Opinion
158095/2012
07-27-2020
TRUMBULL EQUITIES LLC., Alma Realty Corp., Tower Insurance Company of New York, Plaintiff, v. MT HAWLEY INSURANCE COMPANY, Defendant.
Plaintiffs: Trumbull Equities LLC, Alma Realty Corp., Tower Insurance Company of New York, Kennedys CMK LLP, 570 Lexington Avenue, 8th Floor, New York, NY 10022, By: Max William Gershweir, Esq. Defendant: Kenney Shelton Liptak Nowak LLP, 233 Franklin St. Buffalo, NY 14202, By: Timothy Erin Delahunt, Esq., Elsa Johanna Schmidt Esq.
Plaintiffs: Trumbull Equities LLC, Alma Realty Corp., Tower Insurance Company of New York, Kennedys CMK LLP, 570 Lexington Avenue, 8th Floor, New York, NY 10022, By: Max William Gershweir, Esq.
Defendant: Kenney Shelton Liptak Nowak LLP, 233 Franklin St. Buffalo, NY 14202, By: Timothy Erin Delahunt, Esq., Elsa Johanna Schmidt Esq.
Robert R. Reed, J.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 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, 88, 89, 90, 91, 92, 93, 94, 95, 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, 133, 134, 135, 136 were read on this motion to/for JUDGMENT - SUMMARY.
IT IS ORDERED that the Order of this court dated January 6, 2020 is hereby amended as follows:
Plaintiffs move for summary judgment on their declaratory judgment action seeking indemnity and a defense from defendant, and defendant cross-moves to dismiss plaintiffs' declaratory judgment action.
Factual and Procedural Background
Plaintiff Trumbull Equities LLC (Trumbull) owned, and plaintiff Alma Realty Corp. (Alma) managed, a building located at 37-01 31st Street, Long Island City (the Building). On October 1, 2006, Trumbull entered into a 15-year lease with non-party Vordonia Contracting & Supplies, Corp. (Vordonia) to rent approximately 19,000 square feet of the first floor of the Building (the Leased Premises). The lease requires Vordonia to procure liability insurance that includes Trumbull as an additional insured, which it did. On November 4, 2008, defendant Mt Hawley Insurance Company (Mt Hawley) issued a general liability policy to Vordonia (the Mt Hawley Policy).
On July 14, 2008, plaintiff Tower Insurance Company of New York (Tower) had issued a general liability policy to Trumbull which provided first-party property coverage and general liability coverage to Trumbull as the owner of the Building (the Tower Policy) (see DeCarter aff, exhibit 1). The Tower Policy also provided insurance coverage to Alma as Trumbull's managing agent (id. ). The Tower Policy also indicated that it was to be excess to other primary policies to which Trumbull was named as an additional insured (id. ). According to the terms of the policy, if the Tower Policy is deemed excess insurance, Tower has no duty to defend Trumbull unless no other insurer defends it (id. ).
The Mt Hawley Policy's liability coverage covers "those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ ... caused by an ‘occurrence’, which the policy defines in relevant part as an "accident" (see Gershweir aff, exhibit B). The policy also requires Mt Hawley to "defend the insured against any ‘suit’ seeking those damages" (id. ). The Mt Hawley Policy provides an "Each Occurrence Limit" of $1,000,000 (id. ). The Mt Hawley Policy includes a "Deductible Liability Insurance" endorsement requiring Vordonia to remit to Mt Hawley $5,000 on a per ‘unit’/per claim basis (id. ). The endorsement defines "per ‘unit’/per claim" to mean, as relevant here, "all damages because of ... ‘Bodily injury’ sustained by each person or claimant [and] ‘Property damage’ to each individual ‘unit’ or the contents thereof" (id. ).
The endorsement allows Mt Hawley to pay any part or all of the deductible amount to effect settlement of any claim (id. ). Vordonia was required to reimburse Mt Hawley for any part of the deductible amount paid by Mt Hawley (id. ). The deductible endorsement states that the "deductible" "includes costs and expenses" (id. ). It also states that Mt Hawley's obligation to pay damages on Vordonia's behalf applies only to the amount of damages in excess of any deductible (id. ). The endorsement also permits Mt Hawley, at its "sole election upon receipt or notice of any claim or at any time thereafter [to] request you to pay over and deposit with us all or part of the deductible amount, to be held and applied per the terms of the policy" (id. ).
The Mt Hawley Policy also includes an endorsement excluding coverage for " ‘bodily injury’ or ‘property damage’ arising out of the ongoing operations described in the Schedule of this endorsement" (id. ). The endorsement Schedule includes the following: "Owned and Managed Properties and Premises exposures not submitted as project work" and "Owned Properties that are occupied" (id. ). The Mt Hawley Policy also contains, however, an endorsement entitled "Additional Insured - Managers and Lessors of Premises" that includes as an "insured" "[t]he person or organization shown in the Schedule but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you [Vordonia] and shown in the Schedule" (id. ). The Schedule identifies Trumbull as the additional insured and the Building address as an insured premise (id. ).
Like the Tower Policy, the Mt Hawley Policy includes as an "insured" "any organization while acting as your [a named insured's] real estate manager" (id. ). The Mt Hawley Policy's "Other Insurance" provision states the policy provides primary coverage absent exceptions not applicable here (id. ).
On November 22, 2008, a fire occurred in Vordonia's leased space. According to the Fire Department of New York's Fire Incident Report, the fire originated in a "lacquer spray booth" on the first floor of the Building, "in the vapors of lacquer thinner, in the heat of arc welding" (see Gershweir aff, exhibit D). According to deposition testimony in an underlying personal injury action, it was established that the fire started from a spark caused when a Vordonia employee, Marco Patricio Lucero, was attempting to weld a filtering screen to cover a duct opening in a spray booth (see Gershweir aff, exhibit E).
Jason Silver, a member of the New York City Fire Department (FDNY), was injured in the course of fighting the fire when he slipped on debris on the first floor beneath the water on the floor that was used to extinguish the fire while trying to lift a heavy object to gain access to an area where fire remained.
Louis Celestino, also a member of the FDNY, was injured in the course of fighting the fire when he fell to the ground to avoid the blast of heat and concussive force of an explosion on the first floor.
Mt Hawley was first notified of the November 22, 2008 fire on December 5, 2008, when it received documents including a December 2, 2008 letter from Tower's initial subrogation counsel advising that Tower's investigation revealed that Vordonia was responsible for the fire and that Tower intended to assert a claim against it as Trumbull's subrogee for the resulting damage to Trumbull (see Gershweir aff, exhibit H). On December 9, 2008, Tower's new subrogation counsel advised Mt Hawley that an inspection of the Building would take place on December 12, 2008, to confirm the fire's cause and origin (see Gershweir aff, exhibit I). The letter invites Mt Hawley to send its own expert to participate in the inspection.
On July 29, 2009, Silver sued Trumbull, Alma, Vordonia, and Valco Building and Maintenance Supplies Corp. (Valco), another first-floor tenant of the Building, seeking damages for the personal injuries he sustained while fighting the fire (the Silver Action) (see Gershweir aff, exhibit J).
On August 12, 2009, Fiduciary Insurance Company of America, another tenant of the Building, sued Trumbull, seeking damages for, among other things, damage to its property resulting from the fire (the Fiduciary Action) (see Gershweir aff, exhibit K).
On September 18, 2009, in a letter to Vordonia, Trumbull and Alma, Mt Hawley issued its initial coverage position with respect to the Silver claim and the potential Celestino claim (see Gershweir aff, exhibit L). In that letter, Mt Hawley agreed to defend Vordonia, Trumbull and Alma in the Silver Action; Celestino had not yet sued. The letter states, "Mt Hawley's understanding is that the fire arose from work being performed by an employee of Vordonia on first-floor space occupied by Vordonia." The letter advises that Mt Hawley is assigning the law firm of Torino & Bernstein to defend Vordonia, Trumbull and Alma in the Silver Action. In the letter, Mt Hawley disclaimed coverage to Trumbull as a named insured under the Mt Hawley Policy because the Building is not included as a covered location and Trumbull owned and occupied the Building, thus implicating the "Designated Ongoing Operations" exclusion for "Owned properties that are occupied." But, nevertheless, Mt Hawley recognized that Trumbull qualifies as an additional insured under the policy "with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you [Vordonia]," and that Alma qualified as both a named insured and as Trumbull's real estate manager. The letter does not reserve any right to deny coverage to Trumbull as an additional insured under the policy or to Alma in any capacity (see Gershweir aff, exhibit L).
On November 16, 2009, Celestino sued Trumbull, Alma, Vordonia and Valco, seeking damages for the personal injuries he sustained fighting the fire (the Celestino Action) (see Gershweir aff, exhibit M). Tower assigned counsel to this action, as did Mt Hawley who appeared for both Alma and Vordonia.
On December 1, 2009, Mt Hawley received from the counsel it assigned to defend Trumbull in the Silver Action, the first page of an October letter from Tower to Trumbull advising that Tower would be assigning counsel to defend Trumbull in the Fiduciary Action, thus effectively notifying Mt Hawley of that action (see Gershweir aff, exhibit P).
On July 6, 2010, Tower tendered coverage on behalf of Trumbull and Alma in connection with the Silver and Celestino Actions to Mt Hawley (see Gershweir aff, exhibit Q).
On July 13, 2010, Racanelli Development Group (Racanelli), a tenant of the Building, sued Trumbull, Alma and Vordonia to recover damages for property damage resulting from the fire (the Racanelli Action) (see Gershweir aff, exhibit R).
On August 17, 2010, Lexington Insurance Company, as subrogee of Vantage Management Services LLC (Vantage), another tenant of the Building, sued Trumbull, Alma, Vordonia and Valco, to recover the amount it paid Vantage, as its property insurer, for the damage to Vantage's property caused by the fire (the Lexington Action) (see Gershweir aff, exhibit S).
On September 3, 2010, Tower tendered coverage to Mt Hawley, on behalf of Trumbull and Alma, with respect to the Racanelli Action (see Gershweir aff, exhibit T).
On December 16, 2010, Mt Hawley responded to Tower's tender letters by repeating the position it took with respect to coverage for Trumbull and Alma in its September 18, 2009 coverage position letter, advising that it had assigned counsel to defend Trumbull, Alma and Vordonia in the Silver Action, and to defend Alma and Vordonia in the Celestino Action (see Gershweir aff, exhibit U). Mt Hawley requested additional information to assist in determining how to respond to Tower's tenders in connection with the Lexington and Racanelli Actions.
On March 23, 2011, Mt Hawley advised Tower that it would no longer defend Trumbull or Alma in any of the underlying actions of which it claimed to be aware - Silver, Celestino, Racanelli, Lexington (the Underlying Actions), based on a purported "conflict of interest." Mt Hawley explained the conflict:
"We have been advised that Tower provided both first-party property insurance and third-party liability insurance to Trumbull. As subrogee under the property policy, Tower is now prosecuting an action against Vordonia for those amounts Tower paid to Trumbull for damage arising from the fire. The action between Trumbull and Vordonia creates a conflict of interest that requires the withdrawal of counsel previously retained to jointly represent Trumbull, Vordonia, and Alma in the other suits arising from the fire. Mt Hawley will therefore direct counsel in those actions to withdraw. Mt Hawley will thereafter retain new defense counsel for Vordonia in those actions. Mt Hawley suggests that Tower retain separate defense counsel for Trumbull and Alma in each of those actions"
(see Gershweir aff, exhibit V).
Mt Hawley nevertheless continued to defend both Vordonia and Alma in the Celestino Action.
On April 21, 2011, Trumbull impleaded Vordonia into the Fiduciary Action (see Gershweir aff, exhibit W).
On June 17, 2011, Mt Hawley commenced a declaratory judgment action against Vordonia, Trumbull and Alma seeking a judgment declaring it has no duty to defend or indemnify them in the Underlying Actions based solely on their alleged failure to cooperate with Mt Hawley by allegedly failing to give Mt Hawley certain documents relevant to their defense in those actions (the Mt Hawley Action) (see Gershweir aff, exhibit X). Mt Hawley never prosecuted that action and continued to defend, and later indemnified, Vordonia in the Underlying Actions.
On June 21, 2011, Tower tendered coverage to Mt Hawley on behalf of Trumbull as respects the Fiduciary Action (see Gershweir aff, exhibit Y).
On June 29, 2011, Mt Hawley denied coverage to Trumbull in the Fiduciary Action, citing the fact that it had "previously disclaimed coverage for Trumbull in connection with all claims and suits arising from the November 22, 2008 fire at issue," and also citing Trumbull's alleged lack of cooperation as set forth in the Mt Hawley Action, as well as its alleged breach of the Mt Hawley Policy's notice conditions by failing to promptly notify Mt Hawley of the action (see Gershweir aff, exhibit Z). The letter also cites grounds to deny coverage of certain of the claims alleged in the complaint apart from the claim for alleged property damage caused by the fire.
Mt Hawley nevertheless defended Vordonia in the Fiduciary Action and was actively engaged in settlement negotiations.
On October 4, 2011, Tower, as Trumbull's subrogee, sued Vordonia, Valco and other parties to recover the amount it paid Trumbull, as its property insurer, for the damage to the Building and Trumbull's other property caused by the fire (the Tower Action) (see Gershweir aff, exhibit DD).
On November 14, 2011, CNA Valley Forge Insurance Company (CNA), as subrogee of Valco, sued Vordonia and others to recover the amount it paid Valco, as its property insurer, for the damage to Valco's property caused by the fire (the CNA Action) (see Gershweir aff, exhibit EE). By email dated February 10, 2012, Mt Hawley was advised of the CNA Action (see Gershweir aff, exhibit FF).
On April 16, 2012, NYC Sprinkler Systems Corp. (NY Sprinkler), a defendant in the CNA Action, impleaded Trumbull and Alma into that action (see Gershweir aff, exhibit GG). NYC Sprinkler, also a defendant in the Tower Action, impleaded Trumbull and Alma into that action by filing a Third-Party Summons and Complaint dated April 16, 2012 (see Gershweir aff, exhibit HH).
On November 16, 2012, Trumbull, Alma and Tower commenced this action seeking a judgment declaring that Mt Hawley must defend and indemnify Trumbull and Alma as insureds under the Mt Hawley Policy in the Underlying Actions and that its coverage under that policy is primary to the coverage under the Tower Policy and awarding Tower its costs defending and indemnifying it in the Underlying Actions. Issue was joined on February 28, 2013 (see Gershweir aff, exhibit TT). Thereafter, there was no further activity in this action until 2018.
By so-ordered Stipulation dated March 15, 2018, CastlePoint National Insurance Company (CastlePoint) was substituted for Tower as a plaintiff due to Tower's merger into CastlePoint.
Apart from the Celestino and Fiduciary Actions, in which it defended only Trumbull, Tower defended both Trumbull and Alma in the remaining Underlying Actions. Tower spent a total of $174,608.30 in legal fees and expenses defending Trumbull and Alma in the Underlying Actions, as follows: Silver Action ($70,654.30); Celestino Action ($13,133.01); Fiduciary Action ($45,738.70); Racanelli Action ($7,287.15); Lexington Action ($10,034.56); Tower Action ($10,404.42); CNA Action ($16,564.38).
On October 28, 2013, Tower settled the Celestino Action on behalf of Trumbull by issuing a check for $55,000. On August 22, 2014, Tower settled the Silver Action on behalf of Trumbull and Alma by issuing a check for $660,000.
Mt Hawley settled the following Underlying Actions on Vordonia's behalf (with amount and date of payment) for a total of $932,500: Celestino Action ($55,000 on November 8, 2013); Silver Action ($515,000 on September 8, 2014); Racanelli Action ($35,000 on October 22, 2014); Lexington Action ($150,000 on November 11, 2014); Tower Action ($37,500 on December 9, 2014); CNA Action ($135,000 on December 22, 2014); Quincy Mutual Fire Insurance Company, as subrogee of Stefanidis & Mironis, LLP ($5,000 on January 27, 2015). According to Mt Hawley, it has $67,500, of the $1 million in coverage, available for indemnity costs.
Mt Hawley also recovered $5,000 from Vordonia in each of these seven matters pursuant to the Mt Hawley Policy's "Deductible Liability Insurance" endorsement, for a total of $35,000 in recovery. Mt Hawley did not seek to recover under the endorsement for the Fiduciary Action, the one action in which it made no indemnity payment, despite having paid $4,662.25 in defense costs.
In mid-2018, Tower sent Mt Hawley Plaintiff's First Set of Interrogatories. In its response to the interrogatory requesting "whether Mt Hawley contends that the injuries and damage resulting from the Fire did not arise out of the ownership, maintenance or use of the portion of the Premises leased to Vordonia," Mt Hawley responded "that it does not so contend to the extent the question is directed to the scope of coverage under the additional insured endorsement at issue" (see Gershweir aff, exhibit P). Mt Hawley also stated in its interrogatory response that it disputed coverage for Trumbull as respects the Fiduciary Action for the reasons set forth in its June 29, 2011 disclaimer letter, i.e., including late notice, and as respects the CNA Action based on Trumbull and Alma's alleged "failure to provide notice of suit," i.e., the third-party action against them in that suit (id. ).
In its response to the Notice to Admit dated April 30, 2018, Mt Hawley admitted paying an aggregate of $932,500 to settle all claims arising out of the fire and recovering an aggregate of $35,000 ($5,000 per claim) in deductibles but contended that each deductible recovery was applied only to defense costs, not to indemnity payments (see Gershweir aff, exhibit KK).
Tower now moves for summary judgment in this declaratory judgment action, seeking a declaration that Mt Hawley breached it duty to defend and indemnify Trumbull and Alma under the Mt Hawley policy, that Mt Hawley has a duty to defend and indemnify Trumbull and Alma, an award of $102,500 to recover amounts paid by Tower on behalf of Trumbull and Alma in the Celestino and Silver Actions, and an award of $174,608.30 to recover the amount Tower spent to defendant Trumbull and Alma in the Underlying Actions.
Mt Hawley opposes Tower's motion and cross-moves for summary judgment declaring that it has no duty to reimburse Tower for the costs incurred for the defense and indemnity of Trumbull and Alma in the Underlying Actions, and for an order dismissing this action in its entirety.
Discussion
Duty to Defend and Indemnity
Tower argues that the Mt Hawley policy provides that the "Additional Insured — Managers or Lessors of Premises" endorsement covers "[t]he person or organization shown in the Schedule but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [Vordonia]." Tower argues, therefore, that Trumbull and Alma are additional insures under the Mt Hawley policy.
In opposition, Mt Hawley concedes that Trumbull is named as an additional insured under the Mt Hawley policy however, it argues that Tower, as insurer for both Trumbull and Alma, is estopped from pursuing this declaratory judgment action due to its delay in prosecuting this declaratory judgment action. Mt Hawley argues that Tower did not take any steps to prosecute this action from February 28, 2013, when Mt Hawley filed an answer, through November 15, 2016, when Tower filed an RJI. Mt Hawley argues that during those 3 ½ years, all the Underlying Actions were settled, so it closed its files, took down its reserves, and had its counsel close its file. Mt Hawley argues that it took these actions because Tower was not pursuing this declaratory judgment claim, and it had no reason to expect that Tower would reactivate this action seeking additional insured coverage. Thus, Mt Hawley argues that it has been prejudiced by Tower's delay in litigating this action.
Mt Hawley also argues that since Tower elected to exercise control of Trumbull and Alma's defense, and settlements, and did not pursue this declaratory judgment action, it cannot now, almost four years later, seek indemnification and a defense from Mt Hawley. Mt Hawley alleges that Tower only resurrected this action when on July 28, 2016, when the Superior Court of the State of California issued an order appointing the Insurance Commissioner of the State of California Conservator for Tower, and certain of its pre-merger entities. Those entities were placed in liquidation effective April 1, 2017, and it was during the conservatorship and liquidation proceedings, in late 2016, that Tower's counsel resumed prosecution of this action. Based on the foregoing, Mt Hawley argues that due to Tower's delay in pursuing this action and the resulting prejudice, Tower is barred by the doctrine of estoppel from pursuing this abandoned litigation.
Contrary to Mt Hawley's contentions, Tower is not estopped from pursuing this litigation. As an initial matter, the court notes that while both Tower and Mt Hawley settled all the Underlying Actions, neither of them took any action to discontinue or dismiss this action. At any time, Mt Hawley could have served Tower, pursuant to CPLR 3126 (b)(3), with a 90-day demand to resume prosecution and file a note of issue. Yet, it elected to close its file and take down its reserves without seeking dismissal of this action. Further, Mt Hawley could have, but did not, take any steps to prosecute its own declaratory judgment action seeking a declaration that it did not owe Trumbull or Alma a duty to defend or indemnify. Further, this action had not been marked off the calendar by the court when, in November 2016, Tower requested a preliminary conference. It is also important to note that Mt Hawley has participated in discovery and motion practice without raising this estoppel issue until it made this cross-motion to dismiss. Accordingly, the mere fact that this case stalled from February 2013 through November 2016 is not sufficient grounds to preclude Tower from pursuing this action.
With respect to Mt Hawley's claim that Tower is estopped from pursuing this action because it elected to control its own defense of Trumbull and Alma, by letter dated March 23, 2011, Mt Hawley informed Tower that it would no longer defend Trumbull and Alma (except that Mt Haley continued to defend Alma in the Cellestino Action). Therefore, Mt Hawley cannot now claim that Tower is estopped from seeking costs for defense and indemnity because Tower elected to control Trumbull's and Alma's defense. As of March 23, 2011, in view of Mt Hawley's rejection of Tower's tender, Tower had no choice but to control the defense of Trumbull and Alma. Moreover, Tower commenced this declaratory judgment action against Mt Hawley putting it on notice that Tower was challenging Mt Hawley's rejection of its tender. Thus, it cannot be argued that Mt Hawley did not have notice that, in Tower's view, Mt Hawley had wrongfully rejected its tender and that it was entitled to indemnification and a defense ( cf. Utica Mut. Ins. Co. v. 215 W. 91st Str. Corp. , 283 AD2d 421, 422–23 [1st Dept 2001] [sublessee's insurer who assumed defense of owner without asserting any policy defenses or reserving the right to deny coverage was estopped from denying coverage on the ground that owner's insurer was responsible for the defense] ).
Accordingly, there are no grounds upon which Mt Hawley can claim that Tower, on behalf of Trumbull and Alma, is estopped from prosecuting this declaratory judgment action.
Tower argues that, although Alma is not named as an additional insured under the Mt Hawley policy, it is nevertheless entitled to a defense and indemnification as Trumbull's managing agent. In opposition, Mt Hawley argues that Alma is not an additional insured under the Mt Hawley policy, and, therefore, it does not have a duty to defendant and indemnity Tower with respect to Alma. In support of this claim, Mt Hawley argues that only its insured's (Vordonia's) real estate manager is an additional insured under its policy.
Contrary to Mt Hawley's contentions, it owes Alma a duty to defendant and indemnify. Notably, Mt Hawley's Policy "Additional Insured — Managers or Lessors of Premises" endorsement, form CG 20 11 01 96, covers "the person or organization shown in the schedule but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [the insured]" (see Gershweir aff, exhibit B). Further, in its interrogatory response, Mt Hawley acknowledged that it is not arguing that the fire did not arise out of the out of the ownership, maintenance or use of the portion" of the Leased Premises (see Gershweir affirmation, exhibit B). The endorsement lists the address of Vordonia's Leased Premises where the fire occurred. Therefore, contrary Mt Hawley's contention, while Trumbull is named as additional insured under this endorsement, Alma, while not named as an additional insured, is a property manager and is also covered since the risk to be covered is the risk of the owner and maintainer of the premises leased by Vordonia ( see New York Cas. Ins. Co. v. Shaker Pine Inc. , 262 AD2d 735,736–37 [3d Dept 1999] ). The fact that Alma is not specifically named is not important, "[t]he name of the insured in the policy is not always important if the intent to cover the risk is clear" ( Matter of Lipshitz v. Hotel Charles , 226 App Div 839, 840 [3d Dept 1929], affd 252 NY 518 [1929] ; see Anand v. GA Ins. Co. of NY , 228 AD2d 397, 398–399 [2d Dept 1996] ; see also EL-AD 250 W. LLC v. Zurich Am. Ins. , 146 AD3d 677, 678 [1st Dept 2017] ). Interestingly, in its opposition to Tower's motion, Mt Hawley does not address Alma's coverage under this endorsement. Further, in its September 21, 2009 letter to Tower initially accepting Tower's tender, Mt Hawley stated that, under the its policy, Alma is entitled to coverage as Trumbull's real estate manager, and, therefore, agreed to defend Alma in the Silver Action (see Gershweir aff, exhibit L).
Moreover, it is important to note that, while in its March 23, 2011 letter Mt Hawley rescinded its defense of Trumbull and Alma due to a conflict of interest, Mt Hawley nevertheless continued to defend Alma in the Celestino Action. In fact, Mt Hawley settled the Celestino Action on Alma's behalf. Mt Hawley also acknowledges that when all the Underlying Actions were settled, it closed all of its files and took down its reserves. Further, Mt Hawley took no steps to prosecute its declaratory judgment action against Tower which sought a declaration that it did not have a duty to defend and indemnify Trumbull or Alma. By its own admission, Mt Hawley considered all matters related to the fire closed and resolved.
Accordingly, Mt Hawley cannot now argue that, although it defended Alma in the Celestino Action and settled the case on behalf of Alma, closed its files, took down its reserves, and told outside counsel to close its file, it nevertheless continued to reserve its right to dispute coverage with respect to Alma. It is clear that, with respect to the Cellestino Action, Mt Hawley acted in a manner consistent with acknowledging that Alma was an additional insured under the policy. Therefore, since the other Underlying Actions arise from the same facts as Celestino, Mt Hawley is estopped from denying coverage and a defense to Alma in those actions ( see generally City of New York v. State Ins. Fund Ins Co. of Am., 287 AD2d 394, 395 [1st Dept 2001] [defendant having covered this same claim on behalf of the City's co-insured defendant is now equitably estopped from denying coverage to the City] ).
Accordingly, Alma is entitled to indemnity and a defense under the Mt Hawley policy.
The Fiduciary Action
Tower only represented Trumbull in the Fiduciary Action and is seeking indemnity and a defense only on behalf Trumbull. In opposition, Mt Hawley argues that, even if it owes Tower indemnity and Trumbull a defense, Tower is estopped from seeking any reimbursement for the Fiduciary Action since Tower and/or Trumbull failed to provide it with timely notice of this claim.
On August 12, 2009, Fiduciary commenced a property damage action against Trumbull. Mt Hawley concedes that it received notice of the action on December 1, 2009, when the outside counsel Mt Hawley assigned to represent Trumbull in the Silver Action, sent Mt Hawley a copy of a letter from Tower to Trumbull referencing the Fiduciary Action (see Gershweir aff, exhibit P).
On June 21, 2011, Tower tendered coverage to Mt Hawley on behalf of Trumbull in the Fiduciary Action, and on June 29, 2011, Mt Hawley rejected the tender on the ground that, among other things, it had previously disclaimed coverage for Trumbull in connection with all claims arising from the November 22, 2008 fire and that Trumbull failed to provide it with a timely notice of the action (see Gershweir aff, exhibit Z).
However, by its own admission, Mt Hawley received notice of the Fiduciary claim on December 1, 2009, and by having received timely notice of claim, Mt Hawley is not entitled to disclaim coverage based on untimely notice of the action unless it was prejudiced by the late notice ( see American Tr. Ins. Co. v. B.O. Astra Mgt Co. , 39 AD3d 432, 432–33 [1st Dept 2007] ); see also Rekemeyer v. State Farm Mut. Auto. Ins. Co. , 4 NY3d 468, 476 [2005] ; Matter of Brandon [Nationwide Mut. Ins. Co.] , 97 NY2d 491, 498 [2002] ). Here, while there may have been late notice of the litigation, Mt Hawley has not stated how it was prejudiced by the late notice. Accordingly, Tower is entitled to indemnity and a defense in the Fiduciary Action.
The CNA Action
Tower is seeking indemnity and a defense on behalf of Trumbull and Alma for the CNA Action. Mt Hawley argues that, due to Tower's failure to timely notify it of the CNA Action, it owes no duty to defend or indemnify Trumbull or Alma. Contrary to Mt Hawley's argument, Tower is owed indemnity and defense costs for the CNA Action.
It is settled law that if an insurer issues a blanket denial of coverage with respect to a certain category of claims, it effectively denies liability—and waives the policy's notice requirements—for each claim that falls within that category ( see Texaco A/S Denmark v. Commercial Ins. Co of Newark N.J., 160 F3d 124, 129 [2d Cir 1998] ; see also H.S. Equities, Inc. v. Hartford Acc. & Indem. Co. , 661 F2d 264, 270—71 & n. 6 [2d Cir 1981] ; H.S. Equities, Inc. v. Hartford Acc. & Indem. Co. , 609 F 2d 669, 673 [2d Cir 1979] ).
In its March 23, 2011 letter, Mt Hawley blanketly denied any and all coverage to Trumbull and Alma for any claim arising from the fire. Nevertheless, on July 12, 2011, Mt Hawley received notice of the CNA claim, and on November 14, 2011, CNA sued Vordonia and other defendants including NYC Sprinkler. On April 16, 2012, NYC Sprinkler then impleaded Trumbull and Alma into that action (see Gershweir aff, exhibit GG). On October 1, 2012, Alma provided Mt Hawley with a copy of NYC Sprinkler's third-party complaint.
Regardless of the timeliness of the notice of the CNA Action, in view of Mt Hawley's blanket denial of coverage in its March 23, 2011 letter, it was not entitled to a notice of the CNA Action against Trumbull and Alma since the action was not commenced until after Mt Hawley's blanket denial of coverage.
Deductible Recovery
Tower acknowledges that Mt Hawley paid out $932,500 in settlement of all actions arising out of the fire, leaving $67,500 of its policy's $1,000,000 occurrence limit to reimburse any additional indemnity payments arising out of the fire. Tower argues, however, that there is an additional $35,000 available based upon Mt Hawley's recovery of seven $5,000 deductible payments from Vordonia in connection with the seven actions Mt Hawley settled on Vordonia's behalf. Tower claims that the deductible endorsement is ambiguous regarding how Mt Hawley is permitted to use the deductibles paid by Vordonia. When an insurance policy is ambiguous it should be interpreted in favor of the insured, Tower argues, and, thus, Tower should be allowed to recover an additional $35,000 in indemnity funds from Mt Hawley.
Mt Hawley argues that this is incorrect and notes that the Mt Hawley's policy's "Deductible Liability Insurance" endorsement states that a $5,000 per unit or pre-claim deductible applies and "includes costs and expenses" (see Gershweir aff, exhibit J). Therefore, Mt Hawley argues that it properly applied Vordonia's deductible payments to its defense costs and expenses. Mt Hawley argues that Vordonia's deductible payments do not replenish the $1 million indemnity limit of the policy.
Contrary to Tower's contentions, the deductible endorsement is not ambiguous ( cf. Selective Ins. Co. of Am. V County of Rensselaer , 26 NY3d 649, 657–58 [2016] ). The endorsement clearly states that the deductible "includes costs and expenses" (see Gershweir aff, exhibit J). There is no dispute that defense costs are "costs and expenses," not indemnity coverage, and as such, according to terms of the "Deductible Liability Coverage" endorsement of the policy, Mt Hawley was free to apply the deductible paid by Vordonia to its defense costs. Contrary to Tower's arguments, the $35,000 payment did not create additional indemnity funds available to it.
Prejudgment Interest
CPLR § 5001(a) requires an award of prejudgment interest as of right if a plaintiff receives his award "because of a breach of performance of a contract." However, it commits the matter of such interest to the discretion of the court when the "action [is] of an equitable nature" (id. ). Tower cites United States Fire Insurance Company v. Federal Insurance Company , 858 F2d 882, 887–889 (2d Cir 1988), for the proposition that, although an action for indemnification is one in equity, with respect to insurance coverage it is an action at law, and, therefore, an action more akin to a breach of contract action. In opposition, Mt Hawley argues that the award of prejudgment interest in the current action is in the discretion of the court, because a claim for indemnity is an action in equity.
In United States Fire Insurance Company, the court held that "an insurer's contribution action should be viewed as a type of contract action in which the successful plaintiff is entitled to predecision interest as a matter of right" ( id. at 888 ). The court set forth its reasoning, in part, as follows:
"[T]hough the recognition of a coinsurer's right of contribution, or partial indemnification, is an exercise of the court's equity powers, the contribution suit is nonetheless a quasi-contract action, which is an action at law. Thus, the court [ Aetna Casualty & Surety Co. v. Merchants Mutual Insurance Co. , 78 AD2d 176 (3d Dep't 1980) ], in recognizing a right of contribution, stated,
"[c]onceptually, implied indemnification finds its roots in the principles of equity. It is nothing short of simple fairness to recognize that ‘[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity’ ( Restatement, Restitution , § 76 ). To prevent unjust enrichment, courts have assumed the duty of placing the obligation where in equity it belongs,"
78 AD2d at 178 (quoting McDermott v. City of New York , 50 NY2d 211, 216—17 [1980] ); and the McDermott court noted that the vehicle through which the court remedies unjust enrichment is quasi contract. McDermott went on to observe that "quasi contract was a form adopted by common-law courts to incorporate the equitable principles of unjust enrichment. Thus, although remedies such as indemnity are derived from equitable notions, the action is and has been an action at law." 50 NY2d at 217 n. 2.
( United States Fire Insurance , 858 F2d at 888 ). The United States Fire Insurance court then awarded the plaintiff predecision interest to commence from the date it made its settlement payment. New York courts have awarded prejudgment interest in similar circumstances ( see Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Greenwich Ins. Co., 103 AD3d 473, 474 [1st Dept 2013] [insurer to pay insured's defense costs and interest — including prejudgment interest — when insurer unreasonably refused to defend insured] ).
In addition, the court in United States Fire Insurance reasoned that CPLR 5001 (a)'s language was "sufficiently broad enough to encompass an insurer's recovery of contribution" (id. at 888), and that the history of CPLR 5001 (a) "support the conclusion that a plaintiff who recovers under an implied contract was meant to recover predecision interest as a matter of law" (id. at 889).
Based on the persuasive reasoning of United States Fire Insurance , supra , and following Nat'l Union Fire Ins. Co. of Pittsburgh, PA, supra, this court concludes that Tower is entitled an award of prejudgment interest, including predecision interest. However, nowhere in its papers does Tower state from which date the interest should commence — so, it is not clear from when Tower expects the prejudgment interest to run, other than to state, "from date of payment." Tower did make several settlement payments between 2013 and 2014. Likewise, presumably it made payments to its counsel during that period. Yet, Tower does not state in its papers from when the prejudgment interest should commence with respect to the award of attorneys' fees. Notably, the precise amount of attorneys' fees owed has not been put before the court for calculation and determination.
The court takes into consideration that Tower did not pursue this matter in court from February 2013 to November 2016, and, therefore, will not reward Tower for allowing the case to languish. That would not be equitable. Thus, the court will exercise its discretion in determining from when the pre-judgment interest should run. In the court's view, prejudgment interest should begin to run on November 15, 2016 — the first date after settlement payments were made on which it can fairly be said that Tower took affirmative steps to advance this litigation in formal court proceedings.
Accordingly, it is
ORDERED that the motion of plaintiff for summary judgment on its first cause of action seeking a declaration that Mt Hawley has a duty to defend Trumbull and Alma and indemnify Tower in the Underlying Actions is granted, and Tower is awarded $67,500 on its indemnity claims; and it is further
ORDERED that the motion of plaintiff for summary judgment on its second cause of action seeking a declaration that Tower's policy is excess to Mt Hawley's policy is granted; and it is further
ORDERED that the motion of plaintiff for summary judgment on its third cause of action is granted to the extent to directing Tower to submit a detailed request for reimbursement for costs and fees within 30 days of the date of this order, and Mt Hawley's objection, if in any, within 30 days thereafter; and it is further
ORDERED that Tower is entitled to and shall be awarded predecision interest, pursuant to CPLR 5001 (a), at the rate of nine percent per annum from the date of November 15, 2016 through and including the date of this amended decision and order: and it is further
ORDERED that Tower is entitled to and shall be awarded post-decision prejudgment interest, pursuant to CPLR 5002, at the statutory rate from the date of this amended decision and order to the date of entry of final judgment; and it is further
ORDERED that the Clerk is respectfully directed to enter judgment accordingly; and it is further
ORDERED that the cross motion of defendant for summary judgment dismissing this action is denied.