Opinion
0603888/2006.
May 22, 2008.
Decision Order
This is a declaratory judgment action involving insurance coverage by plaintiff-insurer QBE Specialty Insurance Company ("QBE") of defendants Property Resources Corporation ("PRC"), Maria Estela Houses I Associates L.P. ("Estela Houses") and Jerome Chatzky in connection with the underlying personal injury action pending in the Supreme Court, New York County, index number 109711/06, entitled William Caban and Rosa Caban v. Maria Estela Houses 1 Associates L.P., Property Resources Corporation and Jerome Chatzky (the "Caban Action").
PRC, Estela Houses, and Chatzky (collectively "moving defendants") move for an order pursuant to CPLR 3212 awarding summary judgment in their favor: (a) declaring that QBE is obligated to defend and indemnify the moving defendants in connection with the Caban Action; and (b) awarding judgment to the moving defendants declaring that QBE is obligated to reimburse them for their costs, attorneys' fees and disbursements in connection with both the Caban Action and this declaratory judgment action, and setting the matter down for a hearing to determine said amounts.
QBE cross-moves for summary judgment in its favor, declaring that it has no obligation to defend and indemnify the moving defendants in the Caban Action based on the moving defendants' failure to timely notify QBE of the underlying occurrence as required by the terms of the subject policy. In the event QBE is not granted summary judgment on the above ground, it requests a stay of the determination of the application of the subject policy's exclusion for "Injury and Liability Resulting from or Caused by the Work of a Contractor, Subcontractor, and/or Sub-Subcontractor Including without Limitation Injuries to the Employee of a Contractor, Subcontractor, and/or Sub-Subcontractor," pending the determination in the Caban Action.
As discussed below, the court holds that the notification given by the moving defendants to QBE of the Caban occurrence and Caban Action was untimely, but the matter is referred to a Special Referee to hear and report on the timeliness of QBE's disclaimer of coverage to the moving defendants. Unless otherwise decided herein, all remaining aspects of the motion and cross motion will be held in abeyance pending the report of the Special Referee.
BACKGROUND
QBE, a foreign insurance corporation, issued a policy of Commercial General Liability Insurance, No. KXT00146-1, effective March 29, 2005 to March 29, 2006, to PRC, as named insured (the "Policy"). PRC is a general partner in Estela Houses, a limited partnership that owns a multi-story residential development, comprised of four residential multiple dwelling properties, including the building known as and located at 975 Simpson Street, Bronx, New York. All of these properties were designated insured properties under the Policy. Pursuant to an endorsement, Estela Houses was added as a named insured to the policy. Chatzky is a general partner of Estela Houses and, pursuant to the terms of the Policy, is an insured.
Defendants William Caban and Rosa Caban are the plaintiffs in the Caban Action. William Caban was employed by non-party QNCC Electrical Contracting Corp. ("QNCC"), an electrical contractor, and was injured while working at 975 Simpson Street. Rosa Caban is William Caban's wife.
In June 2005, Estela Houses issued a work order to QNCC to fix four exterior floodlights on one side of 975 Simpson Street that were apparently malfunctioning. It is alleged that, on June 24, 2005, William Caban, while attempting to determine the cause of the lights' malfunction, received an electrical shock and fell from a ladder, resulting in injury to his ankle.
The moving defendants submit that the evidence — including deposition testimony — supports the conclusion that the work William Caban was performing on behalf of QNCC at the premises at the time of the accident was not construction work, but rather constituted routine maintenance.
William Caban was taken from the scene by ambulance to the hospital. PRC's agents or employees were aware of William Caban's injuries at that time since they witnessed the accident or observed the ambulance. Information about the accident was reported to PRC's manager on that date. Further, William Caban or his agents visited Estela Houses approximately three months after the accident, taking pictures and informing management that "people" would be coming to discuss the claim.
In July 2006, William Caban and Rosa Caban commenced the Caban Action. The summons and complaint were filed with the New York County Clerk's office on July 13, 2006, and the moving defendants were served with process on or about July 24, 2006. On or about July 25, 2006, PRC forwarded the papers to PRC's insurance broker, Kornreich NIA Corp. ("Kornreich"), instructing Kornreich to notify the appropriate insurance carrier(s) on the moving defendants' behalf. On July 26, 2006, Kornreich transmitted the summons and complaint in the Caban Action, together with an "Acord Notice of Occurrence Form" (which contained pertinent information regarding the Policy and the occurrence), to QBE's third-party administrator, Rockville Risk Management ("Rockville"), and requested that it serve an answer on behalf of the moving defendants. It is undisputed that this is the first notice that QBE received regarding the Caban incident and the Caban Action.
By letter dated July 28, 2006, Rockville wrote to PRC: (a) identifying itself as the designated third-party administrator for QBE with respect to the Caban Action; (b) acknowledging receipt of the notice of claim; (c) reminding PRC of its duty, as an insured, to cooperate in the investigation, settlement or defense of the claim; and (d) in closing, stating that the letter "is sent to you without prejudice and without waiver and with full reservation of all rights and defenses available to [Rockville/QBE] under the policy."
By letter dated August 3, 2006, Rockville wrote again to PRC, reiterating the points stated in the July 28, 2006 letter and further stating, among other things, that it was retained to conduct an investigation of the matter. This letter also informed PRC that the matter was referred to a law firm (White McSpedon, PC) "to protect your interests." The letter outlined the terms and limits of the Policy, and advised PRC to notify its excess carriers, if any, of the Caban Action. The letter also stated that "[w]e further notify you that any action on our part by way of investigation or defense we may undertake on your behalf does not constitute a waiver of any of our rights granted under the terms and conditions of the [Policy]."
By letter dated September 12, 2006, Rockville wrote yet again to PRC. In this letter, Rockville reminded PRC of its obligations under the Policy to cooperate in Rockville's investigation of the claim. This letter was motivated by the fact that Rockville felt that the moving defendants were slow to provide requested information and interviews requested by Rockville in connection with its investigation of the Caban matter on QBE's behalf.
By letter dated October 5, 2006, Abrams, Gorelick, Friedman Jacobson, P.C., coverage counsel for QBE, wrote to PRC (with copies sent to Caban's attorneys, QBE and Kornreich) declining its request for defense and coverage in the Caban Action (the "Declination Letter"). The Declination Letter stated that in response to the request for coverage from QBE in the Caban Action "QBE has determined that it owes no duty to defend or indemnify [PRC] in the Caban Action." After reviewing a number of provisions in the Policy, the Declination Letter goes on to state:
The Caban Complaint indicates that William Caban was injured on June 24, 2005; however [QBE] was not given notice of this occurrence or any claim arising from the occurrence until July 26, 2006. QBE and Rockville immediately began their investigation to determine coverage for the claim. Although that investigation has not yet been fully completed, the investigation, thusfar [sic], has revealed that agents or employees of PRC were aware of Mr. Caban's injuries on June 24, 2005 and either witnessed the accident or witnessed an ambulance taking Mr. Caban from the scene. It also has been learned that information about the accident was reported to [PRC] on June 24, 2005. Further, PRC's agents/employee reported [sic] received at least one visit from Mr. Caban approximately three months after the accident in which his medical condition was apparent, and he informed them that people would be coming to discuss the claim. In that notification as soon as practicable is a condition precedent to coverage, this failure to provide notice bars coverage for this claim. Thus, QBE has determined that, pursuant to the above terms and conditions, coverage has been voided under the QBE policy for any claims arising from injuries sustained by William Caban and Rosa Caban on June 24, 2005, and [QBE] has no obligation to defend or indemnify PRC for any claims arising from injuries sustained by William Caban and Rosa Caban on June 24, 2005.
The Declination Letter reiterated that the investigation was continuing and offered PRC an opportunity to provide any information that might affect QBE's determination.
On October 27, 2006, coverage counsel for QBE wrote a letter supplementing the Declination Letter. This letter was addressed not only to PRC, but also to Chatzky and Estela Houses, all at PRC's address (with copies sent to QBE and Kornreich). In this letter, QBE's counsel additionally raised the applicability of the exclusion in the Policy for "Injury and Liability Resulting from or Caused by the Work of a Contractor, Subcontractor, and/or Sub-Subcontractor Including without Limitation Injuries to the Employee of a Contractor, Subcontractor, and/or Sub-Subcontractor."
QBE commenced this action seeking a judgment declaring that it is not obligated to defend or indemnify the moving defendants on the grounds that: (1) the notice of occurrence given by the moving defendants was untimely and violated the condition in the Policy requiring notice "as soon as practicable;" and (2) based on the application of an exclusion in the Policy, contained in endorsement QBCG-0159 (07-01), which excludes coverage to the Named Insured "with respect to any construction, alteration, demolition, or repair of real property or any structures or mobile equipment thereon" and where the Named Insured has not entered into a prior written and signed contract with the contractor, which indemnifies the Named Insured in the event of a loss.
The moving defendants contend that QBE must defend and indemnify them in the Caban Action because: (1) QBE's disclaimer, based on failure to provide timely notice, was untimely as a matter of law under Insurance Law § 3420(d); (2) QBE failed to disclaim on the basis of untimeliness as to Estela Houses or Chatzky; and (3) the exclusion contained in QBCG-0159 (07-01) does not apply to the work performed by Caban for his employer QNCC at the time of the accident.
DISCUSSION
The law applicable to an insured's duty to give notice to the insurer is well settled. As explained by the First Department:
Where a liability insurance policy requires that notice of an occurrence be given "as soon as practicable," such notice must be accorded the carrier within a reasonable period of time (Great Canal Realty Corp. v Seneca Ins. Co., 5 NY3d 742, 743 [2005]). "The duty to give notice arises when, from the information available relative to the accident, an insured could glean a reasonable possibility of the policy's involvement" (Paramount Ins. Co. v Rosedale Gardens, 293 AD2d 235, 239-240 [1st Dept 2002]). '[W]here there is no excuse or mitigating factor, the issue [of reasonableness] poses a legal question for the court,' rather than an issue for the trier of fact" (SSBSS Realty Corp. v Public Serv. Mut. Ins. Co., 253 AD2d 583, 584 [1st Dept 1998], quoting Hartford Acc. Indem. Co. v CNA Ins. Cos., 99 AD2d 310, 313 [1st Dept 1984]).
Here, plaintiff established as a matter of law that the insured failed to give plaintiff notice of the accident within a reasonable period of time. The accident involved a patron who slipped and fell on a floor on the insured's premises and had to be removed from the premises on a stretcher and placed in an ambulance. Moreover, the insured, through its employees (see Public Serv. Mut. Ins, Co. v Harlen Hous, Assoc., 7 AD3d 421 [1st Dept 2004]), knew about the accident on the day it occurred. Thus, although the duty to give notice arose on the day of the accident, the insured did not give plaintiff notice until almost nine months after it occurred-an unreasonable delay as a matter of law (see id.: DiGuglielmo v Travelers Prop. Cas., 6 AD3d 344, 346 [1st Dept 2004]; Paramount Ins. Co., 293 AD2d at 238, 241).
(Tower Ins. Co. of New York v Lin Hsin Long Co., AD3d, 855 NYS2d 75, 78 [1st Dept 2008]; see also St. Nicholas Cathedral of Russian Orthodox Church in North America v Travelers Property Cas. Ins. Co., 45 AD3d 411 [1st Dept 2007]; SSBSS Realty Corp. v Public Serv. Mut, Ins. Co., 253 AD2d 583 [1st Dept 1998]).
The St. Nicholas Cathedral case is similar to this case. There the evidence established that the insured was "immediately aware of the accident, which occurred in front of its property . . . and that it was aware that a person was injured and was removed from the scene in an ambulance" (id., 45 AD3d at 412). There, as here, the insured failed to notify the insurer until it received notice that a personal injury action was commenced against it. The First Department held that the insured's notice to the insurer was not "as soon as practicable" as required under the subject policy and, accordingly, the insurer was not obligated to defend and indemnify the insured in connection with the personal injury action (id.). The facts in the Tower Ins, Co. case, quoted above, are also similar to those presented here.
The cases thus demonstrate, and the moving defendants do not dispute, that they failed to give notice to QBE "as soon as practicable" as required under the Policy. The moving defendants contend that, notwithstanding their untimely notice, QBE's delay in disclaiming coverage on the ground of untimely notice precludes QBE from disclaiming on that basis. The issue thus presented is whether QBE conducted a prompt and diligent investigation of the timeliness of the insureds' notice. Insurance Law § 3420(d), provides:
If under a liability policy delivered or issued for delivery in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant.
As explained by the First Department:
An insurer must serve written notice on the insured of its intent to disclaim coverage under its policy "as soon as is reasonably possible" (Insurance Law 3420 [d]). The reasonableness of the timing of a disclaimer is measured from the date when the insurer knew or should have known that grounds for the disclaimer existed (see First Fin. Ins. Co. v Jetco Contr. Corp., 1 NY3d 64, 68-69 [2003]). If such grounds were, or should have been, "readily apparent" to the insurer when it first learned of the claim, any subsequent delay in issuing the disclaimer is unreasonable as a matter of law (id. at 69). If it is not readily apparent, the insurer has the right, albeit the obligation, to investigate, but any such investigation must be promptly and diligently conducted (see id.; see also Ace Packing Co., Inc. v Campbell Solberg Assoc., Inc., 41 AD3d 12 [1st Dept 2007]; Structure Tone v Burgess Steel Prods, Corp., 249 AD2d 144, 145 [1st Dept 1998]; Norfolk Dedham Mut. Fire Ins. Co. v Petrizzi, 121 AD2d 276, 278 [1st Dept 1986]).
(Those Certain Underwriters at Lloyds. London v Gray, 49 AD3d 1, 2-3 [1st Dept 2007])
The First Department in the Lloyds case further instructed that "[t]here is no objective standard against which the time it takes an insurer to issue its disclaimer can be measured. It is a fact sensitive inquiry that is based upon all of the surrounding circumstances and focuses on the period between when the insurer first learned of the grounds for disclaimer and finally served its written notice disclaiming coverage on the insured" (id.; see also City of New York v Welsbach Elec. Corp., 49 AD3d 322 [1st Dept 2008]; Ace Packing Co. Inc. v Campbell Solberg Assocs., Inc., 41 AD3d 12 [1st Dept 2007]).
Although the facts weigh in favor of the conclusion that QBE's investigation was reasonable in time and scope and that its disclaimer was timely under the circumstances, the contradictory contentions create issues of fact that cannot be determined as a matter of law without an evidentiary hearing. Since resolution of this issue may be dispositive of this action, a hearing is warranted at this juncture. This issue shall be referred to a Special Referee to hear and report.
The court turns to the moving defendants' contention that the Declination Letter was effective against only PRC, not Estela Houses or Chatzky. The moving defendants maintain that, since the Declination Letter was not expressly addressed to Estela Houses or Chatzky, QBE did not disclaim coverage as to Estela Houses or Chatzky until October 27, 2006, when it sent the letter supplementing the Declination Letter addressed to all of the moving defendants. As such, the moving defendants contend that QBE did not give notice of its disclaimer to Estela Houses and Chatzky until October 27, 2006, and that such notice was untimely as a matter of law under Insurance Law § 3420(d). This assertion is without merit because the moving defendants are unified in interest. The Declination Letter was collectively directed at the moving defendants and gave fair notice of QBE's disclaimer as against all three insureds (see generally Cincinnati Ins. Cos. v Sirius America Ins. Co., AD3d, NYS2d, 2008 WL 1914952 [4th Dept 2008]; Excelsior Ins. Co. v Antretter Contracting Corp., 262 AD2d 124 [1st Dept 1999]; Losi v Hanover Ins. Co., 139 AD2d 702 [2d Dept 1988]; see also 14 Couch on Insurance 3d § 198.36. Therefore, the court holds that QBE disclaimed coverage to PRC, Estela Houses and Chatzky on or about October 5, 2006 in the Declination Letter.
The remaining issues raised by the parties in the motion and cross motion, including in particular whether the exclusion in question bars coverage (or whether the determination of same should be stayed pending resolution of the Caban Action) are held in abeyance pending resolution of the primary issue of the timeliness of QBE's disclaimer. Accordingly, it is
ORDERED that the cross motion by plaintiff QBE Specialty Insurance Company for an order granting summary judgment declaring that it has no obligation to defend and indemnify the moving defendants in the Caban Action, or alternatively, staying the determination of the applicability of an exclusion contained in the subject policy pending determination of same in the underlying personal injury action, is granted only to the extent that the issue of whether plaintiff QBE Specialty Insurance Company's disclaimer of coverage to the moving defendants was timely is referred to a Special Referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties enlarging the reference, as permitted by CPLR § 4317(a), to include the reasonable amount of costs and attorneys' fees incurred in this action, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue(s); and, it is further
ORDERED that a copy of this order with notice of entry shall be served on the Special Referee Clerk (Room 119) to arrange a date for the reference to a Special Referee; and it is further
ORDERED that the remaining issues raised in the cross motion as well as in the motion by defendants Property Resources Corporation, Maria Estela Houses I Associates L.P. and Jerome Chatzky for summary judgment are held in abeyance pending determination of the matters referred to the Special Referee.
This constitutes the decision and order of this court. A copy of this decision and order has been sent to counsel for the moving defendants and QBE.