Opinion
INDEX 653560/2020
02-09-2022
NEW YORK CITY HOUSING AUTHORITY, Plaintiff, v. VESTAR INC., MARKEL INSURANCE COMPANY and COLONY INSURANCE COMPANY, Defendants. MOTION SEQ. No. 001
HON. LOUIS L. NOCK Justice
Unpublished Opinion
MOTION DATE 10/07/2020
DECISION + ORDER ON MOTION
HON. LOUIS L. NOCK Justice
The following e-filed documents, listed by NYSCEF document number (Motion 001) 8, 9, 10, 11, 12, 13, 14, 16, 17, 18, 19, 20, 21, 22, and 23 were read on this motion to DISMISS .
LOUIS L. NOCK, J.
Plaintiff New York City Housing Authority ("NYCHA") commenced this action for a declaratory judgment that it is entitled to defense and indemnification from each defendant for liability that may be imposed against it in an underlying action. Defendant Markel Insurance Company ("Markel") moves to dismiss the claims against it, pursuant to CPLR 3211 (a).
Background
NYCHA hired a contractor for a building project in The Bronx. The contractor entered into a subcontract with defendant Vestar, Inc. ("Vestar"). The subcontract obligated Vestar to: (1) procure Comprehensive General Liability Insurance ("CGL") covering NYCHA, Vestar, and the contractor against personal injury claims and liability arising out of Vestar's work on the project; (2) procure insurance to cover any indemnification Vestar incurs in an "insured contract"; and (3) indemnify, defend, and hold harmless the contractor and NYCHA from any claims, liabilities, fees, and expenses related to personal injuries arising out of any act or omission by Vestar, including full indemnity for any liability imposed by statute and partial indemnity in the event of any active negligence on the part of the contractor or NYCHA. Vestar was also required to procure excess insurance.
Vestar procured a CGL policy from defendant Markel (the "Markel Policy") and an excess policy from defendant Colony Insurance Company. In August 2016, Vestar employee Jorge Rincon served a notice of claim on NYCHA and the City of New York alleging injuries sustained on the project. In November 2016, NYCHA tendered its defense to Vestar and Markel and Markel accepted NYCHA's tender. Markel's tender acceptance letter stated that the subcontract required Vestar to add NYCHA as an additional insured on the Markel Policy, that Markel was in possession of information that Rincon was working as a Vestar employee when he was injured, and that Markel would provide NYCHA with additional insured coverage. Markel also reserved its right "to withdraw its defense and deny coverage if it is determined that the loss did not arise out of Vestar's work for the City" (NYSCEF 10, Complaint ¶ 28).
In January 2017, Rincon commenced the underlying personal injury action against NYCHA and the contractor in Supreme Court, Bronx County, under Index Number 20579/2017. In February 2017, NYCHA sent Markel the summons and complaint in the underlying action. In April 2017, Markel wrote to NYCHA, disclaiming coverage because of an endorsement in the Markel Policy entitled "Exclusion - Bodily Injury to Specified Workers." On February 6, 2020, Markel wrote NYCHA that Markel would no longer agree to defend it in the Rincon action.
NYCHA sets forth two causes of action against Markel. The third cause of action of the complaint requests a declaration that NYCHA is entitled to coverage as an additional insured under the Markel Policy on the basis that Markel waived the right to assert, or is estopped from asserting, the exclusion based on bodily injury to specified workers. The fourth cause of action of the complaint seeks a declaration that NYCHA is a contractual indemnitee of Vestar and that the subcontract qualifies as an insured contract and that, hence, NYCHA is covered by the Markel Policy.
The Markel Policy contains an endorsement headed "ADDITIONAL INSURED -OWNERS, LESSEES OR CONTRACTORS (BLANKET)," with this definition of additional insured: "Any person(s) or organization(s) to whom the insured agrees to provide Additional Insured status in a written contract signed by both parties and executed prior to the commencement of operations" (NYSCEF 11, Markel Policy at 7 of 14, page MIC000027). "Who Is An insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule . . . ." (Id.)
Under "Exclusions," the Markel Policy states: "This insurance does not apply to: . . . 'Bodily injury' or 'property damage' for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages: (1) That the insured would have in the absence of the contract or agreement; or (2) Assumed in a contract or agreement that is an 'insured contract', provided that the 'bodily injury' or 'property damage' occurs subsequent to the execution of the contract or agreement." (NYSCEF 11, Markel Policy at 2 of 13, page MIC000061.)
An "insured contract" means an agreement "under which you assume the tort liability of another party to pay for 'bodily injury' or 'property damage'" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement (id., at 11 of 13, page MIC000070, ¶ 9 [f]).
Discussion
Plaintiff's Standing to Assert the Fourth Cause of Action:
Markel's instant motion to dismiss argues that plaintiff lacks standing to assert the fourth cause of action because plaintiff has not secured a judgment against Vestar. The argument is incorrect. In the case cited by Markel, the issue was whether the injured party may bring a declaratory judgment action against the insurance company before securing a judgment against the tortfeasor (see, Lang v Hanover Ins. Co., 3 N.Y.3d 350 [2004]). The Court answered in the negative, because "a judgment is a statutory condition precedent to a direct suit against the tortfeasor's insurer" (id.). The Court noted that it was beyond dispute that a person claiming to be an insured under the policy could bring a declaratory judgment action against the insurer over controversies arising from the insurance policy (id. at 353; see Kassis v Ohio Cas. Ins. Co., 12 N.Y.3d 595, 599 n 1 [2009]; POFI Constr. Corp. v Rutgers Cas. Ins. Co., 189 A.D.3d 465 [1st Dept 2020] [party seeking additional insured coverage in a policy issued to the subcontractor was not required to obtain a judgment against the subcontractor before bringing the action]). As a putative additional insured party, NYCHA has standing to bring a declaratory judgment action against the insurer from whom it seeks coverage so that NYCHA's status under the policy may be determined. To the extent that Markel seeks to dismiss the claims against Vestar, Markel has no standing to seek relief on behalf of Vestar, since Markel's attorneys do not represent Vestar (see POFI, 189 A.D.3d at 466-67). Therefore, dismissal cannot be had on the ground of lack of standing to assert the claim.
The Other Grounds for Dismissal:
On a CPLR 3211 (a) (7) motion to dismiss for failure to state a cause of action, the factual allegations of the complaint are deemed true (Wall St. Assocs. v Brodsky, 257 A.D.2d 526, 526-27 [1st Dept 1999]). The court asks whether, based on "any reasonable view" of the allegations in the pleading, the plaintiff has a claim (Aristy-Farer v State of N.Y., 29 N.Y.3d 501, 509 [2017]). Pleadings are liberally construed and the court considers only whether the complaint states "the facts upon which the pleader relies" (Foley v D'Agostino, 21 A.D.2d 60, 63 [1st Dept 1964]). On a motion to dismiss based on documentary evidence, dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law (CPLR 3211 [a] [1]; Constellation Energy Servs. of N.Y., Inc. v New Water St. Corp., 146 A.D.3d 557 [1st Dept 2017]).
To resolve a dispute over insurance coverage, including whether a party is an additional insured, the court examines the policy (Gilbane Bldg. Co./TDX Const. Corp. v St. Paul Fire & Marine Ins. Co., 143 A.D.3d 146 [1st Dept 2016], affd 31 N.Y.3d 131 [2018]; Bovis Lend Lease LMB, Inc. v Great American Ins. Co., 53 A.D.3d 140 [1st Dept 2008]). Clear and unambiguous provisions of an insurance policy will be given their plain and ordinary meaning (Lend Lease [U.S.] Const. LMB Inc. v Zurich American Ins. Co., 136 A.D.3d 52 [1st Dept 2015], affd 28 N.Y.3d 675 [2017]). An ambiguous document is one subject to more than one reasonable interpretation or one that fails to disclose the parties' intent (Universal American Corp. v National Union Fire Ins. Co., 25 N.Y.3d 675 [2015]).
The Markel Policy states that Vestar and a party claiming to be an additional insured must have signed a contract with each other which provides that Vestar will buy additional insured insurance for the other party. The provision is clear and coherent and not subject to more than one reasonable interpretation. The court decides, as a matter of law, whether an insurance policy provision is ambiguous (Atlantic Mut. Ins. Co. v Terk Tech. Corp., 309 A.D.2d 22 [1st Dept 2003]), and in this case the court detects no ambiguity or uncertainty in the document's meaning.
Where the insurance policy provides that there is additional insured coverage for a party only if such coverage is required by a "written contract," between the named insured and the party seeking additional insured status, the Appellate Division, First Department, has determined that additional insured coverage does not lie if there is no such contract (see, All State Interior Demolition Inc. v Scottsdale Ins. Co., 168 A.D.3d 612 [1st Dept 2019]; Mayo v Metropolitan Opera Assn., Inc., 108 A.D.3d 422 [1st Dept 2013], appeal dismissed 22 N.Y.3d 1125 [2014]; AB Green Gansevoort, LLC v Peter Scalamandre & Sons, Inc., 102 A.D.3d 425 [1st Dept 2013]). A party is not entitled to coverage if not identified as an insured or an additional insured in the policy (National Abatement Corp. v National Union Fire Ins. Co., 33 A.D.3d 570 [1st Dept 2006]).
There is no dispute that Vestar and NYCHA did not enter into any contract and that NYCHA is not named in the Markel Policy. Thus, NYCHA is not an additional insured under the Markel Policy.
Markel argues that the insured contract exception in the Markel Policy does not obligate it to defend NYCHA. Both parties assume that the subcontract between Vestar and the contractor is an insured contract as defined in the Markel Policy. Markel correctly contends that its obligation to indemnify is owed to Vestar, not to NYCHA. A party who is promised indemnification under an insured contract and who is not an insured under the policy covering the indemnitor is not entitled to coverage under that policy (Tribeca Broadway Assocs. v Mount Vernon Fire Co., 5 A.D.3d 198 [1st Dept 2004]). In the subcontract, Vestar undertook to indemnify NYCHA; however, that does not mean that the insurance policy insuring Vestar "provide[s] automatic additional insured coverage for parties indemnified under an 'insured contract'" (Yoda, LLC v National Union Fire Ins. Co., 88 A.D.3d 506, 508 [1st Dept 2011]; SL Green Realty Corp. v Burlington Ins. Co., 2017 WL 495943 [Sup Ct, NY County, Feb. 7, 2017]). Thus, barring any other considerations, it would seem that Markel is correct in its assertion that NYCHA has no rights against Markel under the strict terms of the Markel Policy. However, the next question is whether equitable doctrines of waiver and estoppel preclude Markel from denying coverage.
An insurer must disclaim or deny coverage for bodily injury as soon as reasonably possible or be precluded from later avoiding coverage (Insurance Law § 3420 [d]; Hartford Ins. Co. v County of Nassau, 46 N.Y.2d 1028, rearg denied 47 N.Y.2d 951 [1979]). An express reservation of rights precludes both waiver and equitable estoppel (New York Marine & Gen. Ins. Co. v Travelers Prop. Cas. Co. of America, 485 F.Supp.3d 398 [SD NY 2020]). The failure to reserve rights may cause the insurer to be precluded from denying coverage (Albert J. Schiff Assocs. v Flack, 51 N.Y.2d 692 [1980]).
NYCHA asserts that Markel's untimeliness should preclude it from disclaiming coverage, as it waited until April 2017 - two months after NYCHA informed it of the underlying action - to disclaim coverage for the first time, and then waited nearly three years to disclaim coverage for the second time. Moreover, the reasons for denying coverage are inconsistent and insufficient. In the tender acceptance, Markel reserved the right to disclaim if the loss did not arise out of Vestar's work. Later in April 2017, the disclaimer was based on an exclusion in the Markel Policy and in February 2020, Markel disclaimed coverage without a reason. In addition, Markel's only reservation of rights, made in the tender acceptance, was insufficient and consequently does not give it the right to disclaim coverage.
A distinction exists between the denial of a claim based upon an exclusion of coverage and the denial of a claim based upon noncoverage (A. Servidone, Inc. v Commercial Underwriter's Ins. Co., 7 A.D.3d 942 [3d Dept], appeal dismissed 3 N.Y.3d 701 [2004]). In the first situation, the policy covers the claim, but is denied based on a policy exclusion and a timely notice of disclaimer is required (Markevics v Liberty Mut. Ins. Co., 97 N.Y.2d 646 [2001]; GPH Partners, LLC v American Home Assur. Co., 87 A.D.3d 843 [1st Dept 2011]). In the second situation, however, "the claim is not within the ambit of the policy at all" and for that reason a notice of disclaimer is not required (69 NY Jur 2d Insurance § 1469; Black Bull Contr., LLC v Indian Harbor Ins. Co., 135 A.D.3d 401, 403 [1st Dept 2016]). The failure to disclaim coverage does not create coverage which the policy was not written to provide (Zappone v Home Ins. Co., 55 N.Y.2d 131 [1982]), and neither estoppel nor waiver can be used to create coverage where none exists (Albert J. Schiff Assocs., 51 N.Y.2d at 692; Hyperion Med. P.C. v Trinet HR III, Inc., 190 A.D.3d 456 [1st Dept 2021]; QBE Americas, Inc. v ACE American Ins. Co., 164 A.D.3d 1136 [1st Dept 2018]; Federated Dept. Stores, Inc. v Twin City Fire Ins. Co., 28 A.D.3d 32 [1st Dept 2006]).
In this case, coverage for NYCHA is not within the ambit of the policy. For that reason, Markel contends that it was not obligated to disclaim and that it is not precluded by waiver or estoppel from disclaiming. NYCHA contends that, while it is generally true that waiver and estoppel cannot create coverage where it does not otherwise exist, it is also true that where the insurer, as is the case here, accepts the obligation to defend and provide coverage without a reservation of rights, it is subject to waiver and estoppel when its actions cause prejudice to the putative insured.
"There is another line of cases which is not entirely reconcilable with the" cases holding that estoppel can never create coverage where there can never have been coverage (Philadelphia Indem. Ins. Co. v City of N.Y., 2011 WL 1237586 at *7 [SD NY, Mar. 24, 2011, No. 09-CIV- 10432 (PGG)]). Estoppel may apply "where an insurer, though in fact not obligated to provide coverage, without asserting policy defenses or reserving the privilege to do so, undertakes the defense of the case, in reliance on which the insured suffers the detriment of losing the right to control its own defense. In such circumstances, though coverage as such does not exist, the insurer will not be heard to say so" (Albert J. Schiff Assocs., 51 N.Y.2d at 699; General Acc. Ins. Co. of Am. v Metropolitan Steel Indus., Inc., 9 A.D.3d 254, 254 [1st Dept 2004]; Serio v Public Serv. Mut. Ins. Co., 7 A.D.3d 277, 279 [1st Dept 2004]). In Temple Beth Sholom, Inc. v Com. & Indus. Ins. Co. (173 A.D.3d 637 [1st Dept 2019), the party seeking additional insured status was not covered under the policy. However, since the insurer accepted coverage without reservation and defended the putative additional insured, which relied to its detriment on the defense, the insurer was estopped from denying coverage.
Even assuming that Markel was late in disclaiming, that it disclaimed on insufficiently specific and inconsistent grounds, and that it did not make a proper reservation of rights, a late disclaimer or a failure to reserve rights will not estop Markel, unless NYCHA has detrimentally relied on Markel's conduct (see Tarry Realty LLC v Utica First Ins. Co., 114 A.D.3d 520 [1stDept], lv denied 23 N.Y.3d 902 [2014]; Martini v Lafayette Studio Corp., 273 A.D.2d 112, 114 [1stDept 2000]). Even if Markel unreasonably delayed in disclaiming coverage, estoppel would still rest on whether NYCHA suffered prejudice as a result of the delay (see James River Ins. Co. v Power Mgt., Inc., 55 F.Supp.3d 446 [ED NY 2014]; Citizens Ins. Co. of Am. v Illinois Union Ins. Co., 105 A.D.3d 679 [1st Dept 2013]).
The purpose of the equitable doctrine of estoppel is to prevent the infliction of unconscionable injury and loss upon one who has justifiably relied upon the promise of another and, as a consequence of such reliance, was misled into a detrimental change in position (American Bartenders School v 105 Madison Co., 59 N.Y.2d 716 [1983]; National Indem. Co. v Ryder Truck Rental, 230 A.D.2d 720 [2d Dept 1996]). Prejudice may exist, for instance, where the insurer's control of the defense is such that the character and strategy of the lawsuit can no longer be altered (Federated Dept. Stores, 28 A.D.3d at 39), where a belated denial of coverage endangers the insured party's ability to settle a case or implead a party, or where the trial is impending (206-208 Main St. Assocs., Inc. v Arch Ins. Co., 106 A.D.3d 403 [1st Dept 2013]; Yoda, LLC v National Union Fire Ins. Co., 88 A.D.3d 506 [1st Dept 2011]; United States Fid. & Guar. Co. v New York, Susquehanna & W. Ry. Co., 275 A.D.2d 977 [4th Dept 2000]).
Plaintiff contends that whether Markel should be estopped cannot be determined on a pre-answer motion to dismiss. However, whether a complaint adequately alleges a cause of action is the focus of a CPLR 3211 pre-answer motion (see Stonebridge Cap., LLC v Nomura Intl. PLC, 24 Misc.3d 1218[A] [Sup Ct NY County], affd 68 A.D.3d 546 [1st Dept 2009], lv denied 15 N.Y.3d 735 [2010]). There is not a hint in the complaint of any prejudice or detriment to NYCHA. NYCHA does not allege that Markel actually defended it or that it was harmed by the promise to defend.
As to waiver, it is the intentional and voluntary relinquishment of a legal right (Gilbert Frank Corp. v Federal Ins. Co., 70 N.Y.2d 966 [1988]). The lack of prejudice to NYCHA bars the claim that Markel waived its defenses. Waiver will not be implied "unless the opposite party is misled to his or her prejudice into the belief that a waiver was intended" (Jin Ming Chen v Insurance Co. of the State of Pa., 165 A.D.3d 588, 589 [1st Dept 2018], affd 36 N.Y.3d 133 [2020] [internal quotation marks and citation omitted]).
Conclusion:
For all the above reasons, it is
ORDERED that the motion by defendant Markel Insurance Company to dismiss the complaint as against it is granted, and the third and fourth causes of action in the complaint are dismissed, and the Clerk of Court shall sever and dismiss the third and fourth causes of action with prejudice; and it is further
ORDERED that Markel Insurance Company shall recover costs and disbursements as calculated by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
This will constitute the decision and order of the court.