its logical conclusion; were it the case that injuries arising out of completed structural alterations, construction and demolition work were excluded from coverage, MCC's duty of care could never arise, because all injuries occurring in the building would in some sense "arise from" the building's original construction. Indeed, the language of the policy itself leads to the same conclusion. By use of the term "new construction," MCC clearly intended to preclude coverage where an injury occurs on or near construction work sites. Had MCC intended otherwise, it was free to draft the policy accordingly.
Finally, MCC contends that a duty to defend would be "unseemly" in light of the holding in Kajima Construction Services v. CATI, Inc., et al., 302 A.D.2d 228 (N.Y.App.Div. 1st Dept. 2003). The question on appeal in Kajima was whether a policy issued by the Insurance Company of America ("ICA") was "primary" with respect to Kajima's defense in an underlying civil action. As Landpen does here, Kajima claimed that a duty to defend arose under the "additional insured" clause of the ICA Policy. ICA disagreed, contending that a policy Kajima's maintained with Tokio Marine and Fire Insurance Company was primary. The court concluded that it could not determine which policy was primary until the conclusion of the underlying trial, and therefore refused to extend a duty to defend to ICA.
Despite the postural similarities, MCC's reliance on Kajima is misplaced. The "additional insured" clause of the ICA Policy explicitly provided that it would be primary "only if the underlying claim is determined to be solely as a result of the negligence or responsibility of the [N]amed [I]nsured." Id. The Tokio Policy simply provided that it was excess over any other primary insurance available. Thus, the court observed that "if the [ICA] coverage is determined to be excess, then by its own terms, the Tokio coverage must be considered primary." Id. For that reason, the court noted that "there is an unseemly aspect in having [ICA] . . . underwrite the defense expenses of [Kajima], whose attorneys will no doubt endeavor to cast [ICA's] named insured as the party solely responsible in the underlying action." Id.
Here, by contrast, the applicability of the MCC Policy does not turn on the relative negligence of Mandl and Landpen; rather, as noted above, it applies wherever the liability in question arose from Mandl's operations, work, or facilities used by it, regardless of the ultimate liability — if any — of Mandl. As a result, the concerns raised by the Kajima court are inapplicable here.
B. Duty to Indemnify
Having determined that MCC has a duty to defend Landpen in the Lugo Action, the Court turns to the issue of MCC's duty to indemnify. The leading New York case on this issue is Servidone Const. Corp. v. Security Ins. Co. of Hartford, 488 N.Y.S.2d 139, 142 (N.Y. 1985), where the issue on appeal was whether the trail court erred by concluding that an insurer had a duty to indemnify without first finding that the claim fell within the policy coverage. The Court of Appeals concluded that — unlike a duty to defend — a duty to indemnify cannot be based on the mere possibility of coverage; rather, such a finding must be based on an independent factual finding that the insured's liability is within the coverage provided by the policy. Thus, the Court noted that "there can be no duty to indemnify unless there is first a covered loss" because "the duty to pay is determined by the actual basis for the insured's liability to a third person." Servidone at 142 (citation omitted).
Although Servidone left open the possibility of finding on summary judgment that an insurer has a duty to indemnify, Servidone at 143, courts considering the question on actions for declaratory relief have generally declined to rule on the issue of indemnity until resolution of the underlying liability claim. See, e.g., Bovis Lend Lease LMB, Inc. v. COntinental Cas. Ins. Co., 2004 WL 691395, at *4 (S.D.N.Y. 2004) ("A determination of [the insurer's] duty to indemnify is premature because a resolution of the facts in the underlying action has not yet been made . . . Indeed, the [underlying] personal injury suit is still in progress and the actual basis of any liability has yet to be determined.); North River Ins. Co. v. ECA Warehouse Corp., 568 N.Y.S.2d 71, 72 (N.Y.App.Div. 1st Dept. 1991) ("Since resolution of the . . . [question] whether [plaintiff insurer] is required to indemnify defendant . . . depends upon resolution of the underlying action, that portion of the complaint which seeks such relief must be dismissed as premature."); 79th Realty Co. v. X.L.O. Concrete Corp., 668 N.Y.S.2d 599, 600 (1st Dept 1998) ("[A] declaration that the insurer has a duty to indemnify the general contractor requires a determination that the underlying accident arose out of the subcontractor's performance of work under its contract with the general contractor, which must await a determination of liability in the underlying personal injury action.").
This Court will do likewise, and therefore declines to rule on MCC's duty to indemnify Landpen until the Lugo Action is concluded. See Rochester Woodcraft Shop v. General Accident Fire Life Assurance Corp., 316 N.Y.S.2d 281, 283 (4th Dep't 1970) (holding that the duty to indemnify must be tested against "the applicability of the [insurance policy] in the light of the actual facts.") (emphasis added). The Court recognizes that Justice Manzanet conditionally granted Landpen's motion for summary judgment as against Mandl on its claim for contractual indemnity "to the extent that if Landpen is found to be not negligent, Mandl must indemnify Landpen pursuant to the terms of the [254 Lease]." (Decision and Order, at 4, attached as Ex. K to Fishman Aff.). Landpen argues that this conclusion necessarily means that Justice Manzanet determined that any liability in the Landpen action arose from Mandl's operations, because the 254 Lease premises indemnification on condition that any liability must arise from use of the property. Although the Court agrees that there is no distinction between Mandl's "use of the property" and "operations," it will not speculate about what was "necessary" to Justice Manzanet's decision.
III. Conclusion
For the reasons set forth above, the Court concludes that MCC has failed to establish that "there is no possible factual or legal basis on which it might eventually be obligated to indemnify the insured under any policy provision." Allstate Ins. Co. v. Zuk, 78 N.Y.2d 41, 45 (1991) (emphasis added). To the contrary, the Court finds that the allegations set forth in the Lugo Complaint reasonably suggest that Landpen will ultimately be entitled to coverage under the MCC Policy, although, as noted, the Court defers judgment on the question of MCC's duty to indemnify. Thus, Landpen's motion for summary judgment is GRANTED in part, and the Court finds that MCC has a duty to defend Landpen in the Lugo Action. Consistent with this finding, the Court orders that MCC reimburse Landpen for the reasonable value of its defense costs to date, plus the legal rate of interest from the date the Lugo Action was commenced. Landpen shall submit a detailed accounting and proposed order of costs for the Court's review and execution.
MCC's cross-motion for summary judgment is DENIED.
SO ORDERED.