Opinion
Index No. 656474/2021 Motion Seq. No. 001 002
09-04-2024
MT. HAWLEY INSURANCE COMPANY, Plaintiff, v. MICHELLE KUO CORP., ARGONAUT INSURANCE COMPANY, as Subrogee of 160 Bleecker Street Owners, Inc., and SENTINEL INSURANCE COMPANY, as Subrogee of Brilliant Stars Enterprises, New York Media Labs, LLC, and Media Research Labs, LLC, Defendants.
Unpublished Opinion
MOTION DATE 01/24/2023
DECISION+ ORDER ON MOTION
HON. SHLOMO S. HAGLER, Justice
The following e-filed documents, listed by NYSCEF document number (Motion 001) 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 88, 90, 91, 92, 93, 94, 95, 96, 133, 135, 136, 137
The following e-filed documents, listed by NYSCEF document number (Motion 002) 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 89, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 134, 138 were read on this motion to/for SUMMARY JUDGMENT (AFTER JOINDER) Motion sequence numbers 001 and 002 have been consolidated for disposition.
BACKGROUND In this insurance coverage declaratory judgment action, plaintiff Mt. Hawley Insurance Company (Mt. Hawley), is the issuer of a Commercial General Liability (CGL) policy and an Excess Liability (EXL) policy that was issued to defendant Michelle Kuo Corp. (MKC), a general contractor retained to perform certain construction work, including the build-out of the first-floor premises at 168 Bleeker Street, New York, New York (the Premises). On July 5, 2017, an MKC employee, Mr. Chee Wei Chong (Chong), was performing arc welding work on a metal hatch, allegedly to secure it and prepare the subfloor for the placement of floor tile (see NYSCEF doc. no. 63, p 40-45, Chong Transcript), when a fire (the fire) occurred at the premises (see NYSCEF doc. nos. 45 ¶l 8 &96 ¶18, Statements of Material Facts &Response).
The area was a restroom within the premises that had a preexisting concrete subfloor that contained a metal hatch to the basement below (see NYSCEF doc. no. 50, Photographs).
Defendants Argonaut Insurance Company, as Subrogee of 160 Bleecker Street Owners, Inc., (Argonaut) and Sentinel Insurance Company, as Subrogee of Brilliant Stars Enterprises, New York Media Labs, LLC and Media Research Labs, LLC, (Sentinel) are plaintiffs in separate but related actions (the Subrogation Actions) that name MKC as a defendant in those actions and allege MKC's negligence with respect to the fire, and seek reimbursement under the Mt. Hawley CGL and EXL policies for the cost of the losses that Argonaut and Sentinel have paid out to its insureds resulting from the fire (see NYSCEF doc. nos. 16-18, Subrogation Action Pleadings).
Mt. Hawley disclaimed coverage for MKC and any other insureds or claimants under the CGL and EXL policies in connection with the fire (see NYSCEF doc. nos. 25-27, Disclaimer Letters). It initiated this action on November 12, 2021, seeking a judgment declaring that it has no obligation to defend or indemnify MKC under the CGL or EXL policies in connection with the fire and all claims and suits arising from it, including the subrogation actions. Specifically, Mt. Hawley alleges that the fire at issue arose out of welding operations by MKC that are excluded from coverage under the CGL and EXL policies' Exclusion-Designated Ongoing Operations clauses. Therefore, Mt. Hawley takes the position that coverage is not available to MKC here, without regard to MKC's fault or liability (see NYSCEF doc. no. 12, Summons & Complaint).
The exclusion in the CGL policy Mt. Hawley relies upon to disclaim coverage states in relevant part as follows:
"This insurance does not apply to "bodily injury" or "property damage" arising out of the ongoing operations described in the Schedule of this endorsement, regardless of whether such operations are conducted by you or on your behalf or whether the operations are conducted for yourself or for others.
The Schedule states:
Any exterior work or exterior project if the work or the project involves exterior work above 2 stories or 30 feet, whichever is closer to the ground, or any project that involves adding one or more stories to an existing structure, if performed by any Insured or by contractors on the Insured's behalf.
All claims arising from any Insured when the Insured is not acting in the capacity of a general contractor and working directly for the owner of the project.
All claims resulting from any Insured's own labor (does not include the Insured's interior carpentry, interior painting, drywall, interior tile and executive supervisory personnel acting in those capacities)..."(Id. at ¶¶ 27-28). The relevant sections of EXL policy at the center of this dispute state as follows:
"Insuring Agreement - Coverage:
Subject to the other provisions of this policy, we will pay on behalf of the insured the insured's ultimate net loss if such loss results from an occurrence insured by underlying insurance. However, the insurance afforded by this policy shall apply: (a) only in excess of the underlying insurance; (b) only after the underlying insurance has been exhausted by payment of the limits of liability of such insurance; and (c) only if caused by an occurrence which takes place during the policy period... This policy, except where provisions to the contrary appear herein, is subject to all of the conditions, agreements, exclusions, definitions and limitations of and shall follow the underlying insurance in all respects. This includes changes by endorsement."(Id. at ¶32).
Sentinel, Argonaut and MKC have filed separate answers containing similar counterclaims which all seek declarations that Mt. Hawley has an obligation to defend and indemnify MKC under the CGL and EXL policies in connection with all claims relating to the fire, including but not limited to the subrogation actions. Specifically, Sentinel's and MKC's counterclaims seek relief under both the CGL and EXL policies, while Argonaut's counterclaim seeks relief pertaining only to the CGL policy, and MKC's second counterclaim seeks reimbursement for its defense in the subrogation actions (see NYSCEF doc. nos. 13-15, Defendants' Answers).
Sentinel and Argonaut now move jointly in motion sequence 001 (MSI), pursuant to CPLR § 3212, for summary judgment in their favor to dismiss the complaint and grant their counterclaims for a declaratory judgment that Mt. Hawley has an obligation to defend and indemnify MKC pursuant to the CGL and EXL policies. MKC cross-moves, pursuant to CPLR § 3212, for summary judgment in its favor to dismiss the complaint and grant MKC's counterclaims for a declaratory judgment that Mt. Hawley has an obligation to defend and indemnify MKC pursuant to the CGL and EXL policies, and to set the matter down for a hearing on damages to be awarded to MKC. Mt. Hawley opposes MSI and the cross-motion and moves in motion sequence 002 (MS2) for summary judgment in its favor pursuant to CPLR § 3212, seeking a declaratory judgment that it has no duty to defend or indemnify MKC in the subrogation actions and dismissal of each counterclaim against it in this action.
Sentinel and Argonaut primarily argue that Mt. Hawley has improperly disclaimed coverage to MKC and is obligated to defend and indemnify MKC in connection with the losses resulting from the fire. Specifically, Sentinel and Argonaut argue that Mt. Hawley is required to provide a defense for MKC not only because the CGL policy obligates Mt. Hawley to do so, but also because the duty to defend arises whenever allegations in a complaint fall within the risk covered by a policy, such as the complaints in the subrogation actions. Sentinel and Argonaut further argue that Mt. Hawley is obligated to indemnify MKC for any amounts it becomes obligated to pay for damage to third-party property because Mt. Hawley cannot establish that the claims at issue are precluded by any exclusion under the policies (see NYSCEF doc. no. 46, Memo of Law MS 1).
Sentinel and Argonaut contend that Mt. Hawley's reliance on the exclusion within the CGL policy relating to exterior work is misplaced as MKC's scope of work did not involve any such work. They argue that the construction contract demonstrates that the contracted work did not involve any exterior work (NYSCEF doc. no. 48, Construction Contract). Further, they argue that testimonial and documentary evidence, including the fire incident report shows that the fire resulted from interior work (NYSCEF doc. no. 21, Fire Incident Report). They also argue that while "MKC does not dispute that the subject loss resulted from its own labor" (NYSCEF doc. no. 46, p 22, Memo of Law in Support MSI), the exclusion Mt. Hawley relies upon does not apply here. Instead, they note that the exclusion provides a carve out for MKC's own labor as it pertains to interior tile work, and they allege MKC was engaged in interior tile work when the fire occurred (Id.). In support, Sentinel and Argonaut rely on the testimony of Chong, and the expert opinion of Michael Panish (Panish), a licensed general contractor who averred, "the work performed by [MKC] to secure the subfloor squarely falls within the scope of interior tile work and the preparation of the subfloor for the tile project was appropriate and within the scope of many tile projects requiring floor leveling and stabilization" (NYSCEF doc. no. 47, ¶l 7, Panish Affidavit).
MKC's cross-motion adopts and joins the arguments set forth by Sentinel and Argonaut in MSI, and further asserts that tiling work is a covered activity pursuant to the terms of the contract of insurance (see NYSCEF doc. no. 91, Affirmation in Support of Cross-Motion).
Mt. Hawley opposes defendants' motions arguing that defendants have not met their burden of establishing that the exception within the policy for interior tile applies here. Mt. Hawley argues that its disclaimers are valid as a matter of law, and therefore Mt. Hawley is entitled to judgment declaring that it has no duty to defend or indemnify MKC in the subrogation actions. Specifically, Mt. Hawley argues that the exclusions for designated operations must apply here because it is undisputed that MKC employee Chong, and not a subcontractor, was performing welding work at the time of the fire (NYSCEF doc. no. 86 p 17, Memo of Law in Support MS2). As Mt. Hawley's policies do not cover MKC's own demolition or welding work, it argues that MKC was obligated to retain a subcontractor to perform such work if it wished to preserve its coverage (Id. at p 18; see also NYSCEF doc. no. 94, Memenko Aff).
Sentinel and Argonaut oppose Mt. Hawley's motion in its entirety. They argue that the exclusion is ambiguous and unenforceable as a matter of law, as the term "interior tile" is undefined within the policy and is therefore subject to more than one reasonable interpretation (see NYSCEF doc. no. 97, p 19, Memo of Law in Opp. MS2). Sentinel and Argonaut further contend that as Chong only worked to secure the metal hatch by utilizing welding and never attempted to remove it, Chong did not engage in any demolition work (Id. at p 21).
Mt. Hawley disputes that the term "interior tile" is ambiguous within the policy, and further argues that Sentinel and Argonaut failed to include a single reference to "tiling" within the allegations of their complaints in the subrogation actions (see NYSCEF doc. nos. 17, 18). Therefore, Mt. Hawley contends that had the fire arisen out of tiling work, Sentinel and Argonaut would have alleged as much and that defendants are attempting to categorize welding and demolition work as tiling work to create coverage under the policies. Mt. Hawley notes that this is in an effort to provide the defendants with an insurance recovery, which is impermissible.
DISCUSSION
On a summary judgment motion, "the moving party must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact" (Trustees of Columbia Univ, in the City of N.Y. v D'Agostino Supermarkets, Inc., 36 N.Y.3d 69, 73-74 [2020] [internal quotation marks and citations omitted]). "This burden is a heavy one and on a motion for summary judgment, facts must be viewed in the light most favorable to the non-moving party" (Jacobsen v New York City Health &Hosps. Corp., 22 N.Y.3d 824, 833 [2014] [internal quotation marks and citations omitted]). Where the moving party fails to make such a showing, the motion must be denied without regard to the sufficiency of the opposing papers (see Voss v Netherlands Ins. Co., 22 NY3d 728, 734 [2014]). Only after the moving party makes a prima facie showing does the burden shift to the opposing party "to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (Bazdaric v Almah Partners LLC, 41 N.Y.3d 310, 316 [2024] [internal quotation marks and citations omitted]). "Since [summary judgment] deprives the litigant of [its] day in court it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues" (Andre v Pomeroy, 35 N.Y.2d 361, 364 [1974]).
When determining a dispute over insurance coverage, courts first look to the language of the policy (Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 N.Y.2d 208, 221 [2002]), which is interpreted according to common speech (see Universal American Corp, v National Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680 [2015]). Unambiguous contract provisions must be given their plain and ordinary meaning, as the interpretation of such provisions become a question of law for the court (see Slattery Skanska Inc. v American Home Assur. Co., 67 A.D.3d 1, 14 [1st Dept 2009]). Where there is ambiguity as to the existence of coverage, doubt is to be resolved in favor of the insured and against the insurer, as the drafter of the agreement (see Gilbane Bldg. Co./TDXConstr. Corp, v St. Paul Fire &Mar. Ins. Co., 143 A.D.3d 146, 151 [1st Dept 2016]). However, "[a] court cannot create policy terms by implication or rewrite an insurance contract... [as] an insurer is entitled to have its contract of insurance enforced in accordance with its provisions and without a construction contrary to its express terms" (Bretton v Mutual of Omaha Ins. Co., 110 A.D.2d 46, 49 [1st Dept 1985]).
A particular term within a policy is deemed ambiguous when it is susceptible to two reasonable interpretations (see Hobish v AXA Equit. Life Ins. Co., 225 A.D.3d 487, 488 [1st Dept 2024]). However, when one party to an agreement attaches a particular subjective meaning to a term that differs from that term's plain meaning, it does not render that term ambiguous. Nor does the lack of a definition within the contract of insurance render a word ambiguous (see Lend Lease (US) Constr. LMB Inc. v Zurich Am. Ins. Co., 136 A.D.3d 52, 56 [1st Dept 2015]).
The exclusion in the policy at issue here fails to define the term "interior tile." However, it is common practice for the courts of New York to refer to the dictionary to determine the plain and ordinary meaning of words to a contract, such as an insurance policy (see e.g. 2619 Realty, LLC v Fidelity &Guar. Ins. Co., 303 A.D.2d 299, 301 [1st Dept 2003]). Merriam-Webster Online Dictionary defines the term "interior" as "the internal or inner part of a thing" or "inside" and defines the term "tile" as "a flat or curved piece of fired clay, stone, or concrete used especially for roofs, floors, or walls and often for ornamental work" or as "tiling." Looking to the language of the policy and interpreting the term "interior tile" according to common speech while utilizing the plain and ordinary meaning of the words, this Court can reasonably extrapolate that interior tile is the arrangement of tiles on a surface; in this case, specifically ceramic floor tiles on a subfloor of what was intended to be a restroom in a pizzeria.
(Merriam-Webster.com Dictionary, interior https://www.merriam-webster.com/dictionary/interior); (Merriam-Webster.com Dictionary, tile https://www.merriam-webster.com/dictionary/tile) [Note: online free version]
Here, there is no dispute among the parties' proffered experts that an existing subfloor must be appropriately leveled (by use of mortar mix, aggregate, or compounds) prior to the installation of ceramic tile; however, the utilization of welding is not specifically cited as being a necessary component of tile work (see NYSCEF doc. nos. 47, Panish Aff. &94, Mamenko Aff.). Panish specifically states that "[l]eveling and securing the existing floor surface for rigidity and stability prior to tile installation is trade appropriate for a tile installation contractor and a typical component of floor tile installation... [and] the work performed... on July 5, 2017... was all part of the tile work required under the Construction Contract" (NYSCEF doc. no. 47). However, Panish fails to state that Chong's utilization of welding in this instance was a usual and customary practice, or even was an appropriate method for a tile installation contractor to achieve the desired result of leveling and securing an existing floor surface. Additionally, Chong's testimony here establishes that his choice to utilize welding to attempt to level and secure the subfloor was a method of opportunity and further supports that welding is not a usual and customary practice readily employed by Chong as a tile installation contractor. "While an insured must establish coverage in the first instance, the insurer bears the burden of proving that an exclusion applies to defeat coverage" (J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 37 N.Y.3d 552, 562 [2021] [citation omitted]). "[B]efore an insurance company is permitted to avoid policy coverage, it must satisfy the burden... of establishing that the exclusions or exemptions apply in the particular case, and that they are subject to no other reasonable interpretation" (SeaboardSur. Co. v Gillette Co., 64 N.Y.2d 304, 311 [1984] [citations omitted]). Here, Mt. Hawley has satisfied that burden, as defendants cannot demonstrate that the welding work Chong was engaged in at the time of the fire can reasonably be considered tile work within the meaning of the exclusion clause. As such, the court determines that the welding at issue here is not a covered activity pursuant to the terms of the contract of insurance. Therefore, MSI and the cross-motion are hereby denied. MS2 is granted and the counterclaims asserted by defendants Sentinel, Argonaut and MKC against Mt. Hawley are hereby dismissed.
Chong testified that he "noticed a soldering gun... and figure[d]... [he'd] make a few points... that could secure [the metal hatch]," and that he chose to solder metal rods across the metal hatch to secure it because he "saw them [on] the job site" (NYSCEF doc. no. 63, p 44-47).
While an insurer has a duty to defend its insured in a pending lawsuit when the complaint alleges a covered loss, or when the insurer has actual knowledge of facts establishing the reasonable possibility of coverage, an insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision (see Greenwich Ins. Co. v City of New York, 122 A.D.3d 470, 471 [1st Dept 2014]). As Mt. Hawley has established as a matter of law that there is no possible factual or legal basis upon which it is obligated to indemnify MKC, it shall be relieved of its duty to defend MKC.
CONCLUSION AND ORDER
Accordingly, it is
ORDERED, that defendants' motion sequence 001 for summary judgment pursuant to CPLR §3212, and the cross-motion for summary judgment pursuant to CPLR §3212 are denied, and it is further;
ORDERED, that plaintiffs motion sequence 002 for summary judgment pursuant to CPLR §3212 is granted, and all counterclaims are hereby dismissed.
This constitutes the decision and order of the court.